The Relationship of Homeownership, House Prices, and Child Well-Being

In the fourth quarter of 2012, the homeownership rate in the United States was 65.4 percent for all households. For the groups most likely to have children, the ownership rate was substantially lower, ranging from 21.9 percent for households under age 25, to 34.9 percent for those ages 25 to 29, to 48.6 percent for those ages 30 to 34, and to 60.4 percent for those ages 35 to 44.Improving child outcomes is important for parents and society. These outcomes include high cognitive abilities, positive behaviors, graduating from high school and attaining additional education, earning high wages, and achieving other positive economic and social outcomes as young adults. The question of whether homeownership affects child well-being is thus important for understanding child outcomes and determining which public policies could be effective in improving outcomes.Many studies have examined the determinants of homeownership. Economic factors known to positively influence the probability of a household being a homeowner include greater household wealth and permanent income, lower costs of owning (interest rates, property taxes, and transaction costs), greater expected returns on housing as an investment, and higher rental costs (the alternative to owning). Annualized transaction costs are lower the longer a household plans to remain in the dwelling; thus, households that expect to be geographically stable tend to be homeowners. Demographic factors such as marriage increase the likelihood of owning. In addition, it is likely that unobserved household characteristics, perhaps a desire to attain the "American Dream," increase the probability of a household becoming a homeowner.The major difficulty in determining whether homeownership causes improved child well-being is that many items in the list of factors that increase the likelihood of homeownership also are likely to improve child outcomes. For example, greater wealth permits greater investment in children and also access to better school quality. Greater household stability is more likely for homeowners than for renters and also has been shown to improve schooling outcomes. Owned dwellings are larger than rented dwellings, and the increased amount of space per child has been shown to positively affect child outcomes. Some of the difficult-to-observe household characteristics that increase the likelihood of homeownership are also likely to positively affect child outcomes. These confounding factors must be measured and controlled for in a statistical analysis of child outcomes before any conclusions can be drawn about the causal effect of homeownership.Another difficulty in establishing a causal linkage between homeownership and child outcomes is theoretically identifying a causal mechanism and then showing that the mechanism is present in U.S. society. Why might homeownership cause better child outcomes? One plausible reason is that homeowners maintain their properties better than landlords or renters. An important aspect of maintenance for older properties is lead paint abatement. Homeowners have a direct incentive to engage in optimal abatement, whereas the incentives for landlords and renters are less clear. Furthermore, it is well established that lead in the home environment negatively affects children's cognition and behaviors. This is only one example of a mechanism that would link homeowner-ship to improved child well-being. The literature identifies few linkages, however, and rarely tests for their effect.The conclusion of the previous arguments is that it is challenging for empirical work to link homeownership and improved child outcomes. Even so, empirical studies attempt to address the previous problems. Haurin, Parcel, and Haurin (2002) studied child cognition and behavioral outcomes using a multiyear panel dataset that contains extensive information about a child's parents and their socioeconomic situations, thus controlling for a large number of confounding factors. …