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Understanding and Closing the Racial Homeownership Gap
February 3, 2022

Understanding and Closing the Racial Homeownership Gap

by The CE Shop Team

Real Estate Professionals Are Key in Closing the Homeownership Gap

As a real estate agent, a significant part of your job is ensuring safe, inclusive, and equitable access to homeownership. While rules and regulations like the Fair Housing Act and resources such as the National Association of REALTORS® (NAR) Code of Ethics have ushered in progress within the housing industry, the unfortunate reality is that homeownership still isn’t accessible for all. Moving forward, understanding and closing the homeownership gap must be imperative for all real estate professionals. 

What Is the Homeownership Gap?

The homeownership gap refers to the sizable difference in homeownership rates of BIPOC (Black, Indigenous, and people of color) and White Americans. For example, White Americans see the highest rates of homeownership at 74.0%, followed by Asian, Native, Hawaiian, and Pacific Islanders at 60.2%, and Hispanic Americans at 48.3%. Black Americans see the lowest homeownership rate at 44.0%. As such, when discussing the homeownership gap, we’re generally referring to the significant disparity between Black and White Americans.

For context, this 30-point difference between Black and White homeownership rates is one of the largest disparities in history. In fact, today’s housing gap is larger than it was when blatant housing discrimination was legal. In the 1960s, before the adoption of the Fair Housing Act, there was a 27-point difference between Black and White homeownership rates.

So, between federal anti-discrimination laws and additional education surrounding homeownership, why is the housing gap larger than ever? To find the answer, we’ll need to unravel a long and complex history of exclusionary practices.

Causes of the Homeownership Gap

A significant portion of the current homeownership gap can be attributed to redlining, or the discriminatory practice of withholding financial services from residents of designated areas, most often minority neighborhoods, based on the applicant’s racial or ethnic identity. Redlining originated in the mid-1900s and consisted of the systematic denial of home loans, insurance policies, and other services regardless of the applicant’s objective qualifications or eligibility. As such, red lines were drawn around these “less desirable” neighborhoods. White families began moving to the suburbs in record numbers while minority families lost out on homeownership and the development of intergenerational wealth. While the adoption of the Fair Housing Act sought to correct this disparity, much of the damage had already been done.

Racial steering is another industry-wide issue that has negatively impacted minority homeownership rates throughout history. This practice consists of real estate agents directing buyers to or away from specific neighborhoods based on their race or ethnicity, whether consciously or unconsciously. Despite rules and regulations put in place to prevent racial steering, the practice unfortunately persists.

The subprime housing crisis was yet another setback for minority homeowners. Due to a disproportionate amount of adjustable-rate mortgages awarded to minority homeowners, in the three years leading up to the 2008 market crash, Black Americans were 105% more likely than White Americans to have a high-cost mortgage. These rate adjustments (think 50% increases) led to Black homeowners continually refinancing their homes, thus diminishing equity. What’s more, the disparity meant that the number of Black Americans who lost their homes during the housing crisis was nearly double the number of White Americans. As a result, Black families saw a median net worth of $12,124 in 2005 decrease to $5,677 by 2009. White families, however, only saw a decrease from $134,992 to $113,149 in the same four years.

The rising prevalence of gentrification hasn’t helped, either. This practice of neighborhood change, often through real estate investment and an influx of higher-income residents, disproportionately affects those neighborhoods historically inhabited by minorities. These changes then increase prices, often displacing older residents of color. 

How Real Estate Agents Can Help Close the Homeownership Gap

Understanding and Closing the Racial Homeownership Gap

While the situation may seem bleak, progress is happening across the nation. As a real estate professional, you can do your part to help equalize homeownership. 

Of course, ensure you’re upholding the Fair Housing Act, local rules and regulations, and, if you’re a REALTOR®, the Code of Ethics. If you observe another professional acting in bad faith or find a reason to suspect housing discrimination while on the job, be sure to report these instances for investigation.

You may also want to familiarize yourself with the personal finance scene in your local market. Many lenders, including banks and credit unions, provide grants and other incentives aimed at raising minority homeownership rates and closing the homeownership gap. Developing relationships with local lenders and staying apprised of their offerings could present life-changing opportunities for your clients of color. 

Don’t discount individual action, either. Seek out a meaningful volunteer opportunity, offer to speak about homeownership at the local high school, donate funds, or even simply make a point to shop with and support minority-owned businesses. At the end of the day, we will all need to play a part in closing the homeownership gap and ensuring homeownership is truly for everyone.

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