Student debt holders and minorities tend to purchase lower-priced homes, leading to lost wealth accumulation over time, according to a new working paper, “Mind the Gap: Home Price Differences By Race and Student Debt.” The research, which evaluates purchase price differences among home buyers from January 2014 to December 2017, was conducted by Jessica Lautz, vice president of demographics and behavioral insights at the National Association of REALTORS®, and Michael White, a professor with Nottingham Trent University and director of the Centre of the Built Environment.
In the study, Lautz and White found that buyers who had student debt tended to purchase homes that were 18.8% less than those without student debt. Hispanic and Black Americans purchased homes that were 11.2% and 10.6% less expensive, respectively, than white Americans. The study controlled for household income, home size, location, and down payment assistance from family.
The authors say there are long-term implications to this purchase price gap—one that could stretch even across generations in time.
“The current housing affordability crisis has only exacerbated the homeownership gap by race and especially among those with student debt,” Lautz says. “Without policy intervention the homeownership gap will only continue. Unfortunately, the homeownership gap is not only one snapshot in time, but contributes to lost family wealth, which persists into future generations.”
Homeownership has long been considered one of the best ways to build wealth over the long term. Buyers who purchased lower priced homes than other buyers are more likely to be impacted by housing affordability constraints and later on could lose out on wealth accumulation, the authors note. This could create a “cycle of lost wealth.”
Student debt holders face the largest home purchase price differences. “The housing shortage is most likely to impact entry-level buyers who may be priced out of the home buying market, facing a need to move to a rural area with fewer job prospects, which limits the ability to pay off debt,” the authors note. “If they enter the housing market, student debt holders purchase homes at a price point that may never catch up to their peers through wealth accumulation through housing.”
Lautz and White’s paper suggests several policy steps to take to help mitigate this loss in the homeownership gap. Their recommendations include greater financial literacy to understand the benefits of homeownership and potential wealth gains from it. They also recommend refinancing student loans, expanding mortgage financing through alternative credit scoring models, and raising public awareness of low down payment programs.
Read the full working paper: “Mind the Gap: Home Price Differences by Race and Student Debt.”