Benefits of Buying a Home

For those of you who like research and empirical proof, read on for some very interesting information….for the more practical home buyers among you, if you skip to the bottom of the page you can sign up for a Great Home Buyer Course that will give you loads of practical knowledge — OR go directly to the search page and search or sign up to get homes delivered to your email that match your wants and needs. 

Benefits of Buying a Home

Rather than expounding on widely held notions, we decided to present you some of the empirical data found by the US Dept of Housing and Urban Development (HUD).  If you are not interested in all the details, we have bolded the headlines so you can skim this material.  If you are interested in reading the whole report, you will find the URL below. 

We have included the 4 main benefits for home ownership they presented along with some of the evidence they present to defend their claims.  You will see we directly quoted from the document in several places. 

Urban Policy Brief, Number 2
August 1995

1) Homeownership and Wealth Accumulation

“Purchasing a home is the largest investment that most families will ever make. Homeownership has been called a “forced savings plan” in that an owner-occupant’s payments on mortgage principal are retained as equity in a comparatively illiquid asset.  Wealth is accumulated to the extent that the constant-dollar value of the owner’s equity exceeds any decline in the home’s value.

But accrued equity is only one potential financial benefit of homeownership. Buying a home with a mortgage is a leveraged investment: even though only a small part of the purchase price is paid

as a down payment, the buyer controls all appreciation in the value of the property and absorbs any loss in value as well. General trend data on housing prices confirm that owner-occupied homes have performed well as long-term investments. Real prices for the median-priced home increased by a total of 41 percent between 1960 and 1989. Even the lowest-priced houses increased in value by almost 30 percent. “

2) Homeownership and Tax advantages

Another quote from the same document is helpful groundwork for understanding some of the tax implications.  We have also given you the links to the IRS documents which explain the tax benefits to home buying so that you can completely understand these benefits. 

“Homeowners also enjoy important tax advantages. The value and distribution of Federal tax preferences for homeownership, such as the deductibility of property taxes and mortgage interest and the one-time exclusion of capital gains, are currently a matter of contentious debate. It is estimated that three-fourths of the $100 billion foregone in Federal tax revenues in 1994 due to these preferences will benefit the wealthiest 20 percent of all households. However, some economists reply that the comparative benefit would show a tilt toward less affluent owners if these calculations included the advantage that owner-occupants enjoy over landlords by not being taxed on the return on investment they receive by essentially renting to themselves.

Thus the economic evidence is clear in affirming that homeownership is a good investment that increases wealth for families of all races and incomes.”

IRS Home-related Forms & Publications

Form 1098 – Mortgage Interest Statement

Form 1098 Instructions

Form 8396 – Mortgage Interest Credit

Form 8829 – Expenses for Business Use of Your Home

Form 8829 Instructions

Publication 523 – Selling Your Home

Publication 530 – Tax Information for First-Time Homeowners

Publication 587 – Business Use of Your Home

Publication 936 – Home Mortgage Interest Deduction

3) Homeownership and Neighborhood Stability

“One of the most persistent claims made for homeownership is that owners have a greater economic and emotional stake in their community and thus are more likely than renters to act in ways that maintain and strengthen that community. While there is a rich sociological literature on the social and political life of communities, it concentrates on the importance of factors such as age, sex, income, presence of children, and residents’ attitudes about their neighbors and neighborhood. However, several studies have considered the possible correlation between tenure choice and:

In a seemingly direct sense, neighborhood stability means that residents are less likely to move away. Home buying is frequently viewed as signifying a family’s commitment to remain in the community. Numerous studies have consistently shown that homeowners are less likely to move than renters, and that neighborhoods of owner-occupants have lower residential turnover, even after accounting for life cycle factors and housing characteristics. However, as Rohe and Stewart point out, factors such as lower incomes, which are also associated with length of residence among homeowners, “may have mitigating effects on overall neighborhood health, especially in the long run.”

It is thought that homeowners, unlike more transient renters, will more readily forge the informal social and mutual support relationships that foster close-knit, nurturing communities. In fact, several studies have found evidence that homeownership is positively associated with higher levels of neighboring. Overall, however, research on this topic has yielded decidedly mixed results, with some scholars finding no significant differences in neighboring behaviors and at least one study of three British towns showing that renters actually had more friends in their neighborhood. However, none of these studies can establish whether homeownership in itself causes changes in neighboring.

Advocates frequently explain their support for homeownership programs by asserting that such efforts promote improved neighborhood housing conditions and enhanced home values: owner-occupants are more likely than absentee landlords or their tenants to maintain and improve their properties. Research conducted by Galster affirms this belief. After controlling for a series of structural, household, and neighborhood characteristics, owner-occupants spent more on maintenance, were less likely to defer repairs, and reported fewer housing problems. The contrast in maintenance efforts was “especially strong when comparing low-income households,” suggesting that increasing ownership among such families could have a marked effect on neighborhood housing conditions.

Beginning with Jane Jacobs, both scholarly and popular commentators have observed that the dynamics of stable neighborhoods seem to deter crime. Strangers are recognizable and residents, by the everyday acts of watching and using their surroundings, discourage illicit activity. Architect Oscar Newman has postulated that physical design features which assert this territoriality by demarcating and allocating space as semi-private can make the area more “defensible.” Under this theory, neighborhoods of detached homes, where outside space is identified with a single family, are inherently safer than high-rise apartment blocks. Substantial research confirms that neighborhoods of single-family homes in good repair, both traits associated with owner-occupancy, albeit imperfectly (particularly among lower income families) tend to experience less crime, although the precise reasons for this phenomenon are still unclear.

Another reason offered for the greater safety of predominantly owner-occupied neighborhoods is that stakeholders are more willing to commit time and resources to organizations and activities that promote social cohesion or address local problems. In fact, data have consistently shown that homeownership is associated with social and political participation, although tenure is less important than other attributes characteristic of homeowners, who tend to be older and have higher levels of income and education.

According to a 1986 nationwide survey by the National Association of REALTORS®, homeowners were more likely than comparable renters to volunteer time to community and religious organizations, to attend public hearings and to vote in national elections, to join community improvement groups, and to participate in voluntary organizations. Rohe and Stegman’s longitudinal study of low-income, first-time homebuyers found that homebuying increased a household’s activity in neighborhood and block associations, but in the short term had little effect on participation in school, church, social, and political organizations beyond their immediate environment. Such results have generally been found to hold equally true whether the owner is motivated by a desire to protect their property’s investment value or by some less tangible reason.”

4) Homeownership and Economic Growth

 “Perhaps the greatest macroeconomic benefit of home-ownership is seen in the millions of jobs it creates for American workers. Building 1,000 single-family homes creates almost 2,100 full-time jobs. Almost half of these jobs are in onsite construction work; another 20 percent involve employment in transportation, trade, and other locally based services. Still more employment is created through the resulting increase in demand for household goods and services. Approximately 3 million workers are employed in residential construction, and industries that provide construction inputs employ another 3 million. Because housing production has such strong “multiplier” effects, construction activity is credited with the power to jump-start other sectors of the economy. “