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The study uses four waves of a national data set, permitting a panel data analysis of the relationship of owning a home to three child outcomes: math achievement, reading recognition and behavior problems. Using panel data allows us to control for household and child-specific, unobserved, influential factors. We also use a treatment effects model to address the problem of sample selection bias.

We find that owning a home compared with renting leads to a higher quality home environment, the improvement being 16 to 22 percent. Considering both the direct and indirect effects of home ownership on child outcomes, we find that for children living in owned homes math achievement is up to seven percent higher and reading achievement is up to six percent higher, ceteris paribus. We also find that the measure of a child's behavior problems is up to four percent lower if the child resides in an owned home. Existing literature suggests that these youths' greater cognitive abilities and fewer behavioral problems will result in higher educational attainment, greater future earnings, and a reduced tendency to engage in deviant behaviors

The analysis begins by distinguishing between the length of stay in a particular dwelling and the duration of stay in one or more owned homes. All existing published studies focus on the length of stay in a dwelling (either owner or rented), or on the time to mortgage default. These studies focus on the time spent in a particular dwelling unit, not the length of time in a particular “state of the world” such as owning or renting. While these studies are of interest for some questions, they do not provide the needed information to determine whether different lengths of continuous spells of owning or renting contribute to racial gaps in homeownership rates.

A simple example confirms that the lengths of time spent as a renter and owner affect the overall ownership rate. Assume that African Americans and whites have the same residence history over a 40 year period, consisting of four spells: first the individual rents, then owns, then rents, then owns. If African Americans spend 9 years in each rental spell and 11 years in each ownership spell, then their average homeownership rate will be 0.45. If whites spend 6 years in each rental spell and 14 in each ownership spell, then their average homeownership rate will be 0.70. In this case, the sole cause of the 25 percentage point gap in ownership rates is the difference in the durations of spells of owning and renting.

The study of duration of renting and owning should lead to important policy implications. Policies that promote only temporary spells of homeownership have little impact on the national homeownership rate. What is important is promoting new ownership spells that are sustainable. Policies that lengthen existing ownership spells also will raise the national ownership rate, even if the rate of attaining first-time or subsequent spells of ownership is not affected.