Symposium | The State of Black America

The Wealth Gap: Equal Returns on Home Ownership

By Dorothy A. Brown

Tagged affordable housinghomeownershipHousingInequalityrace

The year 2022 saw the first Black woman confirmed to the United States Supreme Court. We have recently elected the first Black American President and Vice President. Symbolic progress for Black Americans has been achieved. But the story about Black economic progress in America is far more complicated. 

A 2018 study by the Federal Reserve Bank of Minneapolis concluded that “no progress has been made in reducing income and wealth inequalities between Black and white households over the past 70 years.” The Black-white wealth gap currently stands at eight to one. A household headed by a white high school dropout has more wealth than one headed by a Black college graduate. A white high school graduate headed household has three times the wealth of that of a Black college graduate headed household. A white high school dropout has 23 times the wealth of a typical Black high school dropout. Black Americans with a high school diploma earned just under $30,000 compared with Black Americans with a college degree who earned almost twice that amount. A Black college graduate earns more income and has more wealth than a Black American who has not graduated college, but education does not solve the Black-white racial wealth gap. 

While it is true that greater education provides greater wealth for Black Americans, it does not minimize the racial wealth gap. At the lowest education level, the Black-white gap is, as noted, 23 times; but at the highest, it is 34. Wealth has a generational component. While white children tend to reap the benefits of intergenerational wealth transfers, Black children, less so. Research shows that Black children had the most difficult time achieving upward mobility when compared with white, Hispanic, and Asian American children. For example, a Black child of parents in the top income quintile is about as likely to fall to the bottom quintile as she is to remain in the top. Compare this to white children of parents in the top income quintile, who are almost five times as likely to remain in the top as they are to fall to the bottom. Even more depressing is the reality that according to a Brookings Institution report, seven out of ten middle-class Black American children “fall into one of the two quintiles below as adults.” And this from The Atlantic: “Even Black Americans who make it to the middle class are likely to see their kids fall down the ladder.” 

There is a slightly different story when discussing white Americans, wealth, and education. White Americans without a four-year college degree earn less than Black Americans with a college degree, but have more than twice the wealth that Black Americans have. The wealth gap between Black and white Americans in the bottom income quintile is lower than the wealth gap between comparable Black and white Americans in the top income quintile. The higher the income, the greater the wealth gap. White college graduates are more likely to receive family financial transfers from their parents, while Black college graduates are more likely to send money to their parents. And even though little progress has been made on reducing the racial wealth gap, giving up cannot be an option. So let’s consider the largest asset for building American wealth: homeownership.

For the typical American, the majority of wealth is tied up in our homes. While 74 percent of white Americans own homes, only 43 percent of Black Americans do. That homeownership gap partially explains why many progressives think that the key to decreasing the racial wealth gap is increasing Black homeownership rates. And while it is true that renters have significantly less wealth than homeowners, homeownership for Black Americans is fraught. Homeownership yields far greater white wealth than Black wealth and as a result will be of limited utility in decreasing the racial wealth gap.

Even in 2022 we still have a race problem when it comes to homeownership. Black homeowners do not receive the kind of wealth from homeownership that white Americans do. Black homeowners do not have the same types of neighbors as white homeowners. A New York Times study of America’s largest metropolitan areas showed that Black families making at least $100,000 were more likely to live in poorer neighborhoods than white families making less than $25,000. Some of those differences are rooted in historical racism while some are due to twenty-first century anti-Black racism. 

After World War II, the federal government through the Federal Housing Administration (FHA) insured low interest rate, low down payment, long-term homeowner loans that excluded Black Americans. All-Black neighborhoods were “redlined” and considered too risky. If they wanted to buy in an all-white neighborhood (assuming they would find someone willing to sell them a home in such a neighborhood), the federal government wouldn’t lend in those neighborhoods as white homeowners did not want to live next door to Black Americans. The FHA strongly encouraged developers to include racially restrictive covenants in their subdivisions if they wanted to qualify for FHA insurance. (The FHA went so far as to provide a sample covenant.) As a result, only white home buyers in all-white neighborhoods would be eligible for FHA loans. Black Americans need not apply.

Black families making at least $100,000 are more likely to live in poorer neighbourhoods than white families making less than $25,000.

In 1948 the Supreme Court held that the judiciary would no longer enforce racially restrictive covenants, but private parties could. It was not until after the Fair Housing Act of 1968 that it was illegal to discriminate on the basis of race in housing. Until 1968, however, Black homebuyers had a more costly homebuying experience and when they tried to integrate all-white neighborhoods, they were often met with violence—sometimes resulting in their having to abandon their homes and their equity.

Today it is illegal to discriminate on the basis of race against Black homeowners, yet Black Americans remain second-class citizens in the homeownership market. Research shows that once Black Americans constitute more than 10 percent of a neighborhood, the value of the homes in that neighborhood decrease. The greater the percentage of Black Americans in the neighborhood, the lower the value of the homes. Why? Because the greater the number of Black homeowners, the less attractive the neighborhood is to prospective white homebuyers—who constitute the majority of all homebuyers. Decades of research all point to the same conclusion, namely that “[n]ot only are blacks less likely to own homes than are whites, but, when they do own, the value of their homes is smaller at the means, at the medians, and with and without controls.”

One study described it as follows: 

African Americans have been particularly affected as several studies have found them to be the most disfavored minority group by whites as well as other racial and ethnic groups. Evidence indicates that it is the presence of blacks, and not just neighborhood conditions often associated with black neighborhoods (e.g., bad schools, high crime) that accounts for white aversion to such areas. In one survey, whites reported that they would be unlikely to purchase a home that met their requirements in terms of price, number of rooms, and other housing characteristics in a neighborhood with good schools and low crime rates if there was a substantial representation of African Americans. The presence of Hispanics or Asians had no such effect.

Other research describes it this way: “[W]hites report less satisfaction in neighborhoods with higher proportions of minority residents” regardless of socioeconomic conditions. Black Americans prefer to live in racially diverse neighborhoods, but white Americans prefer not to, and that causes black homeowners to have less wealth as a result of white preferences.

Research shows that homes in neighborhoods where Black Americans constitute 50 percent of the population are valued at roughly half the price as homes in neighborhoods without any Black residents. Considering all the majority Black areas in the study, the total estimated loss for the undervaluation of those homes was $156 billion. That represents wealth that Black homeowners lost because white Americans do not want to be their neighbors. 

Tax policy only makes things worse. Black homeowners who lose financially in the real estate market then lose some more when it comes to tax policy.

After the 2017 Tax Act increased the standard deduction, now just over 10 percent of Americans itemize their deductions. Only if taxpayers itemize their deductions do they get any benefit from paying mortgage interest. So the higher interest payments that Black Americans are more likely to pay may not result in any increased tax breaks. A second tax break for homeownership applies when you sell your home and also disadvantages Black homeowners. 

Homes sold at a gain can receive the gain tax-free provided the gain doesn’t exceed $250,000 if the taxpayer is single or $500,000 if she is married. Taxpayers who sell their homes at a loss are not allowed a tax break. Research shows that black homeowners sell their homes at less gain than their white peers and are more likely to sell at a loss. As I explain in my book The Whiteness of Wealth, the tax break for home sales traces its roots back to 1951, after a majority of white Americans had become homeowners. This happened in the decade between 1940 and 1950 with the help of racially discriminatory government support.

If, however, Black homeowners want their homes to be a good financial investment, they will want to live in all-white neighborhoods. If Black homeowners want to maximize their wealth from homeownership, then they need to be one of the only Black homeowners in their neighborhood. But there may be an additional price to pay. You may have white neighbors who call the police on you when you are trying to go to your home, or have issues with your children in their schools being targeted for discipline more than white students. 

Historically in the early- to mid-twentieth century, when Black Americans moved into all-white neighborhoods, they would often face violence, whether with bricks through their windows or a burning cross on their lawn. In the twenty-first century, even if you are a famous actor like Ving Rhames, living in an all-white neighborhood, you might have your neighbor call the police on you. If you are Black and going away on a cruise with your husband and live in a Missouri suburb with a 3.5 percent Black population, and you know your Black sons will be walking to school, you take the time to contact the chief of police and send them your sons’ pictures to let them know they belong in the neighborhood. Black Americans pay a non-financial price when they are the only Black family or one of very few Black Americans in the neighborhood—even though they are making a wise economical decision. 

Now let’s look at health. Research shows, perhaps counterintuitively, that racial disparities in health tend to be more pronounced at the upper ends of the socioeconomic spectrum. Despite having access to above average social and economic resources, nonpoor Black Americans report significantly worse health compared to their white peers. Nonpoor is defined as households with incomes above $55,000. Upwardly mobile Black Americans were significantly more likely to experience acute and chronic discrimination, respectively, than their white peers.

One of the strongest predictors of health is indeed socioeconomic status (SES), so much so that it is considered to be a fundamental cause of health disparities. However, Black-white health disparities are often more pronounced among high SES sub-populations than low SES sub-populations. In other words, upward mobility does not seem to bring similar improvements in health for Black Americans as it does for white Americans.

One potential explanation for these findings is that, for racial minorities, ascending the socioeconomic hierarchy does not guarantee fewer encounters with discrimination, or unfair treatment. In fact, some studies have revealed the opposite—namely that individuals with higher levels of SES tend to report more instances of interpersonal discrimination. There is a growing body of evidence to suggest that the association between SES and health is determined by race. 

Research links experiences of unfair treatment to subsequent morbidity and even mortality. In other words, racism can kill. General unattributed discrimination as opposed to specific and attributed measures of discrimination tend to be just as or more strongly associated with a variety of negative health outcomes such as heart disease and high blood pressure. The chronic nature of the discrimination, rather than the severity, is often considered a stronger predictor of worse health outcomes by race. Research shows that everyday discrimination is more consistently associated with higher rates of morbidity and mortality than acute instances of unfair treatment. Black homeowners living in all white neighborhoods still pay a health tax.

A recent study analyzing stress levels of Black Nashville residents living in predominantly white neighborhoods showed that the proposition that living in higher-income neighborhoods gives residents better health outcomes did not extend to Black Americans because of their experience with racism-related stress. Living in a home that is a good financial investment is a poor health investment. “Racism-related stressors negate much of the health benefits of residing in affluent communities for Black Americans,” according to the scholar Reed T. DeAngelis. This research can help explain why Black Americans, regardless of SES, generally live shorter and sicker lives than white Americans. Dealing with the fear of what might happen and anticipating negatives while engaging in pro-active measures contributes to poorer health outcomes for Black Americans, and never is that truer than for Black homeowners in virtually all white neighborhoods. 

Increasing the percentage of Black homeowners in America will not necessarily help solve the racial wealth gap—unless more Black homeowners buy homes in all-white neighborhoods. That was a part of the proposal put forth by Richard Rothstein in his 2017 book The Color of Law, which was designed to address historic racism in the real estate market. Rothstein described how Black Americans were systematically denied access to homeownership in Levittown, New York. He suggested that the government should purchase the next 15 percent of homes for sale there and transfer them to Black Americans at a discount, thereby providing them with instant home equity and wealth. Rothstein recognizes the political infeasibility of such an effort—but unfortunately, even if this weren’t the case, his proposal won’t work to build Black homeownership wealth as he suggests. 

Levittown’s population is less than 1 percent Black. Current homeowners are accustomed to living around few Black Americans. As such, the sudden influx of an additional 15 percent new Black neighbors would very likely result in white flight as Levittown homeowners put their homes on the market and leave. That would be followed by a fall in home values because fewer prospective white buyers would want to live there. After it was all over, Black homeowners who thought they would have wealth would find themselves with a lower valued home because they weren’t the only one—or in other words they had too many Black neighbors. Rothstein, like many on the left, makes the mistake of ignoring anti-Black racism that operates not through the government, but through personal decisions made by white home buyers. 

If finances are one reason why Black Americans buy homes in all-white neighborhoods, then perhaps one solution is to ensure that Black homeowners get the same rate of return living in all-Black or racially diverse neighborhoods. Black homeowners should be guaranteed the same rate of return that their house would receive if it were in a comparable all-white neighborhood. In that case, Black Americans would not have to live in neighborhoods with mostly white neighbors with negative health consequences. They could be free to live wherever they wanted with no financial downside—just like most white homeowners. The real key to make sure increased Black homeownership rates help decrease the racial wealth gap will be equal returns on homeownership. Given the federal government’s outsized role in creating our racialized housing market, it is the least we should expect the government to do.

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Dorothy A. Brown is the author of The Whiteness of Wealth: How The Tax System Impoverishes Black Americans—And How We Can Fix It (Crown 2021).

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