The fight to eliminate racial disparity in the United States turned a corner in 2020. The widespread protests over the murders of George Floyd and Breonna Taylor highlighted the issue of racially motivated police violence and helped Black Lives Matter cross the threshold from a fringe movement to a major player in a new nationwide dialogue about racial disparity in the United States.
The coronavirus pandemic also underscored how institutional racism in the public health system and the workforce have affected Black lives. The Brookings Institution estimates the pandemic death rate for Black lives was 3.6 times higher than for white lives.
Private corporations and the public masses appear to finally be listening. At the core of the problem: the Black-white wealth gap and how it opens Black households to critical disadvantages, especially during economic downturns.
According to the Federal Reserve, white households — who account for 60% of the U.S. population — held 84% of total household wealth in the U.S in 2020. In comparison, Black households — accounting for 13.4% of the total U.S. population — held just 4% of total household wealth in the same year.
The Institute for Policy Studies “Racial Wealth Divide” report shows that Black and Latino families are twice as likely to have zero wealth, or even “negative” wealth — meaning the value of their debts exceeds the value of their assets — with the rate of negative wealth rising from 8.5% to 37% between 1983 and 2016.
Homeownership: A main determinant of wealth
According to the Quarterly Residential Vacancies and Homeownership report for the fourth quarter of 2020, the homeownership rate among Black Americans was 44.1%, a stark contrast with the 74.5% rate of homeownership among white non-Hispanic Americans.
But what is responsible for the homeownership gap between whites and non-whites? A myriad of systemically racist policies and practices enacted by the federal government, the real estate industry, and banking institutions, which over time relegated people of color to urban core neighborhoods, fueled white flight, and prevented Black families from accessing the same financial products that have helped white people purchase property in the last 90 years.
Chief among the problematic racist policies in real estate keeping Black families from owning homes were policies that included …
These deed restrictions prevented people of certain races from buying, renting or living in homes in certain communities. A precursor to redlining, the unpleasant language used in the deeds can still be seen in documents for properties that predate 1948, when the Supreme Court decision of Shelley v Kraemer banned states from enforcing this practice.
The Mapping Prejudice project has been working to collect racial covenants data in Minnesota and its effects on the segregation of the Twin Cities.
Steering involves maneuvering the available listings or otherwise influencing a potential buyer, usually with the effect of keeping a person of color out of a white neighborhood.
The practice of penalizing a real estate agent who steers buyers to racially homogeneous neighborhoods was introduced in 1924 by the National Association of Real Estate Boards.
According to the National Association of Realtors, steering is still alive and well today, more than 50 years after the enactment of the Fair Housing Act. And because buyers don’t know what their agent isn’t telling them, it’s very difficult to catch.
Born out of the wave of foreclosures during the Great Depression, these redlining maps — coded in green, blue, yellow, and red areas — determined whether the government would insure a loan or not. The government refused to insure loans in minority neighborhoods, which were outlined in red — hence the term redlining.
Redlining spread quickly out of federally insured mortgages and into private banking practices, and its effects can still be felt in the 21st century.
Nearly 70 years after the Fair Housing Act, The Brookings Institution still finds that metropolitan areas remain racially segregated. Inner city school districts still tend to be perceived as poor in academic achievement and quality of education, and public transportation lines clearly segregate between white and Black riders in most major markets.
Also known as “panic peddling,” blockbusting happened when white homeowners were manipulated out of their neighborhoods by speculators and real estate developers looking to profit from white flight.
An investor would pay a low price to a white homeowner, sell to a Black buyer at an overinflated price, and finance the purchase at predatory interest rates.
Black tax or predatory inclusion
Also known as “race tax,” this is a practice, according to Keeanga-Yamahtta Taylor in her book Race for Profit, where speculators took advantage of the demand for living spaces to charge predatory interest rates on mortgages. Or, Black borrowers would unwittingly enter “rent-to-own” schemes in order to access property to purchase.
As part of predatory inclusion, Black people paid thousands of additional dollars for “older and inferior housing,” which meant less money available for repairs and maintenance, further plunging Black neighborhoods into disrepair. All this happened while their white counterparts were able to access small down payment loans and low interest rates, accruing wealth over generations.
Exclusionary lending practices
In what The Chicago Tribune called “modern day redlining,” the Center for Investigative Reporting found a “pattern of troubling denials” for people of color all over the United States as recently as 2018.
Black mortgage applicants were turned away at significantly higher rates than whites in 48 cities, a fact that banking institutions explained by citing poor credit histories and debt-to-income ratios that exceed the ratios preferred for a mortgage loan.Though the study controlled for factors like income and loan amount, it wasn’t able to account for credit score or debt-to-income ratio, since lenders don’t report that information to the government.
Discriminatory credit score algorithms
While the credit score at its inception was meant to eliminate bias, some of the information considered and not considered when calculating a credit score tends to hurt Black borrowers more than it does white ones.
Simply put by inequality.org, a single negative event — like the coronavirus pandemic — can “exhaust the financial savings and reserves” of many households of color. This exhaustion of savings and reserves can then have lasting impact on credit scores for years to come, making credit more difficult to obtain and further adversely affecting these households. The compounding effect of low credit scores on generations of borrowers means those borrowers have to pay higher rates, save up longer for down payments, and generally will struggle more to become homeowners.
Lack of affordable housing
Gentrification is driving minority communities out of their historically segregated inner city neighborhoods, and sometimes pricing them out of cities completely.
The National Low Income Housing Coalition says no state has an adequate supply of affordable housing, and research shows that construction regulations have aided in driving the cost of new construction up.
The appraisal industry has received multiple media reports in the last few months of Black homeowners reporting that their homes are appraising at rates below those of their white neighbors — sometimes hundreds of thousands of dollars in difference.
The accusations of appraisal bias have been followed by reports of a lack of a database of discrimination complaints against appraisers. For example, according to The Washington Post, only six complaints were filed against appraisers in 2020.
According to housing experts, like with steering, many cases go unreported because homeowners simply don’t realize they are being discriminated against.
What can the real estate industry do to right their wrongs?
As a whole, the real estate industry needs to support federal, local and state regulatory changes to increase the inventory of homes available for sale to Black homebuyers, as well as push for programs that offer down payment assistance for first-time homebuyers of color.
On the flip side, the real estate community needs more education on exactly what constitutes racism in real estate, and how they can eliminate racist practices. They also need to educate buyers, and arm them with the proper tools to report agents, brokers, lenders, and appraisers who might be biased against minorities.
The first step? “People talk about the free market as this racially neutral, color-blind space within which the invisible hand of supply and demand dictates what does or doesn’t happen. But that’s so incredibly naive. The market is us. The market is a reflection of our values,” says Taylor. Understanding our individual biases starts with accepting the fact that modern-day racism exists, recognizing our own prejudices and learning about ourselves and others.
At the federal, local, and state regulatory levels, these are some of the proposals that have been brought forward by the Biden-Harris administration to help curb racism in real estate and expand homeownership among Black people.
Invest in affordable housing
With home prices rising 8.4% year over year according to the S&P CoreLogic Case-Shiller Home Price Index, home affordability is an issue for first-time homebuyers. The combination of pandemic economic conditions and low inventory levels, plus ultra-low mortgage interest rates, means buyers are finding it very hard to go from renters to buyers.
To help this situation, developers have to be encouraged to build with density in mind instead of focusing on single-family homes. The Homes for All Act, presented by Representative Ilhan Omar (D-Minnesota), is an ambitious plan looking to provide millions of affordable housing options in the areas of the country with the largest shortfalls of housing, including both rental and homeownership opportunities for first-time homebuyers.
Change zoning rules
The State of the Nation’s Housing Study in 2018 found that state and local rules needlessly drive up the cost of construction. By setting a competitive federal grant program, states, cities, and localities can be convinced to reform land-use rules to allow for zoning changes.
Down payment assistance programs
People of color are increasingly unable to access the down payment funds needed to purchase property.
The Biden-Harris administration hopes to offer a new, refundable, and advanceable down payment tax credit of up to $15,000 to targeted first-time homebuyers.
Make it easier to bring civil claims for damages
Another Biden-Harris campaign promise included the creation of national standards to avoid discrimination in the real estate industry.
It’s a step in the right direction, but does it go far enough? As we learn more about the issues and focus on solutions, we may discover that a better solution could be opening up court access for Black homeowners to sue agents, lenders, or appraisers for discriminatory practices. As we’ve learned, standards are only as useful as the entities willing to enforce them with real consequences.
Header Image Source: (Clay Banks / Unsplash)