Can higher education help boost homeownership?

Sep 23, 2016

The latest research on the relationship between a college degree and homeownership reveals no big surprises. But it does offer some new insights confirming previous studies finding that education is a key factor in determining who is likelier to buy a home.

A new working paper from researchers at the University of Southern California (USC) and sponsored by Fannie Mae — “Education and the Intergenerational Transmission of Homeownership” — suggests that a college education boosts the chances of young households being homeowners. And that is largely independent of parental resources that may have helped increase educational opportunities.

“Policies to increase attainment of a college degree have well-known benefits in the labor market and for wealth accumulation by households,” according to study authors Gary Painter, Dowell Myers, and Julie Zissimopolous.

The report suggests that yet another benefit of providing broader access to higher education is improving access to homeownership.

The researchers found that having a bachelor’s degree or higher compared to not having a high school diploma increases an adult child’s attainment of homeownership by 17.5 percentage points, after controlling for the child’s race, age, sex, and marital status and parental resources.

Even weeding out other factors such as a child’s current income and wealth — which are correlated with parental resources — homeownership attainment was 5.4 percentage points higher for those with at least a bachelor’s degree.

Disentangling Factors Shaping Homeownership Prospects

The researchers set out to untangle “the complex, interconnected avenues by which education attainment and other factors shape the homeownership prospects of young adults.”

Past research, the paper says, “was often not able to distinguish the mechanisms by which education might influence homeownership, because it did not have adequate controls for a child’s wealth and for parental income and wealth. As a result, this previous work was not able to rule out the possibility that a child’s education, as it related to homeownership attainment, was largely a proxy for parental wealth that also supported children’s education.”

“Our research shows that the chances of gaining a college degree are much greater if the parents command greater resources,” the paper says.

For instance, the researchers found that children are more likely to have a bachelor’s degree if they have a college-educated parent, if the income of their parents is in the top 25 percent, or if the wealth of the parents is in the top 50 percent.

“All of these parental resources could also help with their children’s home purchases when they are grown adults, which is why it is important to separate the factors.”

The USC team was able to use intergenerational data from the Panel Study of Income Dynamics (PSID) to quantify the degree to which education is associated with homeownership, even after controlling for parental resources. The PSID is the longest running panel data set in the U.S. It has followed the original respondents and their descendants since 1968. The paper used the latest available data – from 2013.

Looking at Race

The research suggests that the beneficial impact of higher education in improving access to homeownership is especially relevant for relatively disadvantaged groups in the past.

Today, there is a disparity in homeownership attainment between whites and other ethnic groups, the study finds. But this disparity grows progressively smaller with the introduction of education and economic resources.

Researchers found that higher education had the greatest positive impact on African-American households. Education increased their attainment of homeownership by a range of 9.7 to 27.3 percentage points — depending on other control factors.

However, the level of education did not predict homeownership for Hispanic households. The paper suggests that’s because the PSID sample does not adequately represent the Hispanic population now residing in the U.S. The PSID largely follows descendants of a sample chosen in the 1960s, preceding large increases in Hispanic immigration and population growth.

A Series of Reports

This is the second in a series of Fannie Mae-sponsored reports from USC examining factors associated with home buying and achieving homeownership status among young adults.

Narrower in focus than the latest study, the initial report found that adult children who received at least $5,000 from their parents to use for any purpose were 13 percent more likely to buy a home over the next two years, even after controlling for parental wealth and a variety of other parent and child characteristics.

The latest report does raise questions about why specifically there is an association between higher education and homeownership.

Higher earnings from a college degree is one of the foremost possibilities. But other factors are likely at work, given that an education effect persists net of household income. Those include greater financial fluency and greater chances for marriage.

“Future research will need to carefully distinguish between the competing explanations,” the paper says.

Don’t Drop Out

The USC study comes on the heels of recent research by Fannie Mae’s Economic & Strategic Research Group on the impact of student debt and higher education on prospects for becoming a homeowner. The study looked at 25- to 44-year-olds — the age range in which student loans are the most prevalent.

The study found that the benefits of obtaining at least a bachelor’s degree outweigh the burden of student loan debt.

Earning a degree without incurring debt is the best way to go. Those who accomplished that were 43 percent more likely to become homeowners than high school graduates who did not attend college and do not have student loans.

But college graduates who borrowed to meet education costs also came out ahead. They were 27 percent more likely to own a home than high school grads.

The study does provide one cautionary note. Dropping out after taking on student debt is one of the worst things an aspiring young homeowner can do. The likelihood of becoming a homeowner is 32 percent less than for a high school graduate.

Among those with student debt that the study examined, 40 percent did not get their bachelor’s degree.


Estimates, forecasts, and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions, and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) group guarantees that the information in this article is accurate, current, or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.


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