Are Low-Income Families Better Off Renting?

Many low-income families will not benefit from buying a home at today's inflated prices and would be much better off renting, according to an economist who believes some markets will see substantial price declines in the years ahead.In a new paper, Center for Economic and Policy Research co-director Dean Baker points out that low-income homebuyers do not benefit from the tax deduction for mortgage interest and that the median duration of homeownership for low-income families is less than four years. "Finally, the recent run-up in prices makes it unlikely that low-income homebuyers will see capital gains on their homes in many bubble inflated markets, and may suffer substantial losses," according to his paper, "Who's Dreaming?: Homeownership Among Low Income Families." Even if house prices continue to rise in step with inflation, the paper shows that low-income buyers would lose (relative to renting) an amount equal to 25% of their total rent if they have to sell in four years. Mr. Baker presented his paper at Washington forum in which consumer and low-income housing advocates are urging the Bush administration to take a more balanced approach toward affordable rental housing, instead of focusing so heavily on homeownership.