Homeownership and Wealth Disparities

-- By KaylieChen - 23 Feb 2024

Affordable housing has long been a concern in New York and in the United States in general. But what housing conversations miss is the importance of homeownership and how BIPOC—and especially Black people—have been excluded from homeownership due to federal policies. In his book The Color of Law: A Forgotten History of How Our Government Segregated America, Richard Rothstein brings up the idea of de facto vs. de jure segregation. De facto segregation is the idea that segregation is the result of private practices and not laws and is most commonly referenced when discussing the topic of segregation in neighborhoods; on the other hand, de jure segregation is segregation that is a result of law and public policy. According to Rothstein, the creation of the Federal Housing Administration (FHA), which would not insure mortgages for Black people, contributed to this unconstitutional de jure segregation. The FHA would redline these communities and deem them risky to loan to. Moreover, they subsidized mass-productions of entire subdivisions but did so with a requirement that no homes be sold to Black people. Without these prohibitions, Black and white people would have been able to purchase homes at around the same rate.

Home wealth accounts for 60% of the total wealth among America’s middle class indicating that homeownership and housing appreciation are the foundations of institutional accumulation. This wealth accumulation that homeowners experience can be attributed to tax advantages and home equity. Second mortgages or home equity loans also provide a buffer against negative economic shocks. Because BIPOC were unable to purchase homes during the crucial time during the mid-1900s, they have been unable to accrue wealth at a similar rate as their white counterparts. Even if BIPOC families can purchase homes now, their homes do not grow in value as fast as whites' homes do. Homebuyers look for amenities like parks and “good schools” which are commonly found in predominantly white neighborhoods. Because of this, housing segregation can and has cost Black people tens of thousands of dollars in home equity. This inability to generate wealth causes a myriad of other problems for BIPOC, like being unable to access certain educational opportunities. For public schools, a large portion of school revenue is derived from local property taxes. Because of this government-mandated segregation, the schools BIPOC can attend generally have less funding and resources than whiter, more affluent schools. Moreover, research has shown that as the average family income in a school goes up, so too does student achievement, while schools with lower average family incomes generally feature slower learning curves. The quality of one’s education can detrimentally impact one’s future and one’s ability to be employed at a high-paying job. And, if one does not have enough money to purchase a house in a “better neighborhood,” this cycle may continue for future generations.

Not everyone is aware of this history of government-mandated segregation, and if people are unaware, they do not make plans to mitigate the effects. Many white families, for example, are unaware of the privilege they had in being able to buy homes as a result of the FHA. In his book The Hidden Cost of Being African American, Thomas Shapiro found that whites hide their privilege from themselves. People who inherited up to hundreds of thousands of dollars from their parents insisted that they were self-reliant, unable to see how the private schools their white parents could afford to send them to, or the down payments on homes they were given, contributed to their success. There are also some who say that BIPOC can solve this issue by purchasing homes now; however, it’s not that simple. Homes in the mid-1900s were affordable to working-class families with an FHA mortgage, selling for only about twice the national median income. Today, those homes sell for six to eight times the national median income. So, although the Fair Housing Act was passed in 1968 allowing Black families to purchase homes, the homes were no longer affordable.

The more people who are aware of the importance of homeownership in closing the racial wealth gap, the more likely real change can be made. To address this gap in knowledge, modifications could be made in political and social systems to include education about how government-mandated segregation occurred, and therefore, government-mandated desegregation programs should exist to counteract the problem caused by them in the first place. Because of a reluctance to believe that government-mandated segregation occurred, there is a hesitancy—and maybe even outright disapproval—to institute any policies to reverse its effects. Therefore, further research should be conducted to increase the amount of evidence there is that homeownership would help reduce the racial wealth gap and that lack of access to homeownership for BIPOC heavily contributed to the racial wealth gap. Moreover, understanding self-interest is the key to getting people to mobilize. If those who currently accept, and even encourage, existing power relationships had a reason to become interested and invested in affordable homeownership, it would help further this initiative. This could potentially be done by making it profitable to build affordable housing, interesting developers and their investors. Despite the fact that the FHA was created to help families become homeowners, it excluded BIPOC, producing and reproducing privilege. Although the law is meant to bind all members of a given social community, these laws have had vastly different effects on different people, enacting inclusion in and exclusion from community membership. The law claims to be objective, but we have seen time and time again that this is not always true. The inability to accumulate generational wealth as quickly as their counterparts has led to detrimental outcomes for BIPOC, perpetuating a cycle that increases the racial wealth gap. If people are aware of how the government facilitated segregation through redlining, they can come together to change this reality that continues to plague BIPOC families today.

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