The Effect of Household Debt and Wealth on Subsequent Housing Tenure Choice

Abstract

The purchase of a home is the largest investment made by most American families, and home equity is the largest component of family wealth. Scholars have long documented the social and economic merits of homeownership and explored the factors that influence access to it. However, despite the abundance of literature on homeownership and housing tenure choice, we lack a study that focuses on whether and how debt and wealth influence a household’s decision to own or rent a home. Using 2004 and 2008 panel data from the Survey of Income and Program Participation (SIPP), this study attempts to identify the causal effect of household debt and wealth on a household’s decision to change tenure choice by examining what factors influence transition from homeowner to renter or from renter to homeowner. Data analysis shows that household secured debt, household wealth, and household income play a significant role in household’s change in tenure choice. While race is not a significant factor influencing the likelihood of a homeowner transitioning to a renter, it was a significant factor for a renter transitioning to a homeowner. Minority renters are significantly less likely to become homeowners compared with white renters, even when controlling for wealth and debt.