Racial wealth disparities in the United States are well documented, and as a primary tool for wealth-building, housing sits at the forefront of both its root causes and most addressable solutions.
According to the US Census Bureau, as of Q4 2021, just 43.1% of Black households were homeowners compared to 74.1% of White, non-Hispanic households (Chart 1). The gap between White, non-Hispanic households and other races is smaller but persists. Policies that enabled racial discrimination and de-jure segregation in American cities throughout the 19th and 20th centuries largely have facilitated today’s still prevalent racial disparities in homeownership, wealth, and income.
In this analysis, the Research Team at Chandan Economics explores the origins of these inequities and their inter-generational economic consequences. Going further we case study some of the leading ideas capable of positively affecting the racial housing equity gap and related inequities.
Racial Inequities in Housing
While structural racism was prevalent throughout the United States before the 1930s, racial-exclusionary elements of several New Deal-era programs compounded the effects of segregation. In a 2020 research paper, The American Sociological Review studied the effects of redlining policies laid out by the Home Owner’s Loan Corporation (HOLC), a New Deal-era lending agency aimed at spurring American homeownership in response to the Great Depression. It found that segregation was more prevalent in areas appraised by HOLC, where mortgages in minority-majority neighborhoods were deemed “hazardous” due to the areas’ racial characteristics.
The practice of redlining by other federal agencies including the FHA was used across US metropolitan areas to limit real estate financing in minority-majority communities, catalyzing the entrenched racial segregation that continues to be observed in major cities today. Other racial-exclusionary elements in public policy, including those contained in the G.I. Bill, one of the most extensive national fiscal support programs in American history, further exacerbated the homeownership gap.
An Inter-Generational Wealth-Gap
Housing is a significant component of upward mobility across generations; therefore, the homeownership gap between Whites and Minorities helps explain the pervasive racial inequities in both wealth and income that are seen today. One residual effect of this imbalance is that today, most ethnicities of color are more likely than White, non-Hispanic households to be low-income renters. According to the 2020 American Community Survey, 30% of Black renters and 25% of multiracial and other, non-Asian minority renters are at or below the poverty line. In contrast, just 19% of White renters and 18% of Asian renters fall into this threshold (Chart 2).
Due to the parallel histories of housing discrimination and policies that influenced economic inequities—including reduced access to quality education, underinvestment in environmental and public infrastructure, and exclusion from capital markets, housing equity alone cannot level the mobility playing field. Research has increasingly shown that economic barriers for African Americans stretch across neighborhood and class lines.
In a 2019 paper, Opportunity Insights studied racial disparities in the US at an inter-generational level, using longitudinal data covering the US population from 1989 to 2015. Their results found that the black-white mobility gap persists in 99% of all census tracts, suggesting that even among children who grow up in the same neighborhood, with similar household makeup and income, white children maintain better outcomes.
Utilizing these data, which analyzes the income outcomes of black male children and white male children whose parents are both at the 25th percentile of the income distribution, we find that white male children experience a larger jump in upward mobility compared to blacks, with the gap widening as we go further up the income distribution. (Chart 3).
Case Studies for Success in Addressing Racial Inequities
There is no single silver bullet for addressing these inequities, but policy changes will require intentionality and creativity to decouple the relationship between race and wealth. Based on case studies conducted across different geographies and time periods, below are five areas of policy that have been shown to help correct both the legacy of structural racism and its economic effects.
Enforcement of Fair Housing Laws: During The 1970s, HUD expanded the enforcement of policies under the Fair Housing Act of 1968 as a tool to deter state and local discriminatory practices. HUD’s authority over approving federal grants allowed them to enact stricter standards for water, sewer, and highway project proposals from cities and states. Consequently, in localities that historically overburdened low-income and minority communities with public works’ economic and environmental costs, federal investment was cut, disincentivizing the practices. Such enforcement was heavily controversial and was ended shortly thereafter, resulting in a decades-long standard of relaxed enforcement of the law. A 2010 report by the Government Accountability Office (GAO) called for a need for HUD to enhance requirements and oversight of the Fair Housing Act. The GAO report eventually led to a 2015 HUD rule change that enacted “Assessment of Fair Housing” guidelines for cities; however, in early 2018, the rule was suspended. Revisiting HUD’s use of these oversight tools would give regulators a more direct hand in disincentivizing development that amplifies racial disparities.
Investment in Environmental Infrastructure: Historical underinvestment in quality drainage and sewers is a culprit for some climate stress in formally redlined districts. Further, the uneven geographic impact of climate change, the ability of some regions to adapt its effects easier than others, and the consequences of broadly applied policies to address such climate concerns, may all increase economic inequality. Research by staff at the Federal Reserve of New York found that regions of the US that are home to larger shares of low-income and minority groups, particularly in the US South, are likely to suffer the most significant level of damages from climate change. Limited access to credit and insurance affordability may also compound the ability of minority and low-income households to respond to arising crises. The Community Reinvestment Act of 1977 sought to dismantle the practice of redlining and set fairer standards for lending institutions to prevent discriminatory practices. However, some of its criteria have been criticized for its lack of specificity, and additional guidance may help steer market institutions towards more equitable investments and address climate resiliency. In 2021, the State of New York issued guidance to banks and other lenders subject to its Community Reinvestment Act to allow them to receive credit for financing climate-resiliency measures in underserved communities. Replicating a form of this practice in other states and localities would help low-income and minority communities get a step ahead in the fight against climate change.
The Growth of Micro-Businesses: The COVID-19 pandemic was the catalyst to seismic changes in both the labor market and service economy. Sizeable fiscal stimulus measures enacted by federal and state governments alongside a shift to a more virtual economy with evolving consumer preferences produced fertile ground for micro-businesses. A recent study by Go-Daddy shows that in 2020, microbusinesses grew fastest in majority-black zip codes, where the impacts of the pandemic from both a health and economic standpoint were felt on a grander scale. The circular flow of money, goods, and services enabled by such environments stimulates wealth building and fosters a more dynamic neighborhood use. Capital availability alongside thoughtful applications of multi-use zoning could help scale the benefits of minority entrepreneurship.
Promoting Housing Supply Growth Through Zoning Reform: Exclusionary zoning laws restrict the types of homes that can be built in a particular neighborhood. While local zoning regulations are used to promote public interest in many cases, they have often been used to preserve property values and prevent neighborhood integration— entrenching concentrated poverty. The impact is not exclusive to low-income households. There is evidence of a relationship between restrictive land-use regulations and housing unaffordability as supply is constrained, driving up shelter costs. Such cost burdens eventually spread to middle-income households as well. Enacting federal zoning standards would be a complex and sensitive undertaking, given its link to existing land values and the systemic risk that upending such values may pose to the nation’s economy. However, doing so does not need to be one-size-fits-all and is certainly not the end-all-be-all to easing housing unaffordability. Incentivizing the market to create more housing will naturally push investment towards areas with the highest returns, which may siphon away human capital from lagging regions into already wealthy urban centers. To prevent this, reforms must have a national scope and be adaptable to the needs of different regional economies.
Deconcentrating Use of Housing Choice Vouchers: Housing choice vouchers have produced significant results in the form of increased housing stability and reduced childhood poverty. However, landlord participation in the program is mainly voluntary. A survey of voucher acceptance in Dallas shows that only 4% of apartment complexes in majority-white zip codes accept vouchers, while 46% of complexes in majority Black zip codes accept vouchers. Such barriers make access to more affluent neighborhoods and wealth opportunities out of reach by low-income and minority households. In some states and municipalities, laws prohibiting discrimination based on the source of household income encourage the use of the voucher program. An analysis by HUD shows that in three of the five sites observed, the landlord denial rate was 67 percent or higher. In the two sites with lower levels of landlord denial (less than 31 percent), source-of-income antidiscrimination laws require landlords to accept vouchers.
These case studies offer a range of ideas that, while imperfect, could serve as a framework for addressing long-standing racial inequities in housing and wealth if studied and tested further. Economic downturns such as the Great Financial Crisis and the COVID-19 pandemic have only magnified these issues, furthering the urgency of policymakers to address them. The research team at Chandan Economics will continue the discussion and analysis of the above case studies in further detail, with hopes of highlighting their pros and cons and strengthening progress towards societal equitability.