Consumption and Economic Security
A Two-Stage Conceptualization of Sustainable Homeownership in the United States
Ren Chunhui (Lingnan University)
This study reveals a built-in contradiction of capitalist housing markets by conceptualizing homeownership as a special commodity, the consumption of which involves two separate stages of conflicting purposes: limited financial resources are fought over in the consumption of mortgage products (to obtain homeownership) and the enhancement of household economic security (to sustain homeownership). It is the latter stage that determines the long-term prospect of sustainable homeownership.
Homeownership in the United States has been viewed as a market commodity, and its consumption, like that of any other commodity, depends on consumers’ needs and the availability of resources to address the needs. An American tradition, therefore, tends to treat homeownership issues fundamentally as a matter of insufficient financial resources. This classical view underplays homeownership’s one unique feature: its consumption is not instant but often lasts for decades. That is, to realize the consumption purpose (i.e., homeownership-related benefits), it takes not only the obtainment of homeownership, but sustaining it over time.
This study conceptualizes homeownership as a two-stage longitudinal process. Stage one is homeownership entry, wherein household financial resources transform into mortgage consumption to become homeowners. Stage two is homeownership retention, wherein financial resources are also needed for household economic security to sustain homeownership-related costs (as well as financial burdens in other aspects of life). Based on this two-stage conceptualization, I argue that when financial resources are institutionally incentivized in mortgage consumption, American households’ economic security is undermined, thus weakening their ability to sustain homeownership over time.
For an empirical verification, income is used as a consumption qualifier, which is expected to play a crucial role in homeownership entry. The retention side of homeownership, at the second stage, is expected to rest on liquid wealth (e.g., savings and other liquid assets), which serves as an indicator for economic security. Based on data from the Panel Study of Income Dynamics (PSID), I identify a set of first-time renters (i.e., those who just left parental homes as renters) and a set of first-time owners (i.e., the renters who became homeowners for the first time). By tracing their respective longitudinal trajectories in housing tenure status, I record and explore two types of changes: (1) odds of homeownership entry – renters’ chances of becoming homeowners and (2) odds of homeownership exit – owners’ chances of going back to renting (Figure 1).
Figure 1. Cumulative Hazard Functions Over Time (years), Homeownership Entry vs Homeownership Exit, by Income and Liquid Wealth
The two charts of the left column, which portray the (covariate adjusted) cumulative odds of homeownership entry (i.e., the changing probabilities of renters becoming homeowners), demonstrate that higher-income renters have significant advantages over their lower-income peers – namely, that income matters for homeownership entry. The two charts of the right column, which portray the (covariate adjusted) cumulative odds of homeownership exit (i.e., the changing probabilities of homeowners going back to renting), demonstrate that income does not matter, and the homeowners exhibiting lower risks of exiting are those with more liquid wealth. Thus, a pattern is confirmed that income serves as a key qualifier for homeownership entry (mortgage consumption), but once ownership status is obtained, it is liquid wealth (economic security) that determines the homeowners’ ability to sustain it over time.
These findings carry an important implication: when financial resources are institutionally incentivized into mortgage consumption, as opposed to household economic security, homeownership vulnerability is inevitable. Whereas the issue is widely recognized, policy attention mostly adheres to an income-consumption scheme. Take the Covid-19 crisis for example. Record numbers of American homeowners were facing mortgage pressure and the only federal assistance available was a relief payment of typically less than $2,000 (in addition to a moratorium on foreclosure). This consumption-oriented solution fails to address the root of the problem. Vulnerable homeownership is fundamentally tied to the U.S. economic system, in which incentives are structured to maximize the flow of financial resources into the consumption of homeownership-related goods and services. Eventually, it is the homeowning families, and taxpayers in the case of a system collapse, who are expected to assume the risk of insuring against uncertainty.
Seeking to avoid radical systemic changes, I embrace the asset-building approach as a practical solution. After all, it is not income but liquid wealth that helps strengthen household economic security and reduces the risk of homeownership failure. As such, the findings of this study can be connected to a long-debated proposal for welfare reform, which aims to substitute an asset-oriented agenda for the existing income-oriented one. The experimental policy idea of Child Development Accounts (CDAs) offers a good example. CDAs receive deposits from public and private matching funds and, when the child reaches adulthood, will be made available for targeted purposes (e.g., post-secondary education and homeownership). With successful local demonstrations, multiple proposals of CDA variations have been discussed at the federal level. While these proposals vary in specific focuses, they share the same founding principle – addressing institutionalized economic problems requires an institutionalized economic security.
Chunhui Ren is an assistant professor at the Department of Sociology & Social Policy at Lingnan University and a faculty associate at the Center for Social Development at Washington University in St. Louis, USA. He has been conducting multiple research projects on labor- and housing-market dynamics in the context of the United States and China. His works have appeared in such journals as Demography, Social Forces, Social Science Research, and Journal of Urban Affairs.