One Way to Fix the U.S.’s Racial Homeownership Gap
(Bloomberg Opinion) -- More than 150 years after the end of slavery, most Black families in the U.S. lack an essential part of the American dream: a home of their own, with all the benefits of stability and financial security that entails.
Government policy is deeply implicated in this state of affairs. Occasional efforts to address the problem have mostly failed — and sometimes they’ve made things worse. President Joe Biden can and should do better.
Federal housing policy played a central role in creating the American middle class. Beginning in the 1930s, government-subsidized mortgages enabled people to buy homes, invest in communities and build equity — wealth that they then passed on to their children. But the benefits were limited by race. Between 1934 and 1968, 98% of loans insured by the Federal Housing Administration went to White people. The presence of a single Black family in a new subdivision was enough for the FHA to refuse financing. The result was residential segregation and a legacy of entrenched disadvantage.
Time and again, efforts to right this wrong have focused on loosening credit, to disastrous effect. In the late 1960s and early 1970s, indiscriminate and corrupt FHA-backed lending allowed speculators to sell homes at inflated prices to Black families, saddling them with often-impossible payments. In the 2000s, with bipartisan blessing, the private sector repeated the experiment. Subprime mortgage loans with outsized interest rates, no money down and other toxic features all but guaranteed default — and frequently extracted what equity people had managed to build.
The upshot: As of March 2021, the Black homeownership rate stood at an estimated 45.1%, almost 30 percentage points below its White counterpart. As of 2019, Black families had on average just $65,000 in home equity, compared with $176,000 for White families. In three decades, this disparity hasn’t narrowed.
It’s time for a different approach. Instead of encouraging homeowners to take on debt they can’t afford, give them equity by providing down payment assistance.
Various schemes of this kind are now up and running. In recent years, most state housing agencies have started providing down payment assistance; so have some of the country’s largest banks. During his presidential campaign, Biden proposed a larger federal program offering $15,000 to qualifying first-time homebuyers. Maxine Waters, chair of the House Committee on Financial Services, has proposed legislation aiming at as much as $25,000.
Depending on the details, the cost would be manageable. The Urban Institute estimates that a program confined to low-income, first-generation buyers (meaning renters whose parents also rent) would cover about 5 million households — disproportionately Black, but also including millions of White and Hispanic households. Even if every eligible household bought a house, the initial cost of a $15,000 payment would amount to roughly $80 billion, spread over several years, with a much smaller ongoing annual budget to cover newly eligible households.
Would such a program really work as intended — helping the designated beneficiaries, and encouraging them to remain homeowners and keep building equity? The available evidence is limited, but gives grounds for optimism. Any new federal initiative should fund research to determine what works best, and harmonize the disparate rules and features that make the myriad existing options difficult to navigate.
Closing the racial wealth gap is a moral imperative. It would also benefit the entire country by helping millions of people realize their productive potential. Down payment assistance can make a difference. Congress and the Biden administration should make it happen.
Editorials are written by the Bloomberg Opinion editorial board.
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