Urban Institute Publishes Research on Bridging the Racial Homeownership Gap Through the HCV Homeownership Program

Urban Institute published their report titled “Using Vouchers to Support Homeownership: Can the Housing Choice Voucher Homeownership Program Help Address the Racial Homeownership Gap?” The Urban Institute’s paper delves into the Housing Choice Voucher (HCV) homeownership program, its potential to bridge the racial homeownership gap, and the limitations it faces in achieving this goal. Below is a summary of their findings.  

One of the significant challenges in the housing landscape of the United States is the persistent gap in homeownership rates between Black and white households. Inequitable access to economic opportunities has perpetuated this disparity, with Black non-Hispanic households comprising nearly half of all HCV recipients. By enabling HCV recipients to allocate their vouchers towards mortgage payments, individuals and families can build equity, establish roots within their communities, and break the cycle of intergenerational poverty.  

Benefits and Limitations of the HCV Homeownership Program: 

While housing agencies supporting homeownership vouchers highlight the program’s long-term benefits for families, there are several limitations that hinder its potential to advance homeownership opportunities for Black non-Hispanic households: 

Scope and Mission of Housing Agencies: Some housing agencies may not consider homeownership as part of their organization’s mission to make renting affordable. 

Suitability for High-Cost Metropolitan Areas: In areas characterized by high housing costs, finding affordable homeownership opportunities can be challenging for voucher holders. This constraint may limit the program’s feasibility in such regions, making it less accessible for prospective homeowners. 

Impact of High Interest Rates: High interest rates have the potential to redirect a substantial portion of household finances towards interest payments, impeding a homeowner’s ability to build equity.  

Need for Collaboration: The effectiveness of the program relies on successful collaboration between housing agencies, lenders, and various first-time homebuyer programs. However, fostering such collaboration can be challenging, as it requires coordination among multiple stakeholders with potentially divergent priorities. 

Policy Recommendations for Greater Impact: 

The report suggests four potential policy changes that could enhance the HCV Homeownership program. 

Policy 1: Increase Income Limits for Participants 

One approach to expanding the HCV homeownership program is by raising income eligibility limits, allowing more households to qualify for assistance. However, this policy would strain the program’s budget, as demand already exceeds supply. Moreover, without dedicated funding, broadening eligibility wouldn’t guarantee that households actually receive assistance. Finally, increasing income limits would detract from a PHAs ability to provide rental assistance for extremely low-income families due to finite budgets. 

Policy 2: Create a Distinct Class of HCV Vouchers for Homeownership 

Designating a specific portion of HCVs for homeownership, accompanied by a separate funding stream, could increase participation. However, the effectiveness of this policy remains uncertain, as current uptake rates for homeownership vouchers remain low. Additionally, allocating more vouchers to homeownership would reduce the number of households served with vouchers for rental units. 

Policy 3: Extend the Length of Subsidy Allowable 

Extending the maximum subsidy period past the current 15 years could provide households with more time to achieve financial self-sufficiency for homeownership. This policy could be particularly beneficial for younger households with prospects for increased income over time. This could also be appealing to lending institutions as they may be more willing to engage in the program as there is a perceived reduction in risk of payment default.  

Policy 4: Increase Funding for Lump Sum Down Payment Assistance 

Currently, HUD allows PHAs to offer 12 times the monthly subsidy amount in the form of a down payment rather than providing a homeownership voucher. Offering a larger upfront down payment assistance, potentially up to five- or ten-years’ worth of subsidies, could significantly reduce the financial burden on homebuyers. This approach could eliminate the need for mortgage insurance and save costs in the long run.  

The full paper can be found here.