How to help the poor buy homes

By Felix Salmon
August 6, 2009
attacked NYU's Dalton Conley twice for his op-ed saying that the US government should ramp up its efforts to promote homeownership among the poor. But the truth is that they're both right about a lot of things.

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Joe Weisenthal has attacked NYU’s Dalton Conley twice for his op-ed saying that the US government should ramp up its efforts to promote homeownership among the poor. But the truth is that they’re both right about a lot of things.

Certainly homeownership in general is not the unalloyed good that Conley makes it out to be. It increases unemployment, for one thing, and as homeownership rises it has a concomitant deleterious effect on the lives of those people who don’t own their own homes — it essentially ghettoizes renters.

That said, homeownership is a good thing under certain conditions: if poor people buy homes in their own neighborhoods, with mortgages which cost them less than they were paying in rent, then pretty much everybody wins. And it’s largely that kind of situation which Conley is talking about when he brings up the example of Self-Help, in North Carolina.

Weisenthal is right though that programs such as Self-Help’s are difficult to scale. The best way to encourage them is through grants from the CDFI fund, which targets money at precisely those not-for-profit financial institutions which have proved themselves able to underwrite loans to America’s poor in a responsible and sustainable manner. That kind of underwriting is not easy, and it’s labor-intensive, and it requires having deep roots in the local community. In other words, it’s particularly ill-suited to being rolled out as a stand-alone federal program.

Dalton is right that in certain hard-hit areas of the country, the conditions are ripe for community lenders to help poorer Americans buy their first homes and thereby help to (re)build their communities. But let’s do this in a bottom-up manner, rather than implement yet another enormous federal scheme.


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I know that this sounds silly, but wouldn’t it be better to help low income people buy houses when prices have declined?

Also, Daniel Little has an interesting post that mentions home ownership:  /2009/07/wealth-inequality.html

Of course, I support providing a 20% Down Payment for low income people that have a good chance of meeting the payment obligations on the remaining amount. That might be too complex. It certainly means seriously assessing the help being provided.

In order to copy / mimic the Self-Help model, one would also need the leadership qualities of a Martin Eakes to be copied as well. Difficult to do both.

Posted by Griff | Report as abusive

But is there anywhere today where owning is cheaper than renting? Other than cities with declining populations like Detroit or Flint where owning a home is an anchor that keeps you from moving to somewhere with jobs? Vegas and Florida, maybe.

Here in Seattle, even at 4.5% interest, prices would need to fall another 30%+ before you could hit rental break-even with a 3% down payment. I’ve got a six-figure down payment saved up, and PITI to “own” housing equivalent to my rental (~1300sq ft 2 bdr condo) would still be 40% more, monthly, than my rent, even after 20% price drops from the peak.

This discussion is pointless until home prices fall much farther nationwide on a price/rent and price/income ratio basis.

Posted by Brad | Report as abusive

‘ghettoizes’ – word of the year

Posted by dvictr | Report as abusive