How Decades of Housing Policy Left Households of Color Behind--And What We Can Do about It

Since June is also National Homeownership Month, there is no better time to think about how policy could, though belatedly, change the financial futures of millions of households of color by expanding access to homeownership.
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Co-authored by Kylie Patterson , CFED

This week began with a special day: Juneteenth. The celebration commemorates a day 150 years ago when Texas slaves were finally informed of their freedom -- two and half years after the Civil War and Emancipation Proclamation. It marks a day where federal policy, fundamentally though belatedly, changed the lives of thousands of people.

And since June is also National Homeownership Month, there is no better time to think about how policy could, though belatedly, change the financial futures of millions of households of color by expanding access to homeownership.

Now more than ever, there is a huge gap in wealth and homeownership between whites and people of color. Nearly 74% of white households own homes, compared to 47% of households of color. The gap became pronouncedly worse due to the recession, where the black rate reduced to 43% and the Hispanic rate to 46%. While home equity is the greatest source of wealth for the majority of U.S. households, homeownership is now at a 10-year low, down to 64% in the first quarter of 2016 from a high of 69% in 2006. Much of this dip is due to the lingering effects of the recession and housing market crash. Unfortunately, when the U.S. catches a cold, minorities catch pneumonia. Homeowners of color lost a larger share of their wealth in the housing crisis than white homeowners, and their portfolios have been slower to recover.

It is often argued that the recession is the reason for the depressed homeownership rates found among communities of color. This is far from the full story. Today, homeownership is the bedrock of wealth building for most in the United States, yet this was not always the case. The homeownership rate did not cross the 50% mark until the 1940's and 1950's when the U.S. government began heavily investing in homeownership. These investments allowed for the majority of white households to become homeowners, but this did not trickle down to communities of color.

Why's that? Well, when the federal government made huge investments into supporting homeownership, it was designed for white households only. Starting in the 1930s, the Federal Housing Administration institutionalized the practice of redlining, which explicitly excluded homebuyers in predominantly minority neighborhoods from qualifying for more affordable federally backed loans. People of color were again systemically and purposefully prohibited from benefiting from the GI bill following World War II, at which time we see a major increase in white homeownership.

Additionally, residential segregation, which lowers demand for homes in minority neighborhoods, and historic differences in access to credit have severely crippled communities of color in their quest for homeownership.

The legacy of racist policies, coupled with discrimination against borrowers of color, has been a powerful driver of the racial wealth divide. That's because homes purchased by white households in the 1940's and 50's experienced significant appreciation, building the family's wealth and enabling the family's children to leverage the appreciation to purchase larger homes of greater value--and the wealth accumulation continued to snowball. Unfortunately, minority communities who were unable to purchase homes decades ago have not been able to benefit from the wealth building power of such appreciation.

This month, given its theme and historical importance, it is time again to begin advocating and developing federal policy to right past wrongs. Currently, the United States spends at least $70 billion through the mortgage interest reduction each year- which disproportionately helps the wealthiest Americans continue to build their wealth. Let us look at a new policy solution - such as tax credits that are tied closer to the median home value versus subsidizing the ownership of McMansions. This tax credit would be targeted toward low- and moderate-income families that own homes and will enable them to better weather storms and keep their homes throughout retirement.

Households of color were denied access to the wealth-building power of homeownership for too long. Now is the time for policymakers to take action to begin to close the racial wealth gap by allowing more households of color to buy a home of their own.

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