ABSTRACT

The purpose of this chapter is to examine the factors that influence homeownership rates. We compare homeownernship rates across OECD countries through time and review relevant explanatory variables. We find that demographic characteristics such as age and marriage rates, residential mobility, and urbanization affect homeownership rates. These demographic characteristics will be important for how homeownership rates evolve in coming years.

Despite homeownership rates being substantially driven by demographic characteristics that governments have little control over, most OECD governments have been interested in increasing homeownership rates through public policy. Thus, OECD governments have designed policies intended to boost homeownership through tax and transfer schemes of various types, for example, tax credits, tax deductions, grants or loans, and guarantees on mortgage debt. We examine these policies and conclude that these policies have not always had their intended effects. For example, the Mortgage Interest Deduction (MID) in the U.S. has been a popular tax policy intended to increase homeownership, yet research regularly finds that it has had a minimal or even negative effect on the homeownership rate. Instead, evidence suggests that the MID has regressively redistributed, caused overinvestment in housing, and inflated home prices. In other cases, governments have inadvertently influenced homeownership rates through public policy. Legal frameworks and government social spending seem to affect homeownership rates; for example, increased government social spending is associated with lower homeownership rates.

We conclude that in some cases government-produced barriers to homeownership, such as transfer and registration fees, could be reduced to increase homeownership rates. However, new policies to increase homeownership rates should be undertaken cautiously as many homeownership initiatives have only been somewhat effective, very costly, or leading to adverse consequences such as the MID.