An inconvenient truth about homeownership: Column

Homeownership is tightly wrapped into America's DNA. We are a nation founded on the idea of homeownership for all, where Thomas Jefferson himself sang the virtues of a democracy based on a citizenry of small landowners.

Over the years, the prototypical modest home with a white picket fence has become the defining image of the American Dream. Almost every leader since Jefferson has tried to get more Americans into homeownership, particularly lower-income Americans, making it a truly bipartisan cause.

There's a lot of wisdom in this emphasis on homeownership. Especially in this era of increasing inequality, homeownership can act as the great equalizer. For lower-income Americans, paying down a mortgage acts as a kind of forced savings plan. Homeownership encourages neighborhood stability, and property taxes create a foundation for community growth. For many families, a home, or profit from the sale of a home, represents the largest source of wealth passed from generation to generation.

But the limits of this wisdom were tested during the last housing boom, when the homeownership rate was pushed to almost 70% before plummeting as we worked through the bust. The homeownership rate is falling largely because of an inconvenient, truth: While they might feel good, policies aimed at decreasing inequality by increasing homeownership often achieve the opposite.

It's sometimes easy to forget, but buying a home is a gamble that we will want and be able to continue living in one place for many years. But lower-income Americans sometimes can't afford that gamble. When circumstances throw these homeowners a curveball — a sick child or loss of a job — they often don't have the flexibility to both deal with the crisis and keep up with the mortgage.

The results can be even more disastrous when rapid home value declines cause borrowers to slide into negative equity, particularly at the lower end of the market where negative equity is more concentrated. Every time a low-income homeowner writes a check to pay off a home that's worth less than they paid, their already tenuous financial security takes a hit. They wind up trapped in a home they can't sell. What was supposed to secure their financial future ends up destroying it.

And in less-affluent neighborhoods, even for those who maintain homeownership, housing returns tend to be lower and more volatile than in more established, higher-income communities. In other words, home buyers in poorer neighborhoods — frequently helped both morally and materially through state, local or federal programs — are often being encouraged to make bad investments.

Finally, sadly, this conversation does have a racial component. Residents living in less-affluent communities often don't look like residents of more well-to-do neighborhoods. They're far more likely to be people of color. And while the exact causes remain frustratingly unclear, it is proven that home values in largely black and Hispanic neighborhoods both fell fartherduring the housing crash and have farther to go before fully recovering.

All this leaves us with a conundrum: Overall, homeownership is a tremendous boost to millions. But in some specific cases, it simply does not deliver as advertised. Depending on circumstances, homeownership is not for everyone. And our steadfast belief that homeownership is always the better option has led us to worry less about the one-third of Americans that rent,leading to a crisis in affordable rental housing.

Please don't get me wrong. None of this is to say that lower-income Americans should not aspire to homeownership, nor be given opportunities to access its tremendous benefits. But we also need to be steely-eyed about the realities and foster a wider diversity of options on housing, crafting innovative solutions that address the reality we face, not the one we imagine.

If we truly believed this, we could do different things. We could focus on the creation and maintenance of more affordable rental housing. We could find innovative new ways to build wealth, aside from homeownership. Given the prevalence of single-family rentals in the aftermath of the recession, we could explore the feasibility of renting-to-own on a wider scale. We could narrow and sharpen our focus on addressing the fundamental sources of inequality that drive differences in homeownership in the first place.

We are living in a period of creativity, flexibility and technological advancement virtually unparalleled in American history. It's time we harnessed these forces and thought more creatively about housing, too.

The American Dream depends on it.

Stan Humphries is the chief economist of Zillow, and co-author ofZillow Talk: The New Rules of Real Estate.

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