Joint Center for Housing Studies

Using data from the 1998 Survey of Consumer Finances (SCF), this paper estimates homeownership rates that would prevail in the United States if borrowing constraints were eliminated. These estimates are obtained by first identifying a group of unconstrained households in the SCF based on a unique set of survey questions. Housing tenure preferences are then estimated over unconstrained households controlling for sample selection effects, and results are used to forecast owner-occupancy rates that would prevail in the absence of borrowing constraints. If all borrowing constraints were removed, ceteris paribus, the owneroccupancy rate among non-farm families in the United States would increase just over four percentage points. In contrast, borrowing constraints have a comparatively small effect on the percentage of current renters who expect to own a home in the next 10 years. This pattern suggests that borrowing constraints depress owner-occupancy rates primarily by delaying homeownership rather than permanently excluding families from owner-occupied housing. Additional analysis confirms that household social and financial stability, ability to care for a property, and wealth are all very important determinants of whether families prefer to own. On balance, therefore, evidence suggests that there is room for further relaxation of borrowing constraints to expand access to homeownership. However, such efforts are likely to be more fruitful if attention is given to mortgage products that alleviate borrowing constraints in the early years of the mortgage and if mortgage product innovation is coupled with policies designed to enhance the social and financial stability of families.