Barclays today released the eighth edition of its Impact Series entitled, “Housing finance reform: Addressing a growing divide.” The research report examines how the rise in income inequality exerts downward pressure on homeownership. While government support may have the effect of encouraging better-off households to purchase larger, more expensive houses, Barclays’ independent research indicates that affordability targets have acted as a buffer against widening levels of income inequality.
The report’s analysis finds that regulators’ affordability targets, which were first imposed on the two largest mortgage-finance companies in 1992, have tempered the negative impact of income inequality by as much as 60%. This has allowed the US to achieve similar levels of homeownership to other developed countries, despite higher levels of income inequality. Data further suggests that underrepresented and minority households in particular have benefitted from the policies, even as affordability targets have fallen in recent years.
“From a housing policy perspective, this does not translate into support for the status quo,” says Jeff Meli, Global Head of Research and lead author of the report. “Many interventions in the housing market should be reviewed and may be unnecessary, and we cannot ignore the lessons from the financial crisis. But as we consider options for reform now, amidst both a pandemic that is likely to further raise income inequality, and a heightened awareness of racial and social justice reforms, we believe that low income and minority populations face risks to homeownership through any reform of housing finance that cannot be ignored.”
This report adds to a rich and existing body of research contributing to the wider public discussion around considerations when reforming the post-2008 US mortgage finance system.
The Impact Series uses data-driven analysis to explore the social impact of economic, demographic and disruptive changes affecting markets, sectors and society at large. The key findings of today’s report include:
- Higher income inequality is strongly associated with lower homeownership, implying that the increase in inequality has exerted significant downward pressure on US homeownership.
- Affordability targets introduced by the 1992 GSE Act helped reduce the negative impact of income inequality on homeownership by between 40% and 60%, and also helped the US maintain high homeownership rates.
- The negative effects of income inequality on homeownership accrue disproportionately to Black residents. The negative effect of income inequality on homeownership is 2.4 times higher in the states with the highest Black populations than in states with the lowest Black populations, and these same states benefited the most from the introduction of affordability targets.
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