Interest rates have been on the rise for more than a year as the Federal Reserve tries to curb spending and, hopefully, inflation. As borrowing cost increases have forced both investors and consumers to rethink their priorities, near-term commercial real estate forecasts have zeroed in on the Fed's policy movements as a linchpin to credit conditions and industry performance. However, history suggests that how banks set and adjust credit standards is far more informative about the future of lending activity than rates themselves. On May 8th, the latest release of the Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS) provided an updated view into how lenders have attuned loan standards to adjust to today’s tighter financial environment. More specifically, the Spring 2023 SLOOS also included questions specific to how banks have changed policies on commercial real estate loans over the past year. During the first quarter of 2023, the share of lenders that indicated they are tightening loan standards for commercial real estate loans increased across all sub-types. A net 73.8% of banks showed tighter lending standards for construction and land development loans in the first quarter of this year compared to a net 69.2% in Q4 2022. Similarly, 66.7% of banks indicated tighter standards for nonfarm nonresidential loans compared to 57.6% at the end of 2022. Meanwhile, 64.5% of lenders indicated tighter standards for multifamily loans in Q1 2023 compared to 56.7% in Q4 2022. Interestingly, despite the steepest rate hikes likely behind us, lenders are increasingly worried about near-term financial conditions as growth slows and banks attempt to absorb rising borrowing costs. According to the survey’s findings, the most frequently cited reasons for tightening standards were a deterioration in credit quality within their loan portfolios, reduced risk tolerance, and concerns about bank liquidity and deposit outflows. Most market watchers assumed that the Fed’s tightening efforts would slow down transaction volume in CRE markets, but recent bank failures have amplified concerns surrounding CRE's reliance on bank lending. Specifically, mid-sized regional banks, which are experiencing some of the most significant balance sheet distress in today's rate environment, remain one of the largest underwriters of commercial real estate loans. The Spring 2023 SLOOS found that tightening lending standards was more common among mid-sized banks than their larger counterparts. On the one hand, this lends credence to some economists' concerns about CRE contagion risk, though with a grain of salt. Some estimates place regional banks in the ballpark of holding 65-80% of all CRE loans— which, upon a closer look, appears to be greatly overstated. According to data from Moody’s, the 135 US mid-sized regional account for closer to 14% of debt on income-producing properties—which still represents a plurality of bank-issued loans (38.9%) but a much more modest level than some other projections. Contrarily, the top 25 largest banks hold 12% of outstanding debt, while smaller community banks, which total 829 nationwide, account for roughly 10% of CRE debt. The April 2023 SLOOS signals that commercial real estate loan issuance is likely to slow in the coming months, and the combination of falling loan demand and tighter credit standards will place downward pressure on prices. As evident in the survey data, standards for commercial loans are tightening faster than for multifamily loans, which should be further anchored by Fannie and Freddie serving as a liquidity backstop for residential markets. Within the commercial sectors, office property loans that are up for refinancing, for example, are likely to face more scrutiny than their industrial asset counterparts. As signs increasingly point towards an impending pause in interest rate hikes, how banks approach changes to credit standards during the second quarter of 2023 and beyond will be the subject of outsized and appropriate attention.

According to the latest release of the Bureau of Labor Statistics’ Consumer Price Index, the average price of goods and services are up 4.9% from one year ago through April 2023. However, while the headline data describe economy-wide inflation for the average consumer, personal inflation rates can differ widely depending on whether someone rents or owns their home. To estimate these differences, Chandan Economics recalibrates the so-called "basket of goods" for each group, removing renting-related costs for homeowners and owning-related costs for renters. Further, the methodology assumes a 0% primary residence cost inflation rate for fixed-rate homeowners, as the amount they pay on their mortgages does not change from one month to another. (For a full breakdown of the methodology, see here) Taking all the above together, Chandan Economics estimates that the adjusted CPI inflation rate for renters was also 4.9% in April 2023, coming in directly in line with Headline CPI and reaching its lowest annual growth rate since April 2021. While the adjusted Renter CPI has come down by a significant 4.3 percentage points in the past ten months, April’s improvement was tepid. Adjusted Renter CPI inflation came down by just 15 basis points in April — a departure from the substantial 97 bps improvement seen the month prior. Meanwhile, adjusted CPI data suggests that fixed-rate homeowners (or those that own their homes free and clear) have already returned to a normalized inflation environment. Chandan Economics estimates that the adjusted CPI inflation rate for homeowners was just 2.4% in April, edging down six (6) bps from the prior month. Historically, the inflation differential between these two groups has averaged about one (1) percentage point.[1] Currently, this spread sits at 2.6 percentage points, just a few basis points shy of its all-time high. However, in a possible turning of the tides, the adjusted inflation spread between Renters and Owners narrowed in April — albeit by nine (9) basis points. As has been well documented, CPI for rent lags prevailing market conditions. CPI tracks the average prices paid by all renters at a point in time, while private data providers track prevailing market conditions. According to Yardi Matrix, national multifamily rent growth totaled 3.1% in April 2023 — far below the CPI measure for rent of primary residences, which stood at 8.8% over the same period. As a result, we expect that Renter inflation will continue to see more robust progress in the coming months as slowing apartment rent growth will filter into the CPI’s measure of rents. Further, if this forecast holds, it will also mean that the inflation spread between renters and homeowners has already reached its widest point and will narrow from here. [1] Only considers data since 2000.

With interest rates spiking and mortgage lenders pulling back, renters are turning increasingly glum about their future homebuying ability. According to recent findings from the 2023 NY Federal Reserve Bank’s SCE Housing Survey, the average renter expects that they will be renting for life.[1] Borrowing costs loom large for the growing pessimism. Expectations of mortgage rates have nearly doubled in just two years. In 2021, the average interest rate on a 30-year fixed-rate mortgage that individuals thought they could qualify for was 3.4%. In 2023, that number jumped to 6.3%. On average, renters believed the rate they would qualify for was 8.1%. For Americans hoping to access homeownership, not only have financing costs become more expensive, but they also anticipate difficulty qualifying for a mortgage due to tight underwriting standards. According to the survey, 65.9% of people anticipate it would be difficult to obtain a mortgage if they wanted to buy a home today, rising from 63.2% in the 2022 survey. While some renters are forced to delay buying until there are more favorable conditions, many renters now expect there’s a good chance they will never own a home in their lifetime. In 2023, American renters put the probability that they would ever own their own home at just 44.4% — marking the second year in a row below 50%. While housing supply and demand conditions are fluid over the long run, current sentiment and market conditions should create upward pressure for rentals. Despite low expectations about being able to buy a home, American renters would still prefer homeownership. If given access to the necessary financial resources, 69.8% of American renters would prefer owning instead of renting. For Americans under the age of 50, 81.0% of respondents would prefer ownership, underscoring that expectations to never own a home are out of necessity and not preference. [1] SCE Housing Survey is a section of the Federal Reserve’s Survey of Consumer Expectations that track the expectations of homeowners and renters across the US on an annual basis.

According to the latest release of the Bureau of Labor Statistics’ Consumer Price Index, the average price of goods and services are up 5.0% from one year ago through March 2023. However, while the headline data describe economy-wide inflation for the average consumer, personal inflation rates can differ widely depending on whether someone rents or owns their home. To estimate these differences, Chandan Economics recalibrates the so-called "basket of goods" for each group, removing renting-related costs for homeowners and owning-related costs for renters. Further, the methodology assumes a 0% primary residence cost inflation rate for fixed-rate homeowners, as the amount they pay on their mortgages does not change from one month to another. (For a full breakdown of the methodology, see here) Taking all the above together, Chandan Economics estimates that the adjusted CPI inflation rate for renters was 5.1% in March 2023, coming in just a hair above the headline inflation rate and reaching the slowest rate of annual increase since April 2021. Moreover, since June 2022, the adjusted CPI inflation rate for renters has come down in eight of the last nine months, dropping by 4.1 percentage points in that time. Meanwhile, a return to a normal inflationary environment has come more quickly for fixed-rate homeowners (or those that own their homes free and clear). Chandan Economics estimates that the adjusted CPI inflation rate for homeowners was just 2.4% in March, falling from 3.4% the prior month. Between 2000 and 2019, homeowners had an average adjusted inflation rate of 1.4% — a benchmark that no longer seems far out of reach after nine consecutive months of disinflationary progress. As the Fed’s fight against inflation has shown progress over the past year, both renters and owners have seen an across-the-board easing of inflationary pressures. However, with renters experiencing a higher adjusted CPI than homeowners (9.3% vs. 7.5%) and progress coming more slowly, the inflation spread between these two groups has continued to widen. Through March 2023, the difference between renter and fixed-rate homeowner personal inflation rates have reached another all-time high, hitting 2.6 percentage points.[1] [1] Only considers data since 2000.

After nine consecutive rate hikes over the past year, the rising interest rate environment has taken a toll on the housing market's momentum, leading to a pessimistic outlook for price home growth in the year ahead. According to the 2023 NY Federal Reserve Bank’s SCE Housing Survey,[1] home price growth expectations for the next year are at the lowest levels since the survey began in 2014. Americans expect moderate to no growth in home values over the next year, with a surprising number expecting a decrease in pricing. According to the survey, only 55.0% of consumers expect that the average home in their area will increase in value over the next year — the lowest share since the inception of the report and a significant drop-off from the 70.8% observed in 2022. Not only do fewer Americans expect home values to increase, but nearly 20% of respondents believe the values will decrease by over 5%. During the past year, the expectations for home prices declined significantly, especially between May 2022 and November 2022. [2] According to the survey’s respondents, home prices are expected to grow at the slowest rate in at least the past nine years. Overall, the average expected growth of home prices is a meager 2.6% over the next 12 months. The average expected growth of homeowners, excluding renter expectations, is even lower at only 2.0%. Not only is this an all-time low since the New York Fed began recording this data in 2014, but it is also down substantially from the 7.0% recorded last year. These data reflect growing pessimism around home values in the short term; however, the expectations for home values over a five-year period are up from last year. This difference reflects an increased concern over home prices now, though a growing optimism of a recovery in the next few years. [1] SCE Housing Survey is a section of the Federal Reserve's Survey of Consumer Expectations that track the expectations of homeowners and renters across the US on an annual basis. [2] SCE Core Survey

According to the latest release of the Bureau of Labor Statistics’ Consumer Price Index, the average price of goods and services are up 6.0% from one year ago through February 2023. While the headline data describe economy-wide inflation for the average consumer, personal inflation rates can look much different depending on if someone rents or owns their home. To estimate these differences, Chandan Economics recalibrates the so-called "basket of goods" for each group, removing renting-related costs for homeowners and owning-related costs for renters. Going further, the methodology assumes a 0% primary residence cost inflation rate for fixed-rate homeowners, as the amount they pay on their mortgages does not change month-to-month. (Note: this also applies to households that own their home "free and clear") (For a full breakdown of the methodology, see here) Taking all the above together, Chandan Economics estimates that the adjusted CPI inflation rate for renters was 6.0% in February 2023, falling directly in line with the headline inflation rate and falling 0.4 percentage points from a month earlier. Meanwhile, the adjusted CPI inflation rate for fixed-rate homeowners totaled just 3.4% over the same period, declining by 0.5 percentage points month-over-month. According to these adjusted estimates, experienced inflation rates for renters rose to more extreme highs in 2022 and have improved more slowly as compared to fixed-rate homeowners. Experienced inflation rates topped out for both groups in March 2022, with the fixed-rate homeowners and renters seeing peaks of 7.5% and 9.3%, respectively. As the Fed’s fight against inflation has shown progress over the past year, the inflation rate has dropped by 4.1 percentage points for fixed-rate homeowners. Meanwhile, for renters, improvement has come more slowly, with the experienced inflation rate coming down by a lesser 3.3 percentage points over the same time. As a result, the difference between renter and fixed-rate homeowner personal inflation rates has continued to press all-time highs, with the spread reaching 2.6 percentage points in February.[1] In the months ahead, the personal inflation rates for renters and homeowners alike should continue to fall. However, as explored in a recent deep dive with our research partner Arbor Realty Trust, CPI for rent often lags behind changes in market pricing. These lags in CPI look particularly impactful today. Most sources indicate that market-clearing home prices and rents have fallen in recent months. Even still, the BLS attributes 70% of the month-over-month increase in CPI to shelter costs. Consequently, even as inflation rates are expected to improve across the board, renter inflation should hold higher for longer, allowing substantial inflation spreads between renters and fixed-rate homeowners for the next several months. [1] Only considers data since 2000.

This is the fifth and final chapter in a series of research articles on racial inequities in US housing produced by the Chandan Economics Research Team. Other posts in this series can be found here: 1. Racial Inequities in Household Wealth. ; 2. Racial Inequities in Housing Affordability ; 3. Racial Inequities in Access to Credit ; 4. Racial Inequities in Housing and Environmental Quality. A natural part of the discussion surrounding historical racial inequities in housing and wealth is what restorative policies could look like. In the fifth and final chapter of our 2023 series, we explore recent and ongoing policy efforts focused on reducing and redressing longstanding disparities. Policies that influenced historic racial wealth disparities had a federal, state, and local scope—as do their potential remedies. While there is a myriad of potential market-based or regulatory solutions that could be used to confront the racial housing and wealth gap, in this piece, we summarize a few recent and ongoing policy efforts that have gained increased attention as of late. Advancing Equity Through Federal Contracts On February 16th, 2023, President Biden signed an executive order directing federal agencies to produce annual “Equity Action Plans” and requiring 50% of all federal contracting dollars to be awarded to small and disadvantaged businesses by 2025. The rule also prioritizes economic development in rural areas, where the human costs of poverty are often amplified. While the executive action is limited to the confines of business conducted by the US government, it could create new competition for contracts and talent, pulling income-constrained Americans into and up the wealth ladder. The order could also set a benchmark for private businesses and non-profit organizations to measure their own racial equity goals against, facilitating more attention toward addressing longstanding disparities. Strengthening Fair Housing Act Enforcement On January 19th, The US Department of Housing and Urban Development (HUD) announced its new “Affirmatively Furthering Fair Housing” Rule (AFFH) aimed at promoting housing choice and fostering inclusive communities. The rule would bolster enforcement of the 1968 Fair Housing Act. The decades-old law outlawed racially discriminatory practices at the state and local levels while requiring jurisdictions to take action to undo historic segregation patterns. However, politically controversial at the time, federal integration efforts were largely tabled for the better part of the following four decades while the federal guidelines that remained in place proved to be ineffective. HUD's new 2023 AFFH builds off previous recommendations and efforts by enhancing the agency’s mechanisms for assisting and evaluating state and local compliance. Specifically, HUD looks to simplify the fair housing analysis required from localities while emphasizing goal setting and transparency. Racial Equity Action Plans At all levels of government, Racial Equity Action Plans (REAPs) have become more commonplace. A repository built in 2021 by the National League of Cities outlines the breadth of racial equity-oriented actions considered or implemented by local governments in the past decade. Still, as the US policymakers find a renewed sense of urgency to tackle inequity challenges following the 2020 George Floyd protests, more extensive and comprehensive proposals have begun to take shape. In 2022, Washington DC made headlines by introducing the city's first REAP. The DC REAP sets forth a three-year roadmap of specific actions the municipality will take to address racial inequities. It includes proposals such as developing training materials for city agencies, measuring equity efforts in municipal budgets' key performance indicators, and engaging with community-based organizations on more specific objectives. Community-Centric Pilot Programs During Chandan Economics’ research on racial inequities in housing and wealth, we have emphasized the role that assets and access to credit have played in entrenching the racial gap in upward mobility. Beyond equity action plans, market-oriented incentives facilitating investment and ownership are crucial catalysts to closing the gap. In Chicago, a pilot program focused on community wealth building has taken shape. The pilot, introduced in September 2022, commits $15 million toward creating opportunities concentrated on shared asset ownership, intending to address minority access to business ownership, home ownership, and commercial real estate. Specifically, Chicago’s program prioritizes engaging with more cooperative models over shareholder-based ones. For example, businesses that receive the program's investment must be owned with disseminated control between employees rather than single or several owners. Housing that received funding must also be organized as cooperatives, while the fund will use land trusts and other community investment vehicles to inject investment into commercial real estate development. The program is likely to attract some detractors, given its free-market shortcomings. Still, it and others should encourage alternatives that would compete and improve upon earlier community wealth-building models. Conclusion Silver bullets rarely exist in the policy world, which remains true when grappling with longstanding racial inequities in the US economy. A combined-arms-like approach that blends market-based incentives alongside complementary federal, State, and local equity goals would yield the most effective outcomes for affected groups. The recent mobilization of public resources and private sector equity goals becoming more commonplace is a desirable step in the right direction. As policymakers contend with growing economic snags such as inflation, affordable housing, and tight labor markets, prioritizing policy efforts will become more challenging. Still, as our research in this series has shown, the nation's most vulnerable groups often shoulder the heaviest costs of these challenges. Keeping an eye on equity in any new challenge will remain vital. Other posts in the 2023 series can be found here: Household Wealth Housing Affordability Credit Access Housing & Environmental Quality

This is the fourth chapter in a series of research articles on racial inequities in US housing produced by the Chandan Economics Research Team. Other posts in this series can be found here: 1. Racial Inequities in Household Wealth. ; 2. Racial Inequities in Housing Affordability ; 3. Racial Inequities in Access to Credit ; 5. Racial Inequities in Housing: Policy Considerations. In the previous chapters of our series on racial inequities in US housing, we discussed how historic racial segregation helped facilitate today's wealth and upward mobility disparities. In this installment, the Chandan Economic Research Team will explore the origins of similar inequities observed in housing and environmental quality. Defining Housing Quality When housing quality is mentioned, one's first thought may go toward the quality of home construction, utility efficiency, or resources that impact safety and security. While evaluating such variations are essential, our analysis focuses on “quality of life” measurements and how housing disparities may affect them. As covered in our most recent chapter, redlining in appraisals by the new-deal era Homeowners Loan Corporation (HOLC) reinforced de-facto racial segregation in the United States and curtailed economic development in minority-majority neighborhoods. Further, research has shown that measures of environmental quality and public health are significantly more negative in historically redlined zones. Green Space In a study of redlining’s environmental effects in Indianapolis, using a geographic information system, researchers found evidence of more high-intensity development, low green space, and a disproportionate concentration of brownfield[1] sites in formerly redlined areas. Superfund[2] sites, industrial waste sites, and interstate highways were also more prevalent in formerly redlined areas than in other parts of Indianapolis. Outside the borders of Indianapolis, the effects of HOLC’s redlining stretch across several US cities. According to an analysis by Indiana University-Purdue University Indianapolis, HOLC scores alone account for 31% of the variation in tree canopy across US cities today. Health Impact Redlining's environmental legacy appears to have a tangible impact on health outcomes, with HOLC scores predicting 91% of the variation in cancer risk from air pollution. Epidemiology studies have probed this further. According to a 2020 study by researchers at the Huntsman Cancer Institute using Georgia Cancer Registry data, residing in redlined census tracts coincided with a 1.60-fold increase in breast cancer mortality. Contextualizing the potential reach of this issue, the Huntsman study utilized Home Mortgage Disclosure Act data to extrapolate population totals and demographic information for the geographies in focus. It found that roughly 80% of non-Hispanic Black women and 20% of non-Hispanic White women reside in areas with significant lending bias, proving that redlining contributed to both a racial and gender health gap. Hospital Quality While less green space and a higher prevalence of environmental hazards help explain variations in health outcomes, hospital quality may also play a role. While US hospitals were formally desegregated in 1965 following the creation of Medicare (equal access was a requirement for new federal funding), remnants of segregation persist in patient demographics and results. A key reason for this is the prevalence of patients with public or no health insurance in minority-majority communities and the downstream effect this has on hospital quality. Hospitals that serve large portions of uninsured or Medicaid patients are paid significantly less than those that serve higher proportions of privately insured patients. How medical facilities are reimbursed for their costs ultimately impacts staffing, operations, and quality of care. Evidence of such poorer hospital quality and its impacts surfaced during the COVID-19 pandemic. According to research from the University of Pennsylvania analyzing data from 44,000 patience across 1000 US hospitals, Black patients with COVID-19 had an 11% greater risk of mortality[3] or discharge to hospice compared to White patients. Furthermore, while the racial disparities held when controlling for sociodemographic characteristics, they dissipated when controlling for differences in hospital quality. Concluding Thoughts Often when highlighting racial inequities in the US economy, a common misconception derived from research is that outward racial discrimination is the catalyst to outcomes. While modern social and racial bias likely plays some role, the more pertinent theme arising from our analysis is the prevalence of historic structural racism in US policy and commerce and its long-lasting effects. How to best narrow these widespread disparities are debatable. We will cover some of these ideas during the next chapter of the series on racial inequities in housing focused on public policy considerations, set for release on Tuesday, February 21st. Below is the full release schedule of our 2023 series. Other posts in the 2023 series can be found here: Household Wealth Housing Affordability Credit Access Policy Considerations [1] Defined as property not-in use due to potential presence of contaminants, pollutants, or environmental hazards. [2] Defined as polluted locations that require a long-term response in order to clean up hazardous material. [3] After 30-days of impatient care.

This is the third chapter in a series of research articles on racial inequities in US housing produced by the Chandan Economics Research Team. Other posts in this series can be found here: 1. Racial Inequities in Household Wealth. ; 2. Racial Inequities in Housing Affordability ; 4. Racial Inequities in Housing and Environmental Quality ; 5. Racial Inequities in Housing: Policy Considerations. In the first two chapters of our series, our discussion focused on barriers to upward mobility for Black, Indigenous, and people of color in America and the residual effect on housing affordability. In this piece, we peel one layer deeper and explore the financial market disparities fueling the persistent racial wealth gap. Significance of Credit Access "Credit access" generally refers to a person's ability to borrow financial capital and is a crucial driver of growth in a market-based economy. Examples of these functions include loans to small businesses, leverage in investment deals, and probably the most familiar to the everyday consumer— mortgages and credit cards. Credit products like these allow individuals and institutions to invest in areas of potential, often boosting productivity and wealth in the process. Banking sits at the foundation of credit market access as it both establishes direct relationships between households and creditors, and functions as an engine of economic growth. As a result, the lack of banking in a community severely limits its economic potential. According to the FDIC, roughly 4.5 % of US households had used no banking services in 2021. A separate 14.1% of households are estimated to be "underbanked," meaning that they have used nonbank credit such as payday loans or anticipated tax refunds for their financial needs within the past 12 months. The US unbanked rate displays familiar disproportions when measured by race. In 2021, 11.3% of Black Americans reported having no access to a checking or savings account in the previous 12 months. 9.3% of Hispanic Americans were unbanked, while 6.9% of Native American and Alaskan Native households were unbanked. 5.0% of Multiracial-identifying households were unbanked, followed by 2.9% of Asian households and 2.1% of White households. Lower-income households intuitively face higher barriers to credit access than higher-income ones; still, racial disparities in unbanked rates persist even between lower-income households. Among those earning between $30,000 and $50,00 per year, 8.4% of Hispanic households are unbanked, 8.0% of Black households, and 1.7% of White households. Historical Context Racial disparities in credit access that persist today are naturally tethered to the legacy of slavery and structural racism in the United States. Following the US civil war, many newly freed African Americans were fundamentally internally displaced. The multi-generational extent of US slavery meant that many African Americans lacked basic education or resources, while families were often scattered across several states. The conflict also left much of the American South, where most of the African American population resided at the time, in physical and economic ruin. While post-war reconstruction efforts often spur economic growth in affected areas, Jim Crow laws that enforced racial segregation and voter disenfranchisement restricted such market-based outcomes. These complex economic and political realities limited the development of markets in African American communities compared to predominantly White ones—including financial markets. One of the earliest institutions created to provide credit access to African Americans was the Freedman’s Savings and Trust Company, chartered shortly after the war’s end in 1865. By the late 1800s, the nation’s first Black-owned community banks were established, establishing new commercial credit markets for African American families. As the federal government extended its role in financial markets — particularly the mortgage market — during the Great Depression, federal policy played an increasing role in reinforcing racial disparities in credit access. A 2020 paper by The American Sociological Review found that segregation was more prevalent in areas appraised by Home Owner’s Loan Corporation (HOLC), a New Deal-era lending agency aimed at spurring American homeownership in response to the Great Depression. Redlining practices often categorized entire neighborhoods as “hazardous” based on an areas’ racial characteristics, dampening real estate development in minority-majority neighborhoods. Government programs where African Americans faced better access still experienced a degree of racial disparities in benefit impact. For example, a study by The National Bureau of Economic Research (NBER) analyzed the use of the G.I. Bill for educational attainment by World War II veterans following the war. It found that although Black veterans enjoyed comparable access to G.I. benefits as White veterans, a pre-War racial gap in education levels and the concentration of most Black students in segregated, underfunded colleges in the South ultimately limited Black veteran outcomes. Efforts to Close the Financing Gap Credit Reporting and Underwriting Having no established credit history is a significant obstacle to accessing financial markets. Unfortunately, this is both a widespread issue for US households and impacts races disproportionally. A 2021 survey conducted by Credit Sesame found that more than half (54%) of Black Americans reported having poor, fair, or no credit history at all. 41% of Hispanic Americans, 37% of White Americans, and 18% of Asian Americans reported similarly. According to a 2022 analysis by LendingTree, limited access to financial products due to poor credit scores is widespread, impacting more than 4-in-10 Americans. Fannie Mae has made recent strides, via its role as a federally backed mortgage insurer, to increase credit access by allowing borrower rental payment history to be considered in loan applications. The change will enable renters that lack an established credit history a mechanism for building one, eventually leading to improved mortgage access to traditionally underserved households. Fannie Mae expects the change to increase homeownership opportunities for approximately 20% of the US population. Public Financing According to research conducted US Department of Housing and Urban Development (HUD), federal policies have been "critical" in helping American families build wealth. However, they often require borrowers to have already some level of savings, which, over time, has led to policies disproportionally benefiting higher and middle-income families. Some examples that HUD notes in their analysis include the mortgage interest-rate tax deduction and tax credits for education and retirement. These products perform well at boosting outcomes for households with access to such incentives but do little to assist low-income families with little to no starting capital. Direct rental assistance and supportive services such as HUD’s Family Self-Sufficiency FSS program have shown some success. However, researchers at HUD cited evidence showing that the FSS program performed well at fostering family savings rather than helping change incomes—given that labor markets determine wages. In 2021, the average FSS participant produced about $9,500 in savings, with 25% of participants no longer needing rental assistance following completion. Moving forward, HUD has emphasized the need for federal programs to focus on asset building through a combination of savings incentives and direct credit access. Appraisals A study conducted in 2022 by Brookings using FHFA data found that homes are consistently undervalued in majority-Black neighborhoods, often up to 23% below what their valuations would be in non-Black neighborhoods. Hispanic-majority, Asian-majority, and White-majority neighborhoods do not exhibit similar devaluations in comparison to each other. Racial bias in appraisals extends back generations and likely reinforces racial segregation. Today’s appraisal gap is less understood, and its impact is difficult to quantify given that homes typically sell above appraised values. Many speculate that racial bias plays a role. Industry groups have taken steps to address the gap, including addressing diversity within the appraisal profession itself. According to The Appraisal Institute, 85% of US appraisers identify as White. The Biden Administration also recently established a task force probing the issue. Diversity in Banking A 2022 assessment of community lending at Federal Reserve-regulated banks by the Harvard Law School found that an increased presence of minority directors at the Fed’s regional banks was associated with greater lending outcomes to minority communities. The paper's conclusions rely on several proxies and comparisons. Still, one compares minority lending outcomes between banks regulated by the Federal Reserve and those regulated by other regulatory agencies. It found that a diverse regional Fed board led to improved minority lending outcomes compared to both banks that were regulated by less a diverse regional Fed, and banks regulated by entirely separate agencies. While the mechanisms of such board influence are difficult to ascertain, the research supports evidence that representation has benefits beyond symbolism and influences economic outcomes in underserved communities. Other posts in the 2023 series can be found here: Household Wealth Housing Affordability Housing & Environmental Quality Policy Considerations

This is the second chapter in a series of research articles on racial inequities in US housing produced by the Chandan Economics Research Team. Other posts in this series can be found here: 1. Racial Inequities in Household Wealth. ; 3. Racial Inequities in Access to Credit ; 4. Racial Inequities in Housing and Environmental Quality ; 5. Racial Inequities in Housing: Policy Considerations. As discussed in the first article of our series, a legacy of racial discrimination in US real estate, lending practices, and public policy has culminated in a historic racial homeownership gap that remains wide today. Further, disparities observed in homeownership also have a residual effect on housing affordability more generally. Income-Constrained Renters Moving into 2023, housing affordability has become an increasing challenge for the US economy as shelter prices settle near generational highs. According to the National Low Income Housing Coalition (NLIHC), no state has an adequate supply of rental homes for its lowest-income renters. Among the 50 largest US metros, the highest number of affordable and available homes per 100 extremely low-income renters is Providence, RI, with 50. Housing affordability is also observable through the lens of racial equity. Lower homeownership rates alongside lower average annual incomes [1] have meant that Black, Native American, and Hispanic households are more likely to be income-constrained by rental costs. According to Chandan Economics’ calculations of 2021 American Community Survey data [2], 31% of Black renter households [3] and 29% of Native American or Alaskan Native renter households currently fall at or below the poverty line. Roughly 23% of both Hispanic [4] and Multiracial [5] renter households sit at or below the poverty line, compared to 20% of Asian [6] and White households. Another residual effect of higher constraints for lower-income minority households is higher average cost burdens for higher-income White households. According to a 2019 National Low Income Housing Coalition (NLIHC) review, White renters are likelier than non-white households to have incomes above 80% of area median income— a standard metric for measuring housing affordability. However, White renters with higher incomes are more likely to be housing cost-burdened compared to non-White renters with similar incomes. Household Crowding While measuring someone’s housing costs relative to their income is an obvious starting point to gauge affordability, looking at how much space is available to each house member can be another valuable guide. Previous research by the US Department of Housing and Urban Development (HUD) on housing’s effect on various human outcomes, including health, education, and development, found an association between household overcrowding and adverse consequences for adults and children. Our analysis specifically looks at the percentage of renter households with less than one bedroom per person. According to a Chandan Economics analysis of 2021 American Community Survey data, Hispanic and Native American/Alaskan Native renters experience the most household crowding, with 29% and 25% of the respective populations sharing a bedroom with at least one other person. 21% of Multiracial and 20% of Asian renters live in units with less than one bedroom per person. Black and White renters are significantly less likely to experience household crowding than other races or ethnicities, but a notable gap between the two cohorts remains. 12% of Black renters live in a unit with less than one bedroom per person, while just 8% of White renters do. It is significant to note that differences in social and cultural preferences make it difficult to extrapolate major conclusions from these data. Further, historical inconsistencies in how demographic information was surveyed in previous Census studies somewhat limit our ability to conclude causality. Still, measuring average space availability— particularly in renter households— provides a practical way of analyzing crowding and its associated risks. Broader Economic Impacts The effects of income constraints stretch beyond simply the stress of paying rent. In a 2019 paper studying housing's impact on upward mobility, researchers at The Urban Institute compiled evidence showing how high shelter costs can limit future economic success. Individuals who spend a higher share of income on housing are more likely to experience slower savings accumulation. Moreover, high-cost burdens can often push people into lower-quality housing over time without much savings upside. The lack of affordable and available housing also drags local economic output, as residents spend less of their income on non-housing needs. Other posts in the 2023 series can be found here: Household Wealth Credit Access Housing & Environmental Quality Policy Considerations [1] Based on Chandan Economics’ calculations in “Racial Inequities in Household Wealth [2] For conciseness, the analysis excludes respondents who indicated “Other” as their racial identity. [3] Results are based on data from head-of-household respondents only. [4] Refers to respondents who identified as Hispanic, regardless of their identifying race, which is a separate question on the ACS. [5] Multiracial households are calculated using a weighted average of respondents who identify as two major races or three or more major races. [6] Asian households are calculated using a weighted average of respondents who identify as Chinese, Japanese, or Other Asian and Pacific Islander.

This is the first chapter in a series of research articles on racial inequities in US housing produced by the Chandan Economics Research Team. Other posts in this series can be found here: 2. Racial Inequities in Housing Affordability ; 3. Racial Inequities in Access to Credit ; 4. Racial Inequities in Housing and Environmental Quality ; 5. Racial Inequities in Housing: Policy Considerations. There are several potential ways to try and quantify the racial wealth gap. However, given how income and asset building play a significant role in upward mobility, measuring household wealth gives us a metric that reflects economic effects on both current and future generations. Policies that enabled racial discrimination and de-jure segregation in American cities throughout the 19th and 20th centuries primarily facilitated today's status quo. 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 as the nation's housing stock expanded. Similarly, practices such as redlining by other federal agencies, including the FHA, were 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. According to a 2019 paper by Opportunity Insights, Black Americans and Native Americans have significantly lower rates of upward mobility than White Americans, contributing to an inter-generational wealth gap. The impact of the persistent racial wealth gap stretches beyond economic outcomes, affecting environmental quality, crime impact, and health outcomes in minority-majority areas. The Homeownership Gap The homeownership gap between Whites and Minorities is an important metric that underscores the abject tepidness of recent progress. According to the US Census Bureau, as of Q4 2022, just 44.9% of Black households were homeowners compared to 74.5% of White, non-Hispanic households. The gap between White, non-Hispanic households and other races is smaller but persists. Despite the dismantling of many discriminatory lending and underwriting practices over the last several decades, the gap between White and Black homeownership is wider now than before the civil rights era. In 1960, the White homeownership rate was 65%, and the Black rate was 38%, a 27-point gap, compared to a more than 29-point gap today. In the decade following the Great Financial Crisis (GFC), homeownership rates broadly declined across all races and ethnicities. Still, the gap widened as Black and non-White Hispanic households were more than twice as likely as White households to receive a sub-prime loan during the housing bubble — exacerbating the crisis’s impact in minority-majority communities. The homeownership gap between Whites and minorities has declined modestly during the pandemic years, driven partly by the wage increases and location flexibility brought forward by pandemic effects. The Income Gap One of the leading contemporary factors underlying the gap in homeownership is racial disparities in average annual earnings. Analyzing disparities through the lens of both race and sex, Asian men maintain the highest average annual earnings of $81,794, while Hispanic women register the lowest, with average earnings of $39,511[1]. White and Black households populate the middle ground of income distribution, but the gap persists. The average White male and female earned $61,740 and $55,550, respectively. The average Black male and female earned $50,187 and $46,543, respectively. Household income is crucial to wealth building beyond simply the price of a home one can afford. A recent study by the US Treasury Department reviewed cash and cash equivalent levels among US households as a proxy for measuring a household’s ability to weather financial shocks. The analysis found that a typical White US household holds four times the amount of cash than a typical Black or Non-white Hispanic US household, with racial disparities prevalent across all income levels. Cash and cash equivalents, on average, make up less than 5% of an American household's total wealth but can have an outsized impact on consumption levels. Other posts in the 2023 series can be found here: Housing Affordability Credit Access Housing & Environmental Quality Policy Considerations [1] Data are through 2021

During a comprehensive review of racial inequities in housing last year, Chandan Economics highlighted the decades-long lukewarm enforcement of the Fair Housing Act as an obstacle to dismantling longstanding racial disparities. Through an imminent rule change at HUD that amends enforcement guidelines, regulators have taken a significant step towards removing this obstacle. On January 19th, The US Department of Housing and Urban Development (HUD) announced its new “Affirmatively Furthering Fair Housing” Rule (AFFH) aimed at promoting housing choice and fostering inclusive communities. The change comes amid a growing affordable housing quandary alongside increased attention toward the historic role between housing segregation and racial disparities. Initially signed into law in 1968, the Fair Housing Act outlawed racial discriminatory practices at the State and local level while also requiring jurisdictions to take actions to undo historic patterns of segregation. HUD took initial steps at enforcing fair housing laws in the early 1970s under the leadership of then Secretary George Romney (yes, there’s a relation). However, politically controversial at the time, federal integration efforts were largely tabled for the better part of the next four decades while the federal guidelines that remained in place proved to be ineffective. While much attention is often given to racial disparities in Homeownership, given its significant impediment to economic upward mobility, inadequate federal enforcement has been most consequential in rental housing. Tepid enforcement of fair housing rules inside of programs like Project-Based Affordable Housing, Housing Choice Vouchers, and LIHTC— the most significant sources of federal public housing, has disincentivized the rental sector from bucking longstanding disparities. According to the 2020 American Community Survey, 30% of Black renters and 25% of multiracial and other, non-Asian minority renters were at or below the poverty line. In contrast, just 19% of White renters and 18% of Asian renters fell into this threshold. While pandemic-era growth has improved household wealth among all racial and ethnic groups, mounting inflation and affordability constraints risk reversing some of that progress. Following a critical review by the Government Accountability Office (GAO) in 2010, HUD enacted its first AFFH rules in 2015 but was subsequently suspended in early 2018 under a new administration. HUD’s new 2023 AFFH looks to build off its previous efforts by enhancing the agency’s mechanisms for assisting and evaluating state and local compliance. Specifically, HUD looks to simplify the fair housing analysis required from localities while emphasizing goal setting and transparency.