As part of our Fair Housing Month programming, Mainstreet hosted a conversation on “The Racial Wealth Gap and Homeownership" on April 22. Nate Johnson of RedKey Realty facilitated a discussion between Mehrsa Baradaran, professor of law at the University of California, Irvine; and Dr. Vanessa Perry, associate dean at George Washington University School of Business.
Baradaran and Perry covered a wide range of topics, from the history of housing discrimination in America to new opportunities to improve equity in mortgage lending. In case you missed it, here’s an overview of the highlights.
Homeownership Builds Wealth, But Black American Homeownership Rates Remain Low
“[Homeownership] is the key to wealth accumulation and intergenerational wealth transfer,” Perry said. “Being able to afford things like college education or retirement all go back to the ability to have access to homeownership. Not just any homeownership but homeownership that is fair.”
Rates of Black homeownership haven’t changed much in the five decades since the Fair Housing Act was passed. Perry attributes this to a lack of meaningful action during that time.
“Nothing has been put in place to make any changes,” she explained. “The system was designed by people who intended to exclude Black households.”
Policy changes in the years since, Perry said, amount only to ongoing tweaks to the system.
“If you really want to change the system that is based on systemic discrimination, what you would really need to do is start over again from scratch, and think about, ‘How would we build a system that is intended to be inclusive instead of intended to be exclusive?’”
Such a system would need to address both the historic barriers to Black homeownership and the unequal valuation of homes based on neighborhood makeup. According to Perry, neighborhoods that are even just over 10% Black have lower home values and lower price appreciation than whiter neighborhoods. This disparity is closely tied to the history of redlining and segregation, and associated issues such as education and employment access.
Where the Fair Housing Act Fell Short
Some readers may be wondering why this conversation is even necessary after the 1968 passage of the Fair Housing Act. But while many people seem to think that the Fair Housing Act “cured” housing discrimination, the data shows very clearly that it did not.
According to Baradaran, this is because the suite of civil rights laws passed during the Johnson administration, which included the Civil Rights Act, the Voting Rights Act and the Fair Housing Act, just reinforced the rights that were already written into the 13th, 14th and 15th amendments. Those Acts were monumental, but the rights “guaranteed” by those Amendments had never been enforced. The Acts did little to address the long-term impacts of the additional century of discrimination that occurred between the end of the Civil War and the 1960s.
Land reallocation was promised during Reconstruction, but that promise never materialized. Significant backlash in fact led to a retrenchment of the Southern white supremacist power structure. The FHA was meant to deal specifically with housing segregation reinforced by redlining, especially as it had been enforced by the government. But as with Reconstruction, strong backlash followed the passage of the FHA, and we have still not come very far in remedying racial segregation.
Two Foundational Myths and Their Impact on Housing Opportunity
Both Baradaran and Perry blamed common American beliefs for continuing to undermine our ability to create equitable housing opportunities.
“[There are] myths that we tell about how markets work and don’t work,” Baradaran said.
Housing segregation, she explained, specifically did not protect the property rights of an entire class of citizens. A true free market economy cannot exist where people are denied this equal protection under the law.
According to Baradaran, cognitive dissonance on matters of race is woven into the whole history of America. It’s clearly evident in the founders’ choice to enshrine slavery in the constitution even while declaring that “all men are created equal.” In order to finally move past this history and create an equitable society, Americans need to confront that past and address still-common ways of thinking.
“What do you passively accept about certain neighborhoods and certain schools, and certain people?” she asked, encouraging listeners to question the ways in which their own assumptions may be unconsciously shaped by America’s legacy of racism.
Perry echoed the idea of foundational myths continuing to shape housing opportunity.
“There is this great, rampant myth about merit,” Perry said. “That people who deserve get access to opportunities and, for whatever reason, people who are not deserving don’t get access to opportunities.”
Perry went on to describe how this myth informs the mortgage credit system and mortgage underwriting.
“The whole purpose of the model is to be able to predict default, and then to charge people who are more likely to default more money, if we approve them for loans at all,” she said. “How often do loans really default? Historically, the default rate across types of mortgages isn’t even 2%. That’s including the entire subprime crisis — the most recent one and the one that occured before that.”
During the housing crisis, people were quick to blame consumers for taking out loans they couldn’t afford, but Perry blames regulatory failure and poor decisions by banks and rating agencies instead.
“We really need to start with a clean slate,” Perry said. “What would be our ideal approach if the goal was to have an inclusive approach to housing finance?”
Perry and Baradaran both believe there are paths to improve Black homeownership and the racial wealth gap, but that significant change is required to get there.
For Perry, changes to mortgage lending are central.
“Every aspect of mortgage lending requirements is affected by the lack of cumulative wealth in the Black community and intergenerational wealth of Black families, which stems from a lack of homeownership opportunities and access to credit going back over time,” Perry said.
“As it stands, a large part of your mortgage decision depends upon your FICO score, which is based, by and large, on traditional forms of credit,” Perry said. “Something close to 60% of Black households are precluded from… a competitive-priced mortgage because they either don’t have a credit score or they are considered high-risk.”
However, Perry expressed hope about potential solutions, some of which are already in progress. Big Data now allows credit calculations to look at nontraditional types of payment data, such as those from Venmo, CashApp and banking. According to Perry, FICO has taken a leadership role in finding new and more equitable ways to assess creditworthiness, including through evaluation of utility and rent payments.
“This is an example of what I call, you know, starting with a clean slate,” Perry said. “Building a new system that is again intended to bring in as many people as possible, as opposed to the existing system, which is intended to do the opposite.”
Baradaran emphasized the importance of policy changes to create more equitable housing opportunities. Historically, Irish- and Italian-Americans were able to access mortgages through the GI Bill, while redlining and restrictive neighborhood covenants kept Black Americans from making use of the bill’s mortgage provisions. When Irish- and Italian-Americans then moved into the newly constructed white suburbs, Irish and Italian discrimination dissipated. New policy to improve neighborhood integration could have a similar effect for Black Americans today, Baradaran believes. In order to make these policy changes, we must make clear to white Americans that it is better for everyone to live in a society where Black Americans have equal access to housing, education and employment.
Perry closed the event by sharing a framework for thinking about the four pillars that need to be in place for equitable homeownership to become possible.
Ethical, socially responsible and just activities
Access to credit
Supply of affordable housing and address neighborhood disparities
Enforcement and regulatory reform (federal, state and local)
Educate Yourself: Continued Reading and Viewing
In order to contribute to a more just society, REALTORS®️ have to understand the history that got us to where we are today. These resources can help you continue to learn.
Historic Redlining Maps:
Professor Mehrsa Baradaran’s books:
How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy
Dr. Vanessa Perry’s work:
Dog Parks and Coffee Shops: Diversity-seeking in Changing Neighborhoods
Baradaran also recommended these books specifically about the Chicago area, which she referenced in her own work:
An Autobiography of Black Chicago by Dempsey Travis
Family Properties: How the Struggle Over Race and Real Estate Transformed Chicago and Urban America by Beryl Satter
There was also much, much more history discussed in the event that couldn’t be covered in this short article. If you weren’t able to attend our event, you can watch the whole thing on MORe on Demand: The Racial Wealth Gap and Homeownership: What REALTORS® Need to Know.
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