Homeownership and Individual Development Accounts

Hot off the presses, a new study has been released evaluating the ten-year impacts of an intervention featuring Individual Development Accounts (IDAs) in Tulsa, Oklahoma. The idea behind IDAs is to provide an incentive for savings that is used to purchase a specific set of assets, such as homes, by directly matching deposits into designated accounts. Participants receive financial education and will get access to the match only if they use the funds for an eligible use.

The paper focuses on the impact of the program on homeownership and uses a randomized experimental design (the gold standard where a “treatment” group who receives the intervention is compared to a “control” group that does not). The set of co-authors on the paper are a committed and diligent group and employ their methods fairly and transparently. I’ll list them all because their a pretty distinguished group for those interested in this type of analysis (Michal Grinstein-Weiss, Michael Sherraden, William Gale, William Rohe, Mark Schreiner, and Clinton Key).What’s also notable is the fact that they went back and looked at impacts ten years after the intervention began.

So what’s the conclusion?

Well, it’s a mixed bag. You can certainly read the report to get all the details and dig into the nuances. But it is clear that the program was attractive to participants and helped them become homeowners. The study found that:

• About 90 percent of the treatment group opened IDA accounts.
• Contributions averaged about $1,800.
• Homeownership rates increased (essentially, they doubled).

Not bad, eh? But the authors take advantage of the randomized design to note that homeownership rates also significantly (and similarly) increased for the control group. This is important because we want to know if this intervention is a basis for policy at a larger scale. The issue is whether this effort is worth the resources given alternatives and resource constraints.

During the time of the intervention (1998 – 2003), homeownership rates increased more for the treatment group members than for the controls. But the control group caught up after the experiment ended. The authors note that “the IDA program has no significant effect on homeownership rates among the full sample in 2009 and no effect on the duration of homeownership during the study period.”

This conclusion is based on a control group that was also able to take advantage of the services of the sponsoring nonprofit both during and after the experiment (just not the IDA program). I would also be interested in assessing how the IDA control group compares to the general population that did not connect with the sponsoring group (which by the way is a model community services organization called CAPTC).

However, I think there are two other notable findings. Specifically, the IDA experience accelerated home purchase for the treatment group (they became homeowners sooner) and it worked more effectively for families with higher incomes in the sample (it was less effective for the very poor). These are valuable insights for thinking about future interventions.

There is more to say on this study. Pilots are challenging to pull off and even harder to assess. But this is a fair and insightful attempt. Future research may be needed as to whether participation in the IDA program had other impacts (such as lower default rates and other savings outcomes). There may be a bundle of services that benefit participants outside of home buying rates that may continue to justify support for these types of matched-savings programs.