The single family home has been the primary driver of wealth creation within the middle class and this ideology has affected politics in one way or another by appearing in all facets of government.
“Owning a home is undoubtedly an effective way to build wealth, including for households of color,” the Urban Institute said in a new article. “In 2019, black homeowners had a median household wealth of $113,130 — the majority of which came from their home — more than 60 times that of black renters. The disparity was similar, though slightly less marked, for Latinx households.
But according to the Urban Institute, policymakers’ emphasis on home ownership has not led to significant progress in closing the racial wealth gap; the wealth disparity between white and black households is greater today than it was in 1968, when the Fair Housing Act was passed.
“This gap is the result of historic and ongoing structural racism and systemic discrimination not only in housing, but also in employment, education, banking and policing,” said the Urban Institute. . “As a result, while efforts to ensure households of color have equal access to homeownership are important to narrowing the racial wealth gap, closing it will require bold structural reform that goes beyond any policy.
Experts have continually questioned the wisdom of making homeownership a policy goal, as evidence shows that focusing solely on expanding homeownership is not only insufficient to closing the racial wealth gap, but also excluding the very people it is meant to help, is fair. , and unsustainable in its current form.
More than half of Black and Latinx-led households are renters, who do not benefit from policies targeted at landlords
The share of Americans who own their homes is the lowest in four decades. Although this number has increased in recent years, this number is expected to decrease further due to recent trends.
In 2019, the property gap between black and white families reached an all-time high of 32.5 percentage points.
“According to the Urban Institute, homeownership rates for people of color also remain low, in part because of policies and practices that have prevented black and other people of color from buying homes. Renters currently make up nearly 40% of all households, and more than half of Black and Latinx-led households are renters.
“Subsidizing homeownership as a primary means of creating wealth therefore excludes a significant portion of the population, which is disproportionately made up of people of color. And while landlords are benefiting from both tax breaks and rising property values, the latter have been linked to higher rents, putting tenants at a further disadvantage. Additionally, policies that favor homeowners over renters can push families unwilling or unable to buy homes to do so, sometimes to their financial and psychological detriment.
Benefits of homeownership are smaller for people of color, while costs and risks are greater
Home ownership is also not an equitable way to build wealth: One of the main reasons people of color don’t see the same wealth from their homes as their white counterparts is that households blacks and Latinos tend to own low-cost homes in low-income neighborhoods. While a litany of other aspects such as income disparities contribute to this gap, much of it has also been attributed to racial bias: a study found that homes in majority black neighborhoods across the country are under -valued up to 23% resulting in a staggering loss of $156 billion in lost equity.
“And despite buying homes cheaply on average, black homeowners have more mortgage debt (both in absolute terms and relative to the price of their homes), which contributes to greater financial risk,” said the Urban Institute. “Research found that Black and Latino homeowners of all income levels experience higher rates of distressed home sales, including foreclosures, resulting in lower annualized returns on average. Over 10 years, this disparity results in black and Latino homeowners receiving 44% and 22% lower returns on their investments than white homeowners, limiting longer-term wealth accumulation.
“The problem is compounded by the fact that homeownership costs (which, in addition to mortgage payments, include property taxes, maintenance costs and insurance) are higher for homeowners of color than for white homeowners. Some of these higher costs have been attributed to racist practices, such as unfair methods of assessing property taxes. These further limit the benefits that households of color derive from home ownership, both relative to renting and relative to white households.”
Promoting home ownership contributes to negative climate impacts, which disproportionately affect communities of color
Since most homes across the country are detached single-family homes, policies that explicitly push this idea encourage urban sprawl at the expense of higher-density living. These harmful effects are disproportionately borne by communities of color, compounding existing inequalities.
“Additionally, one-third of all homes in the United States are considered at high risk for damage from natural disasters, and communities of color bear the brunt of that damage,” the Urban Institute said. “A study analyzing changes in household wealth in counties heavily damaged by natural disasters found that white households experienced an average increase in wealth of $126,000 over a 14-year period, while white households blacks and latinos suffered an average loss of $27,000 and $29,000. ”
“The emerging practice of “bluelining” – drawing arbitrary lending boundaries around neighborhoods perceived to have increased environmental risk (which often coincides with previously delineated neighborhoods) – threatens to further depress home values in neighborhoods of color. and suggests that focusing solely on subsidizing homeownership for wealth creation is also unsustainable in the long run.
So what can be done? The Biden administration is addressing aspects of the racial wealth gap and creating policy to expand homeownership, such as addressing valuation bias and promoting small business ownership.
But more can always be done, said the Urban Institute. In addition to ensuring that households of color have equal access to homeownership and its benefits, some additional strategies that policymakers at all levels could consider include the following:
- Implement high and progressive inheritance and wealth taxes
- Provide reparations to descendants of enslaved Black Americans
- Implement baby bonds, which would provide each child with a publicly funded trust account at birth
- Reduce personal and household debt, including canceling student loan debt for eligible households and reducing fines and punitive fees
- Increase access to retirement savings plans and matched savings accounts
- Boost household cash flow by reducing income inequality and providing protection against extraordinary shocks