Homeownership and the racial wealth gap, in Houston and beyond

Yesterday our co-director, John Henneberger, appeared on Houston Public Media to discuss how rates of homeownership affect the racial wealth gap.

“The segregation of people of color into neighborhoods where home equity does not accumulate as fast, where foreclosure rates are often higher, where property values remain low, basically prevents people from being able to accumulate assets, and assets are the essential thing that allows the next generation to be able to afford a home,” John told the station (listen to the full story here).

The story detailed a recent study by Demos and Brandeis University indicating that homeownership is the most significant factor contributing to the gap in wealth between whites and minorities. That gap stems from a legacy of racial segregation, and segregation continues to drive it.

The Houston area’s racial homeownership rates closely resemble the country’s. As of 2010, 73 percent of white/non-Hispanic households in Houston-Sugar Land-Baytown own their home, compared to 68 percent of Asian households, 53 percent of Hispanic households and 45 percent of African-American households. According to the Demos/Brandeis study, if homeownership was equalized nationwide, the wealth gap between African-Americans and whites would shrink by 31 percent and the gap for Hispanic households would shrink by 28 percent.

The authors of the study emphasized the impact that “redlining,” the forced racial segregation of neighborhoods in the 20th century, continues to have on American cities. “Residential segregation by government design has a long legacy in this country and underpins many of the challenges African-American families face in buying homes and increasing equity,” Brandeis researchers wrote in a 2013 report that specifically tackled the black-white economic divide.

“Homeownership is really the largest investments that most American families have and it’s by far the biggest item in their wealth portfolio,” John told Houston Public Media. But due to redlining and discrimination in mortgage lending, credit and other housing factors, historic segregation has prevented many minority families from investing in homes and accumulating wealth at the same rate as whites.

In fact, Brandeis found that years of homeownership, not just homeownership itself, is the driving force of racial wealth inequality. African-American homeownership duration has been historically limited in many ways. Redlining artificially lowered the demand for housing in segregated neighborhoods, greatly reducing the market for African-American homeowners to sell their homes or increase their investments. Decades (if not centuries) of wealth accumulation makes it much easier for white households to use inheritance or family help for a down payment on a home – white families purchase homes and start building equity an average of eight years earlier than African-American families. And if those down payments are larger, since white families are far more likely to be able to afford greater upfront costs, that lowers ongoing loans and interest rates. The wealth gap is a vicious cycle: Those who have historically been wealthy are more likely to build greater wealth.

And the gap is getting worse. According to Brandeis, wealth inequality between black and white households tripled in the 25 years between 1984 and 2009. Minority families must confront new drivers of racial inequality, such as subprime loans and the diminishment of home values, even as the historic wealth accumulation cycle increases wealth disparity further and further. African-American homeowners are now 50 percent more likely than whites to lose their homeownership status, while in the 2000s African-Americans were twice as likely as whites with similar incomes to sign subprime mortgage loans, thanks in part to discriminatory targeting practices.

In Houston, the average resident is less likely to be rejected for a home loan than the average American. But a study released in February by Zillow, Inc. found that African-American and Hispanic Houstonians are more than twice as likely to be rejected than their white counterparts. Just 7.6 percent of white Houstonians are denied home loans, compared with 12.5 of Asian applicants, 16.6 percent of Hispanic applicants and 19.6 percent of African-American applicants. Meanwhile, home values and homeownership rates have sharply declined in Houston’s minority neighborhoods as the city’s housing market is ranked as one of the least affordable in the United States for first-time homebuyers.

What’s happened in Houston has happened in much of the country: the enduring damage of segregation combined with, and exacerbated by, new versions of discrimination and expanding inequalities in wealth accumulation. The Houston Public Media story highlights the Neighborhood Assistance Corporation of America (NACA), which helped an African-American Houstonian, Erica Jackson, with comprehensive mortgage counseling that has allowed her to purchase her family’s first home in Cypress, a mostly white, higher opportunity community in unincorporated Harris County.

Programs like NACA can help families like Jackson’s. But without large-scale action taken by cities like Houston to promote integration and alleviate racial divisions in housing practice, the wealth gap will continue to increase. “The city needs to not locate affordable housing opportunities targeted to people of color exclusively in low-income neighborhoods of color,” John said on the radio yesterday. Expanding housing opportunities beyond traditional racial borders will be the first step toward crumbling housing segregation and spreading more wealth to all.