Is Homeownership the Solution to Wealth Inequality?

Homeownership presents an opportunity to accumulate wealth, making it an appealing vehicle for reducing wealth inequality. In this Economic Commentary, Cleveland Fed researchers Daniel Carroll and Ross Cohen-Kristiansen show that the benefits and risks of homeownership are not distributed uniformly across households: The benefits tend to favor those with higher incomes, while the risks tend to be more severe for those with lower incomes.

“Given this unequal balance of benefit and risk, we advise caution in regard to promoting homeownership as a measure to combat wealth inequality,” say the researchers.

Their study focuses on the investment aspect of housing by discussing some benefits and risks surrounding homeownership, comparing the performance of housing to other assets such as stocks and bonds, and assessing the efficacy of homeownership incentives for reducing wealth inequality. They note that homeownership for low-income homeowners carries three types of risk that are higher for them than for high income homeowners: location, timing, and liquidity.

Read more: Evaluating Homeownership as the Solution to Wealth Inequality

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The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

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Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.218.1892