Mortgage Subsidies Affect Home Ownership

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Veterans' home loan programs were consequential.

In How Do Mortgage Subsidies Affect Home Ownership: Evidence from the Mid-century GI Bills (NBER Working Paper No. 17166), Daniel Fetter studies the sharpest increase in U.S. home ownership over the last century, which occurred between 1940 and 1960 when the rate of U.S. home ownership rose from 44 to 62 percent. He determines that the shift was primarily the result of a decrease in the age at first ownership, which meant that more young households became homeowners during this period than in earlier decades.

Although there were a number of government programs that might have contributed to this change, Fetter specifically studies the effects of veterans' home loan benefits provided under the postwar GI Bills. He uses the differences in the rates of military service between men whose ages made them likely to serve in World War II, those whose ages made them likely to serve in Korea, and men of other ages to estimate the impact of veteran status on home ownership. He finds significant, positive effects of veteran status on the probability of home ownership in 1960 that do not appear to be due to other veterans' benefits or military service itself, suggesting that veterans' home loan programs were consequential.

Furthermore, the effects are larger for younger veterans than for older veterans, which one would expect if a household's need for credit declines with age, and they diminish in 1970 and 1980 as the groups of men get older. In 1960, the youngest men who had been eligible to serve in World War II were 32 years old, and about 53 percent of them owned their homes. Comparing them with men who were slightly younger, and who were much less likely to have ever served in the military, Fetter estimates that military service was associated with a 13 percentage point increase in the homeownership probability.

The youngest men who were eligible to serve in the Korean War were 26 years old in 1960, and about 28 percent of them were home owners. For these men, the estimated effect of military service on homeownership was 18 percentage points.

--Matt Nesvisky