Black Homeownership and the American Dream: An Expert Dialogue
Lorraine Hansberry’s play A Raisin in the Sun chronicles the quest of homeownership and financial security for a black family on the South Side of Chicago and how race, segregation, and discrimination were barriers to achieving this dream. Today, despite landmark civil rights legislation, many aspects of the story still ring true.
In this dialogue, we asked experts in wealth building and homeownership about the racial disparities and trends in homeownership, the impacts of segregation, homeownership as a tool for wealth building, and possible policy solutions.
Contributing to this conversation are Anne Price, president of the Insight Center for Community Economic Development; Richard Rothstein, research associate at the Economic Policy Institute and author of The Color of Law: A Forgotten History of How Our Government Segregated America; Doug Ryan, director of affordable homeownership at Prosperity Now; Alanna McCargo, vice president of the Housing Finance Policy Center at the Urban Institute; and Rolf Pendall, Institute fellow at the Urban Institute. Some responses have been edited for length.
How Housing Matters: Data from the census and research from the Urban Institute show that “black homeownership rates have declined to levels not seen since the 1960s.” Are any subsets of the black community faring better or worse? What contributed to this, and what are some possible solutions to change it?
Alanna McCargo: The black homeownership narrative in America is one that is still in the making, but history tells us that progress has been slow. 2018 marks the 50-year anniversary of the passing of the Fair Housing Act, and through this period, blacks have yet to see anything resembling parity to white homeownership. Declining homeownership is a problem across the board for the black community, and there are notable subsets. In particular, the most dramatic losses have happened to middle-aged black homeowners between the ages of 45 and 64 when compared with other races within this age cohort. Many of these owners lost their homes during the foreclosure crisis and are finding it very difficult to reenter ownership as they move toward retirement age. Equally concerning is the decline in homeownership by married black households, who have historically been most likely to own their homes.
The disproportionate decline in black homeownership appears to be partly driven by the timing of their entry into the housing market—many minorities entering the market at or near the peak, when home prices were highest, and using riskier subprime lending products. When the foreclosure crisis hit, the impact was even more severe for minority buyers.
Our boom and bust map illustrates this late entry and consequent deeper plunge for many minorities.
Anne Price: Since housing markets are local, we see dramatic differences among subsets of the black community. For example, in the greater Miami area, US blacks fare worse than Caribbean blacks, with a homeownership rate of 37.2 percent compared with 54.6 percent for Jamaicans and 59.5 percent among Trinidadian/Tobagonians. Africans in Los Angeles have a slightly higher rate of homeownership (42.9 percent) compared with US blacks at 41.5 percent. A historic legacy of discrimination in lending and access to homeownership; increased housing appreciation in segregated, predominantly white communities; and continued discrimination in the housing market has profoundly affected US slave descendants differently than other black communities. In order to improve homeownership for the next generation, we must address the high level of student debt among all subsets of the black community that is dampening opportunities to own a home.
Doug Ryan: Even presumably “well-positioned” black families face challenges in the homeownership market. Black immigrants have educational attainment similar to Americans as a whole and higher than the US-born black populations. They also face a poverty rate that is lower than that of native-born African Americans. Despite this, black immigrants have homeownership rates lower than other immigrants and similar to the overall black population. This at once represents discrimination in the market and the lack of access to credit. Much has contributed to these rates, but the impact of the crisis on black homeowners was exacerbated by subsequent job losses and drags on credit scores. We need to lower the cost of entry to homeownership. In many markets, that means building and rehabilitating more housing stock for starter and trade-up homes. In almost all markets, more robust down payment assistance programs could help. We need to better embrace inclusionary zoning, land trusts, factory-built housing, accessory dwelling units, shared equity, and appreciation models. Finally, we have to update how we measure good credit.
Rolf Pendall: The decline in the overall homeownership rate hides even worse declines for African Americans in every five-year age group from 25 to 60. Homeownership among African Americans in their thirties lags by the most—which translates into risks of housing instability for their children. Only 20 percent of African Americans aged 30 to 34 in 2016 owned their homes, compared with 34 percent in 2000. The loss was almost as bad for 35-to-39-year-olds; their homeownership rate dropped from 42 percent to 29 percent from 2000 to 2016.
This is a consequence of several factors. African Americans never recovered from the economic recession following 9/11 before the housing crisis hit. Rents went up during the crisis. Together, this means that today’s African American millennials went through their teens and twenties in more economically stressful times compared with African American baby boomers. Now, they face tight credit markets, which make it very difficult to get access to a mortgage.
It’s also a concern that homeownership is down for older African Americans, including those over age 65. However, the drop in homeownership means a drop in economic security not only for older African Americans but also for their children and grandchildren.
HHM: Lower home values and appreciation in black neighborhoods contribute to a wide gap in home values between black and white owners, which is sometimes referred to as a “black tax” or “segregation tax.” What should policymakers and advocates know about this problem and how to solve it?
Richard Rothstein: Efforts to equalize values and appreciation between black and white neighborhoods accept their racial homogeneity, stemming mostly from mid-20th-century Federal Housing Administration (FHA) policy to underwrite segregated white, working-class suburbanization.
Los Angeles symbolized the program, with FHA requirements to exclude African Americans from places like Lakewood, Westchester, and Panorama City, where homes sold for about $100,000 (today’s currency), roughly twice the national median income, affordable to working-class families of either race. African Americans had to rent or own in denser, mixed-use, redlined areas (Watts, for example), where amortized mortgages were mostly denied.
Today, these suburban homes can cost $500,000, six times the median income, unaffordable to working-class families of either race. The 1968 Fair Housing Act (not really enforced until 1988) opened such developments to nonwhites, but it was mostly too late.
Federal policy was unconstitutional, as blatantly as segregation of schools, transportation, and public accommodations. Yet we’ve done little to desegregate neighborhoods.
Solutions are politically unrealistic, but our aim should be to correct the constitutional violation, with public subsidies for qualified African Americans to purchase in more affluent, predominantly white suburbs—a narrowly targeted remedy for a specific violation. We could then worry less about average home value comparisons between racially identified neighborhoods.
Pendall: Segregation in cities isn’t an accident or an unfortunate by-product of otherwise productive policies. We did it on purpose. American Apartheid, as Massey and Denton called it, is an outcome of deliberate government and private actions over hundreds of years to cement white privilege. Richard Rothstein’s recent Color of Law offers very convincing evidence of the construction of racial segregation. Undoing it will take efforts that are just as coordinated and persistent. These actions must go beyond housing to criminal justice, education, employment, voting, health care, and many other sectors. My recent work with Chicago’s Metropolitan Planning Council shows that overcoming segregation between African Americans and whites is highly likely to deliver gains in income and education and reductions in homicide to entire metropolitan areas.
Ryan: Look at how segregated housing patterns emerged. The familiar story of FHA and redlining is a good place to start, but the history predates the New Deal and continued well after. The 1949 Housing Act triggered a lot of the post-WWII housing patterns and, it is fair to say, favored suburbs over central cities and favored those who could afford to, and were allowed to, migrate out. Richard Rothstein’s The Color of Law is an important read. The segregation tax is real. It taxed the first homeowner in that redlining, and lending practices imposed additional costs on borrowers. It stunts appreciation by artificially reducing the number of potential buyers for any particular home or community. It reduces the transfer of intergenerational wealth, which historically has helped first-time buyers enter the market.
There are things we can do address this. None are easy, and many engender outright hostility to them. The Trump administration needs to rethink its opposition to the Affirmatively Furthering Fair Housing regulation. Nixon’s first HUD secretary, George Romney, advanced this idea (and was shown the door). So, it’s neither new nor historically partisan.
We also need to enhance and advance Fannie and Freddie’s Affordable Homeownership Goals and the newly unveiled Duty to Serve underserved market plans. Improving the infrastructure at FHA could help, too.
Advocates and academics should raise up and scale best practices in mortgage servicing to explicitly prevent delinquencies and foreclosures. We need to end the retreat from consumer protections. We’re retreating to the run-up to the crisis, which is both myopic and reckless.
HHM: In addition to experiencing low homeownership rates and home value depreciation, blacks have not recovered from the home mortgage crises at the same rates as whites and other minorities. What are some solutions and strategies to recover some of the losses we’ve seen in black homeownership?
Rothstein: African Americans recovered more slowly in part because they suffered more severely. Lenders targeted predominantly black communities for marketing refinance packages with prepayment penalties and exploding interest rates, even when borrowers qualified for conventional financing with lower rates. Many African Americans with subprime loans lost homes to foreclosure once the bubble burst.
The legal system proved inadequate to address these disparities. Although suits against Bank of America, Wells Fargo, and other major lenders demonstrated the explicit racial targeting of unjustifiable subprime practices, settlements were token; families that lost homes through foreclosure gained compensation inadequate to enable them to return to homeownership. Even the widely documented and uncontroverted evidence of unlawful foreclosure practices resulted in few remedies, and many illegally dispossessed families (disproportionately but not exclusively African American) never gained compensation for losses. As is well known, penalties for bank executives who authorized these practices were token and insufficient to create incentives to avoid discriminatory and unlawful conduct in the future.
Market reforms alone will not recover these losses, nor will they prevent similar losses in subsequent crises. Without a legal system that fully protects the rights of relatively powerless victims, recovery will be slow, at best.
Ryan: In addition to some of the approaches I mentioned earlier, we need to continue loan modification and related efforts to restore balance between the ability to repay and mortgage debt.
At its core, however, are access to credit and access to homes. Costs of credit must fairly account for risk and realize that risk should be measured in terms that likely differ from how we typically do now. Access to homes means a variety of housing types and tenures need to be expanded and developed across housing markets.
Pendall: I’ll offer more on solutions in a blog on Urban Wire this month, but to preview them, we need actions in at least three broad areas.
First, it’s imperative that we reduce the loss of homeownership among African Americans who already own homes but risk losing them.
Second, we need to offer young African Americans (all Americans, really) a pathway from their teen years to their forties that includes a much more systematic effort to build financial health, including opportunities to get access to a decent mortgage when they’re ready to buy homes.
Third, we need to make supportive reforms that will stabilize and improve housing markets in communities where African Americans live. This includes assuring that rents are affordable enough to allow young people to save for a down payment and establish a good credit record and investing in communities so that home values don’t decline further. This also includes reforms and enforcement to curtail corrupt and predatory practices that deliberately strip assets from African Americans.
McCargo: Continuous evaluation of the systems that are used to evaluate creditworthiness and determine home values from appraisals really matters. Many systems that have served the real estate markets for decades continue to have biases from practices of old and need to be transformed, competitive, and modernized, using the many methods of validation for consumer information that are available today. The tight credit box that has persisted since the bust has had a profound impact on minorities: currently, it’s extremely difficult for anyone with less than perfect credit to secure a mortgage. The efforts to expand access to credit should continue—particularly for Federal Housing Administration loans, which represent about 45 percent of the mortgages taken out by black families. Keeping FHA viable and modernizing its systems and ability to reach the very communities it exists to serve is key.
We can also add to a more level playing field by removing barriers to accessing homeownership, through programs, such as down payment assistance, and reevaluating reserve (savings) requirements as well as changes to the way income is used for underwriting. Revising underwriting for today’s population and new types of income streams is crucial.
HHM: Given these trends, can you speak to the implications for future black generations and intergenerational transferable wealth? Should we think about black homeownership as an aspirational goal for wealth creation, or look at other financial alternatives, and if so, which ones?
Pendall: Both of these. I see no possibility that the US will build sufficient alternatives to make up for the security that a home can offer when you own it free and clear. At the same time, it’s a reality that the number of African American seniors who rent has already increased and will increase more. They need greater security, as do their kids and grandkids.
Ryan: It’s becoming trendy to look at alternative wealth- and asset-building tools. More than a few times over the years, I’ve heard something like, “It would better to invest in an index fund than homeownership.” Those are not equal options; you’ll need an address to receive that monthly mutual fund statement. Homeownership still makes sense for many personal and societal reasons.
It is important that we continue to make homeownership viable for as many as it is appropriate. After all, a home is worth only what the next generation is willing to pay for it. Undercutting future homeownership is also undercutting future economic security for today’s owners.
What’s particularly worrisome is why the retrenchment from homeownership now? Starting about two decades ago, black families began to realize homeownership at a striking rate. This was positive and largely done safely and sustainably. Predatory loans, including refinance, drove much of the crisis among black owners. It is remarkable that even though we figured out how to advance homeownership more broadly and we know what practices stripped out these gains, we want to give up on homeownership. That’s a troubling outcome from the crisis.
Price: When we look at the very low levels of wealth among black households, the prospects of intergenerational resource transfers, which are pivotal to building wealth, looks bleak. Homeownership rates among late Gen Xers and early millennials are lagging behind previous generations. Our research shows that when black parents can provide financial support to their adult children, particularly for higher education, they have higher homeownership rates. We cannot continue to rely on homeownership as the primary vehicle to wealth accumulation for blacks. Public-sector intervention is needed. I support the proposal for young adult trusts (baby bonds), a program that is analogous to a Social Security plan that would provide substantial capital finance for young adults.
McCargo: Without a doubt, we should not give up on the dream to increase black homeownership and ensure future generations have a shot at building and transferring wealth. Homeownership has been a bedrock for whites in this country, and without focus on this critical wealth-building mechanism, there is lost opportunity to strengthen and create a solid foundation for the future. Current trends are not promising, which is a significant problem for future black homeowners. Blacks are lagging in other major areas as well, so this is a complicated issue to solve and cannot be looked at in a vacuum. According to the 2016 survey of consumer finances released by the Federal Reserve, blacks are lagging in all critical indicators, such as income, employment, wealth, home equity, retirement savings. The survey also points out that black households have higher debt, especially student loan debt, and stand out for being the least likely to have a married or partnered head of household—just 37 percent compared with more than 54 percent for each of the other three groups—and less likely to have dual-income households than other groups of families. All of that suggests that looking to other financial alternatives will also be incredibly challenging for blacks, given the huge disparity across the economic spectrum. Making investments in outreach and financial literacy education for the black community is crucial and urgent. Rejuvenating all efforts to promote sustainable and responsible homeownership and improving the tools to help break through the barriers and access to credit must continue to be front and center. An entire race’s future depends on it.
Note: This dialogue was developed by Janae Ladet, Veronica Gaitán, and Maya Brennan.