The Importance of Homeownership Equality
In 2004 the U.S. Department of Housing and Urban Development (HUD) commissioned a report entitled “Wealth Accumulation and Homeownership: Evidence for Low-Income Households”
Studying family wealth accumulation and housing choices over a nine-year period, the report drew one key conclusion:
“In terms of lower-income households, non-housing wealth accumulation is at best minor and, for minority families, often negative.” As the study makes clear, “Owned housing is an important means of wealth accumulation. Indeed, the results may be broadly interpreted for lower-income households as implying that housing wealth is total wealth.”
Simply put, homeownership is in essence the only path to building wealth for these families, and is the gateway to intergenerational financial prosperity.
As the HUD research revealed, without owning a home, many low-income and minority families are actually wealth-negative.
Unfortunately, homeownership disparities based on race and income are immense, and in the nearly two decades since HUD released this study, the federal government has taken no meaningful actions to address this reality.
Since 2004 the gap in homeownership rate for Black and white families has only grown larger. Today, just 42% of Blacks own homes compared to a 67% homeownership rate across all other races. That means that compared to other ethnic groups one in four Black households rent instead of own. An analysis of 2020 census data showed that home equity accounts for a significant proportion of the wealth disparity between Blacks and whites, with Black households holding just one-eighth the accumulated wealth of white households. Given this data, it is no wonder that persistent economic and social oppression exists in Black communities. Where homeownership rates are low, important social structures like employment opportunities, business opportunities, quality schools, grocery stories, and financial services providers also tend to be lacking.
But systemic barriers to wealth generation aren’t merely limited to whether or not a Black family can buy a home. For Black and minority families that are able to get a mortgage, racist and discriminatory practices continue to limit their wealth-building opportunities. According to a UC Berkeley study released in 2018, Black and Latinx borrowers pay higher average interest rates on mortgages than their white counterparts. Money that could be put away for retirement, education, investments, or a small business is instead spent on high-interest rates, adding no value to Black and minority borrowers’ bottom lines. While incredibly unfair and problematic, this isn’t the most upsetting detail from the research. Perhaps most disappointing is the fact that racial discrimination in mortgage lending persists even when artificial intelligence algorithms designed to reduce discrimination in lending by removing human biases are employed. Even AI algorithms subjects minority borrowers to higher interest and less desirable loans.
Taken together, all of these factors, and more, help explain the persistent wealth and opportunity gap that plagues millions of families throughout the U.S. There is a clear need to systematically push back against all of the forms of discrimination in financial services that set Black and minority families behind. Luckily, we already have the infrastructure to overcome bias and expand homeownership to more minority families in a growing network of Community Development Financial Institutions (CDFI) and grassroots support organizations designed for this exact purpose. CDFIs like The Change Company CDFI, LLC and my group the Homeownership Equality Research Organization (HERO) put people first and actively seek out opportunities to serve low-income and minority borrowers with fair market mortgages so that more families can purchase a home.
By partnering with lenders, HERO helps identify disadvantaged borrowers who fall short of qualifying for a mortgage based on traditional underwriting but have sufficient income to own a home. To help fill the gap, HERO provides the necessary financial assistance — in the form of down payment support, debt reduction, cash reserves, or closing and other loan costs — that help families get over the hump and qualify for the loan. CDFIs like The Change Company CDFI, LLC are specifically designed to service underserved communities, opening up access to critical financial services for minority and low-income areas across the country where services are severely limited. Chartered with a mandate to advance opportunities for these populations, The Change Company CDFI, LLC and over 1,200 other CDFIs can be more flexible than traditional banks when considering how to best serve their customers. The Change Company CDFI, LLC prides itself in taking a holistic approach to assessing borrower risk, offering prime mortgages, small business loans, lines of credit, and more to creditworthy borrowers who may otherwise be rejected by traditional banks. The impact of these organizations is massive.
Where traditional measures to increase Black wealth are not working, we have to seek alternatives. To make any kind of meaningful change, we have to assess where traditional financial institutions and governments fall short and increase support for those entities that are best positioned to have the most impact. Without homeownership equality, we cannot achieve wealth equality. Influencing change can be difficult, but already CDFIs have made the dream of homeownership attainable for millions of families. By working on the front lines and in communities on a case-by-case basis, these people-first institutions are well-positioned to help Black families break through the systematic barriers and overcome racial bias to obtain affordable financing that will introduce wealth accumulation and power into new communities.
Kevin Golden is the founder of Homeownership Equality Research Organization, a non-profit dedicated to assisting minority and disadvantaged borrowers achieve homeownership.