Clinton, Bush Wealth-Gap Focus Misses Americans’ Biggest Asset

Future Generations

The 30-year mortgage hasn’t worked well for lower-income families because it takes too long for them to build equity, said Edward Pinto, a resident fellow at the American Enterprise Institute. And homes in the bottom third of the market have appreciated below the rate of inflation in many cities, including Atlanta and Cleveland, since 1996.

“House-price appreciation isn’t reliable,” said Pinto, who’s promoting a 15-year mortgage to allow owners to build wealth more quickly. “You combine that with a 30-year loan and you’ve got the cards stacked against you.”

Research shows that the influence of possessing property stretches into future generations, helping determine everything from graduation to pregnancy rates. A New York Federal Reserve study in 2003 found that homeownership in an impoverished neighborhood may increase high-school graduation by about 10 percentage points.

College Enrollment

University of Southern California professor Richard Green found that kids of homeowners are less likely to get pregnant at a young age, have better cognition and fewer behavioral problems, according to his 2013 paper published by the U.S. Department of Housing and Urban Development.

A December 2014 study by Federal Reserve Bank of Boston examined the influence of rising home prices on children of owners compared with renters. As values increase, owners have more resources, which leads to higher college enrollment rates for their 19 year-old children.

A 1-percentage-point gain in prices when children of homeowners are 17 years old results in roughly a 0.9 percent higher annual income for them. That compares with an income drop of 1.5 percent for the kids of renters.

While homeowners gain wealth, renters are losing it. Families that owned homes had median assets of $298,900 in 2013, 8.4 percent higher than 1998, according to Federal Reserve surveys. Renters had median assets of just $13,400, a decline of 20 percent from 1998.

Student Debt

The gulf will continue to widen as more families do without the asset that provides the surest means to build wealth, said Tom Shapiro, director of the Institute on Assets and Social Policy at Brandeis University in Waltham, Massachusetts.

“Inequality is going to get worse,” said Shapiro. “As access to homeownership goes down, families in the middle have less structured opportunity for savings and for home equity,” he said.

DeSmet, who rents a farmhouse 10 miles from Montpelier, the Vermont capital, said he has too much student debt to get a mortgage. With $180,000 in loans from law school, his monthly payments of $1,200 are almost half his after-tax income.

DeSmet gets a reduction on rent for cutting the grass and pruning old apple trees on the 20-acre lot. He has a vegetable garden behind the house where he grows beans, peas, peppers, onions and tomatoes. He wishes he was tending his own land.

“I would have an energy-efficient, small house with a garden,” he said. “It’s one of those things I try not to think about.”