To Equitably Connect Housing and Economic Mobility for Black Americans, Tackle Structural Racism

by Janae Ladet

Most Americans’ greatest asset is their home. According to the Economic Policy Institute, housing equity makes up two-thirds of wealth for typical American households, and most wealth for black families is held in their primary residence. But because of segregation and structural racism, owning a home has not provided the same value and pathway for wealth creation for black Americans as it has for white Americans. Barriers to buying a home contribute to a wide homeownership gap between black and white households. According to recent research, 42.2 percent of black households owned homes in 2015 compared with 70.8 percent of white households. The homeownership advantage for white families is so strong that black people who have completed college are less likely to own a home than white people with no more than a high school diploma.

Homeownership often translates to wealth accumulation, and wealth grows generationally. As a result, the wealth gap between white and black families has grown over the past 50 years. In 2016, white wealth was seven times greater than black wealth. Even if black families own homes, home equity does not necessarily provide the same savings and wealth-building opportunity as it does for white families. In 2013, median home equity for black homeowners was just $47,000, compared with $90,000 in home equity for white homeowners. The typical home equity accumulation for black homeowners ages 65 and older still lags far behind their white counterparts, and black homeowners are more likely to enter retirement owing more on their home than it is worth.

Structural racism in policy and practice

To explain these disparities and discuss solutions, we have to examine and acknowledge the role that structural racism, history, and segregation play. The Aspen Institute defines structural racism as “a system in which public policies, institutional practices, cultural representations, and other norms work in various, often reinforcing ways to perpetuate racial group inequity.” Urban Institute experts note that “once these structures are in place, no one has to actively think about race, privilege, or discrimination for these privilege systems to disadvantage people of color. Historical discriminatory processes such as housing segregation relegate people of color, particularly black Americans, to communities with inferior housing. Lower housing appreciation that results often means lower wealth accumulation. These structural disadvantages can hamper future generations from moving up the economic ladder without any overt racial discrimination in hiring.”

The history of redlining is the foundation for today’s black homeownership patterns. Beginning in 1934, Federal Housing Administration (FHA) insurance gave lenders a strong financial incentive to reject mortgages in neighborhoods that had black residents living in them or nearby. Official FHA underwriting guidelines considered mortgages riskier not only based on property condition and borrower finances, but on the area’s racial and ethnic composition. After the FHA was created, the Home Owners’ Loan Corporation drew residential maps to show appraisers which neighborhoods the FHA would favor, a policy commonly known as “redlining.” Black neighborhoods were redlined, making mortgage access nearly impossible. Restrictive covenants also prohibited the sale of many homes, especially in amenity-rich neighborhoods, to black Americans. In The Color of Law, Richard Rothstein notes that “federal policy sometimes imposed racial segregation when it hadn’t previously been established, forcing African Americans into overpopulated slums.” Furthermore, the GI Bill adopted the FHA’s underwriting guidelines, which granted housing benefits to white veterans through US Department of Veterans Affairs mortgage insurance while excluding black veterans.

The Fair Housing Act of 1968 made blatant housing discrimination illegal, but racial discrimination continued. For more than 20 years, the Urban Institute has studied discrimination in housing—both in access to rentals and homeownership—and has found that housing discrimination based on race persists. These policies have resulted in residential inequality, with middle- and upper-class white households living in neighborhoods with higher home values and black households, regardless of income, living in poorer areas with lower home values. Redlining policies had long-term consequences on real estate values in black neighborhoods. A 2016 working paper found that redlined areas had home prices that were 4.8 percent lower by 1990 than nonredlined neighborhoods nearby. The long-term effects of redlining can also be seen in higher rates of vacant properties.

America is still dealing with the consequences of discriminatory housing policy, which intersects with black homeownership and the racial wealth gap. Though redlining ended, the pattern of excluding black households was firmly established and reinforced. Black households had limited access to wealth-building assets like a home and inclusive communities, while white households were able to live in white neighborhoods and had easier paths to build wealth and transfer intergenerationally. In other words, discriminatory housing policies prevented black families from accessing the housing market as a major financial investment.

More recent policies to advance homeownership have not yet closed the gap. The Clinton administration created a National Homeownership Strategy, while President George W. Bush sought to assist first-time homebuyers with down payments through the American Dream Down Payment Initiative. Yet, predatory lending that was part of the housing boom disproportionately affected black people and other ethnic minorities, and advances disappeared.

Redlining became illegal in 1968, and affirmative community lending requirements began with the Community Reinvestment Act in 1977, but the factors that created a homeownership gap and differential home equity accumulation by race existed long before redlining. Establishing an equitable system for black residential stability and wealth creation through homeownership will require policy solutions and community actions strong enough to counteract a deeply rooted and entangled system built on racism. This includes enforcing fair housing laws, holding banks and other financial institutions responsible for fair lending requirements, and supporting states and localities in dismantling segregation and disinvestment in communities of color. Mission-driven community organizations can continue providing financial education and housing counseling and look at ways to disrupt systems that perpetuate systemic racism. While seeking equitable access to wealth from homeownership, other forms of wealth building, including opportunities to build credit through matched savings and Individual Development Accounts, can boost black assets. Finally, the cycle of residential and neighborhood instability—a cycle fueled by unaffordable rents, job insecurity, unsustainably long commutes, evictions, and displacement—requires policy and community intervention to affect equitable change.