Connecting state and local government leaders
Local leaders are experimenting with creative financing, zoning changes and cooperative housing to reverse long standing housing discrimination.
Homeownership is one of the most highly regarded methods for wealth building. Rather than sending a check to a landlord each month, homeowners’ monthly mortgage payments are an investment, creating equity they can tap into later. But research has shown that people of color must navigate a gauntlet of barriers to access home ownership opportunities.
Inequitable housing policies not only hold back potential homeowners. They also limit the social benefits that come with home ownership: financial stability, civic engagement and better outcomes for children.
Local and federal leaders recently gathered at the Urban Institute in Washington, D.C., to discuss racial disparities in homeownership and some of the innovative solutions that could help populations that have long been shut out of the opportunity.
Nationwide, about 72% of white households are homeowners, while only about 42% of Black households own theirs, according to an Urban Institute report published last year. That gap is even wider now than in 1960, when housing discrimination was still legal, the report noted. The picture isn’t much better for other demographics: Hispanic homeownership sits at 48%, Native American at 53% and Asian at 60%.
While the challenges to achieving racial equity in homeownership are daunting and have tangled roots in historic injustices, the affordable housing crisis is worsening. Local officials are on the front lines addressing the issue, and many are looking to boost homeownership rates with approaches that center on equity.
“There are lots of reasons why a city should be very involved in promoting homeownership among people who can't just do it without some assistance,” Michelle Melendez, director of the Office of Equity and Inclusion in Albuquerque, New Mexico. “The racial wealth gap is a huge one,” she added, which can be detrimental to the local economy.
As of 2019, the median wealth of white families was $188,200, while that figure dropped to $24,100 for Black families, the report notes. Compared with white people, Black Americans are much more likely to work lower-paying jobs and are more likely to be renters, which can have a major impact on finances. Black homeowners have a median net worth of $113,300, but Black renters have a median net worth of $1,830. And when rent eats up a significant share of a household's income—as is the case for more than half of Black households that are rent burdened—saving for a downpayment on a home can feel impossible.
That’s why down payment assistance programs can have a big impact in helping Black families purchase a home, panelists said. There are more than 2,500 down payment assistance programs across the country to help low-income families, according to the Urban Institute report. In Austin, the city’s equity office is working with the Austin Housing Finance Corporation and the national nonprofit UpTogether to administer unrestricted cash assistance to 13 families of color. Most of the 13 households the city is working with have closed on a house and the program has shown the impact unrestricted cash assistance can have on a family.
In other cash assistance programs, the city found that most of the money went toward housing costs, said Amanda Jasso, Austin’s interim equity officer. “The people who are closest to the problem usually have the best solutions,” she said. “For us, this was really about getting out of the way and getting money to folks as quickly as possible.”
Some cities have gone as far as providing cash assistance specifically to address historical injustices. Evanston, Illinois, is looking to boost homeownership through an initiative that offers reparations for “harm caused to African-American/Black Evanston residents due to discriminatory housing policies and practices and inaction on the part of the City from 1919 to 1969.” The program offers up to $25,000 for Black families to purchase a home or make repairs.
Besides downpayment assistance programs, there are housing models that reduce the upfront costs a household needs to cover to secure stable housing. Cooperatives, in which tenants own a share of the building, can also help make homeownership more accessible to Black families. Coops are often less expensive than renting because shareholders pay only what it costs to operate and maintain the building. The cooperative model often involves a mixed-use building, also creating opportunities for entrepreneurs, said Brian Smith, founder and CEO of Fortis Capital, a Minnesotan nonprofit focused on economic development.
Racial disparities in homeownership rates can, in part, be traced back to racist systems that shaped the country. Take, for example, the G.I. Bill, which gave veterans extremely low-interest loans to purchase homes after returning from World War II. The initiative inflated the country’s middle class as white households were able to start building generational wealth. Black families, however, were often shut out from the benefits in a segregated America. Plus there’s the legacy of redlining, which began in the the 1930s when the Federal Housing Authority refused to approve mortgages in and around Black neighborhoods.
Zoning has also contributed to racial segregation, but it’s an area where local officials have the greatest power, the report noted.
At face value, zoning is about regulating the kinds of buildings that can exist in certain areas, said Michael Neal, author of the Urban Institute report. “But there's also part of zoning that is rooted in, ‘Who do we want to live in this space and who don't we,’” he said. “Zoning in that way [becomes] a tool of exclusion.”
For decades, land use regulations cemented segregated development patterns that continue to exist today and made it difficult to create enough housing.Minneapolis, though, made headlines in 2020 as it became the first major city to ban single-family zoning, which expanded opportunities to build multifamily housing. If those developments come to fruition, it can increase housing density, lower housing costs and reduce one of the barriers families of color often face.
Other policies to address homeownership disparities involve financing. In Albuquerque, officials are experimenting with a handful of different approaches using grant money from Living Cities, a partnership of foundations and financial institutions, according to Melendez. One approach is issuing baby bonds to help the next generation begin building wealth that could be put toward a home.
“We recognize that the homebuyers themselves are bringing most of the money to the table, and the city's role is to find that financing for the gap,” Melendez said.
Elected officials should work with banks to ensure Community Reinvestment Act credits are providing the benefits they’re intended to have, Smith said. The law incentivizes lenders to approve loans for households in low- and moderate-income neighborhoods, often in what were. redlined communities. But when banks receive credits for issuing loans to wealthy people who purchase property in a poor neighborhood, Smith said, that can lead to gentrification and fails to benefit the community’s poorest members.
“I would encourage people to push their banks … and say, ‘Hey, we need to revisit this so that it can be a more meaningful policy that's actually impacting people in a way we want it to,” he said.
Ultimately, reducing racial disparities in homeownership would result in benefits across communities, said Deputy Secretary of the U.S. Department of Housing and Urban Development Adrianne Todman.
Barriers to homeownership don't just “harm African Americans and Hispanic Americans. It really harms all of us. It harms our economy,” she said at the Urban Institute event. “By putting homeownership further out of reach, we are preventing our communities from being further developed and preventing an entire generation of families from purchasing power that benefits businesses, schools [and] neighborhoods.”