Study Finds the Self-Employed Feel Lingering Affects of Housing Crisis

Urban Institute researchers suggest that credit availability is at play.

A new study from the Urban Institute indicates that the self-employed have not recovered from the housing crisis to the same extent that salaried employees have. Study authors Karan Kaul, Laurie Goodman, and Jun Zhu used American Community Survey data to explore how self-employed households have fared compared with salaried households in terms of income, mortgage use, and homeownership rates.

Their research show that the self-employed were hit harder during the recession and have been slower to recover.

Even after adjusting for income, the homeownership rate for the self-employed fell more than that for salaried households, indicating that credit availability has been a factor.

In 2016 only 67 percent of self-employed homebuyers obtained mortgages to finance a home, compared to 74 percent for salaried homebuyers. The researchers hypothesized that this is likely because the self-employed may experience more income volatility and require more documentation to demonstrate income. Compared to pre-2007, self-employed mortgage use declined 13 percentage points compared with 6 percentage points for salaried households.

However, the self-employed are more likely to own homes.

From 2001 to 2007, the homeownership rate for self-employed and salaried households averaged 79.2 percent and 65.8 percent, respectively, a 13.4 percentage-point gap. In 2016, the two groups had homeownership rates of 72.9 percent and 62.7 percent, respectively, a 10.2 percentage-point gap. The homeownership rate fell for both self-employed and salaried households during the downturn, but self-employed households witnessed a bigger drop despite having a higher median income.

All this leads the researchers to conclude that the mortgage industry is not adequately meeting the needs of self-employed households.

“The reality [is] that at any income level, both mortgage use and the homeownership rate for self-employed households have declined more than they have for salaried households," write the study authors. "This suggests that factors beyond income, such as tougher mortgage availability or requirements [of the Consumer Financial Protection Bureau’s qualified mortgage rule] are likely at play."