According to fourth quarter 2020 U.S. Census data, homeownership gaps vary dramatically when parsed along racial lines. For White Americans, homeownership is at 75%, a number that has been consistent since shortly after the Federal Housing Association was created in 1938 and the Fair Housing Act was passed in 1968. This number drops significantly for Hispanic and Black populations, down to 49% and 44% respectively. The reasons for these variations are many, but most can be boiled down to a few commonplace factors having the biggest impact on homeownership percentage disparities among low-income and minority citizens.
Systemic issues at the core of common lending practices tend to play the biggest role in mortgage inaccessibility. While it is illegal to deny access to loans based on factors such as race, it is possible to dismiss loan inquiries for properties beneath a certain dollar value. To that end, when a person who lives in an area with low property values attempts to get a loan under $50,000, they are often turned away because lenders stand to make far less money from the mortgage than they would on a property of higher value—largely due to the low caps on loan fees mandated by Dodd-Frank, which passed in 2010. Lenders, by virtue of not being compelled to take on mortgages of low value, tend to pass on them in large numbers. There is little financial incentive for them not to do so. This, then, creates a vacuum in mortgage availability for potential homebuyers who seek to purchase lower-value homes.
The result of these less-than-financially-desirable properties being dismissed by banks is a perpetual cycle of homes in poorer areas either being abandoned or condemned, or being purchased by investors—often with cash since lenders won’t service the low-yield loans—and then leased to tenants who pay far more than the value of the home in rent than they would on a mortgage. Not only does this mean the renter is a rendered a “temporary” member of the community—since they are unable to put down permanent roots and invest in their community—but they also have no means to generate wealth from the property where they reside.
As a low-income renter, rather than a homeowner, the most common types of credit available to them tends to frequently be more predatory in nature. Loans and credit often come with such astronomical rates that they are nearly impossible—by design—to ever pay off. Non-homeowners are—by default—relegated to a financial underclass where payday loans and buy-here-pay-here car scams abound and from which they rarely emerge unscathed. If they ever truly emerge at all. For those lucky enough to be able to get a credit card, the rates are the highest for low-income people. It’s a financial catch-22 baked into the American credit system.
Public perception is often that low-income people are simply making poor financial decisions. But the reality is that they have poor financial options. If they are never able to get fair rates and financial services, low-income families face nearly insurmountable obstacles to financial independence, let alone saving money or generating wealth for themselves and their children.
Generational wealth, for the vast majority of Americans, is predicated on the premise of homeownership. This means that consistent wealth building, in the form of owning a property that accrues value as owners pay down the principal, provides a financial backbone upon which other wealth emerges. For one, when a person buys their first home they are almost immediately catapulted into a higher credit bracket, where terms of credit and loans are dramatically more fair and manageable. Cutting a housing payment in half—for example, when shifting from renter to owner—frees up further income that can be invested, saved, or used to pay down previous debts. The immediate benefits are profound, but the life-long benefits are even more substantial. This is why homeownership is truly a social justice issue.
Homes often continue to rise in value over long periods of time, so to be able to pass that wealth along to their children and grandchildren makes a significant impact on future financial stability and educational opportunities for generations to come. The value of homeownership cannot be overstated, but the gap in homeownership based on race and income is a national disgrace that must be addressed once and for all, in substantive and meaningful ways.
This is why we have decided to create our social justice homeownership collective: AHP 75. Because we believe that all Americans should have the right and the access to this essential part of the American Dream. We seek to advance truly fair housing practices, and to educate prospective homebuyers about their options through accessible outreach initiatives about our suite of services and partnerships designed explicitly to aid America’s most underserved communities. We seek to accomplish this in meaningful and tangible ways throughout the entirety of the home-buying process.
We believe that we owe it to our clients, our communities, and our country to advocate on behalf of low-income and minority families who have been locked out of the world of homeownership historically. This is an urgent matter of wealth disparity that must be addressed, and we have created and reimagined the tools to address it. We are proud of our partnerships we have established with a national network of real estate agents and brokers, nationwide industry organizations, community leaders, and socially conscious agencies all committed to making a real difference. This is not a virtue signaling initiative, but rather a fellowship of social justice and actively engaged people and organizations with the commitment and the means to truly affect real change and achieve our goal of 75% homeownership for all Americans, regardless of race or income level.
Want to help us make a difference? Visit AHP75.com to learn about our Community Impact initiatives.
Aaron Morales is the Social Justice Writer for AHP 75, based out of Chicago, IL.
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