Understanding the Wealth and Homeownership Gap
In June of 2021, President Biden gave a speech to address the 100th anniversary of the race massacre at Tulsa – an area that was called “Black Wall Street” due to the high economic status and activity of the region.
During the president’s speech, he addressed unfair practices in the mortgage process that impact including the fact that Black American homeownership is lower today than when the fair housing act was passed more than 50 years ago. Below are some of the key issues that continue to lead to that homeownership gap.
In areas where large, underfunded housing projects are the norm, the lack of homeownership leads to failing businesses, not enough taxes collected, and an inability to fund the local schools. Therefore, many urban school systems are low on resources and materials. Research has shown how the physical classroom environment influences student achievement.
Inadequate lighting, noise, low air quality and deficient heating in the classroom are significantly related to lower student achievement. Over half of U.S. schools have inadequate structural facilities, and students of color and lower-income students are more likely to attend these schools.
When local and state governments allow problematic housing and school infrastructure issues to continue, the distracting environment can lead to increased dropouts or graduates with less-than-optimal education. They’re forced to compete with students from well-funded school systems and connections to college systems. Though many may graduate, they are disadvantaged because their high school experience was inadequate from the first day.
Some years ago, a large-scale analysis of school finance cases revealed that schools serving greater numbers of students of color had significantly fewer resources than schools serving primarily white students. “Resources” covered everything from qualified teachers to the curriculum.
There is often not enough money saved for those that graduate high school for them to go to college. The lack of quality education may mean lower SAT scores and scant scholarships opportunities. Many of the small grants offered today will barely cover the tuition and other college costs. This leads many to pursue trade schools or factory work, which may mean lower pay. For many in this scenario, it will likely take them 10 to 15 years to save enough money to buy a home. Living in a community of people in similar situations means that family members and friends cannot support them with either money for college or a down payment.
Graduates may experience some apartment and housing owners who discriminate or will not rent to a person of color. In fact, a recent study by Suffolk University Law School found that renters to face discrimination when trying to rent an apartment. The negative treatment ranged from being questioned on their credit score to never hearing back from the apartment provider at all. The study uncovered that Black participants experienced discrimination by brokers, agents and landlords in 71% of the 200 test cases.
Homebuyer for minorities
For some minority homebuyers, getting approved for a mortgage can become difficult. If lenders believe that buyers need an affordable loan product, they may be reticent to invest the additional time required to help buyers obtain this type of loan. There is a real challenge related to the commission gap between investing time in these loans instead of other more “straightforward” loans.
Black and brown buyers who eventually become homeowners may experience issues if they later want to sell their property. Appraisals for minority homeowners often come in much lower than for white home sellers. Speaking to the Washington Post recently, Rodman Schley, president of the Appraisal Institute, which counts more than 17,000 members, says, “You’ve got to recognize that bias exists, especially unconscious bias. Anyone who says that it doesn’t exist [in the appraisal process] is simply wrong.”
Learning more and doing more
It’s crucial for those of us who work in the housing industry to educate ourselves and ensure that we understand how and why the homeownership gap exists. President Biden plans to reduce the wealth gap across many channels in Black and brown communities, focusing on minority homeownership, minority business development and support, and a few other critical components.
Here at Homebridge, we are releasing new affordable lending options and educational opportunities for underserved communities. We believe these initiatives will help contribute to lessening the gap in these areas.
Creating change means staying informed and being active. Below are additional resources to help educate you on critical issues addressing diversity, empowerment and inclusion throughout the mortgage industry.
|Biden’s Plan to Narrow the Racial Wealth Gap (Source: BusinessInsider.com)
President Biden announced a new plan to narrow the racial wealth gap, including $100 billion in federal contracts to small businesses and rules to end housing discrimination.
|Framing Urban School Challenges (Source: rtinetwork.org)
This article presents an overview of the issues most relevant to developing and implementing Response to Intervention (RtI) models in contemporary urban schools.
|A Black Woman Hides Her Race to get a Fair Home Appraisal (Source: NPR.org)
This article explores the issue of unconscious bias when it comes to home appraisals. Earlier this year, a black woman in Indiana received media attention when her home appraisal jumped by thousands of dollars after hiding her race.