By Kevin Campbell, Former President/CEO of Habitat Wake, and Kia Baker, Habitat Wake Board Member and Executive Director of Southeast Raleigh Promise.
What’s the largest investment you’ve ever made? For most Americans, it’s their home. That’s one of the reasons Habitat for Humanity believes so strongly in homeownership. It can be a powerful tool for building wealth, which helps families climb the rungs of the economic ladder.
However, as a result of decades of legalized discrimination in the housing industry, huge racial disparities in homeownership still exist today. This is not acceptable in a country founded on equal opportunity. Nationally, 72 percent of white households own a home, compared to only 42 percent of black households and 46 percent of Hispanic households. Homes typically make up the largest portion of a family’s overall wealth, so these disparities in homeownership are the most significant factor in the racial wealth gap.
This discrimination is a lingering legacy of redlining, a phenomenon that plagued our country from the 1930s through the 1960s. The Federal Housing Administration (FHA) was created in 1934 and is credited with establishing the first long-term mortgage financing products in the country that enabled millions of the white middle class to achieve their dream of homeownership.
These opportunities were not extended to people of color. Banks and real-estate agents spread out maps of their cities and drew discriminatory red lines around minority neighborhoods, writing them off as a bad investment. Families seeking a mortgage in these neighborhoods were regularly denied. Because of this redlining practice, which was legal, only 2 percent of FHA financing was made available to non-white households between 1934 and 1968. Redlining denied an entire population the chance to start a business or buy a home.
In 1968, Congress passed the Fair Housing Act, making redlining illegal and erasing those lines on the map. But the law didn’t restore the lost decades of wealth-building opportunity or erase ongoing institutionalized discrimination practices. As a result, generations of black Americans were already behind in wealth building, and our legacy of glaring economic segregation and racial divide lives on. Fifty years have passed since the Fair Housing Act, yet the ghost of redlining still haunts us.
A recent Brookings Institute study shows that homes in predominantly black neighborhoods are undervalued by 23 percent of their actual worth compared to homes of similar quality and amenities. Here in Raleigh, homes in neighborhoods of color are undervalued by an average of $17,168. Even when non-white families get the opportunity to become homeowners, the location of their homes often limits their wealth-building trajectory. This is unacceptable and it severely restricts the upward economic mobility of many hard-working Americans. A 2016 study from Durham-based MDC showed that Raleigh, despite being ranked as one of the nation’s best places to live, ranked 95th among America’s 100 largest cities in terms of income mobility.
We can't be cohesive and successful as a community if we are not equally building wealth and setting up future generations for success. Creating parity in homeownership can significantly reduce the racial wealth divide.
The North Carolina Housing Coalition has some ideas for a brighter future, outlined in the document A Downpayment on the Divide: Steps to Ease Racial Inequality in Homeownership. They include:
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Reforming the tax code by replacing homeownership tax programs — like the mortgage interest tax deduction — with tax credits and matched savings programs that are better at sharing the benefits across the income spectrum.
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Supporting programs that are made to increase mortgage lending and the affordability of homeownership.
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Protecting the Consumer Financial Protection Bureau (CFPB) and its ability to regulate predatory mortgage lending practices that violate consumer safety.
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Promoting the use of alternative credit scoring models that are more inclusive and better tailored to gauge the creditworthiness of lower wealth households.
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Protecting and enforcing anti-discrimination regulations like the Fair Housing Act and its duty to Affirmatively Further Fair Housing.
Past injustices have a lingering impact on future generations. Now is the time to work together as a community to close the racial gap in homeownership so that future generations will have the tools they need to climb the ladder and achieve their dreams.