UMD Researchers Find Ripple Effects of Racism in Homeownership

From the legacy of neighborhood segregation to discrimination in the real estate appraisal process, many factors continue to lock Black Americans out of the most important way to build wealth: homeownership.

A new study published this month and led by Rashawn Ray, University of Maryland sociology professor and a senior fellow at the Brookings Institution, and Andrew M. Perry, a lecturer at the School of Public Policy and senior fellow in Brookings’ Metropolitan Policy Program, shows how major cities remain racially divided and recommends a path forward to close the gap between the 46.4% of Black Americans who own homes and the 75.8% of white families that do.

The study shines a light on how homeownership is foundational in American economic life, and how African Americans consistently trail their white counterparts, with a median family wealth of only $17,600 in 2016 compared to $171,000. From public schools’ reliance on property taxes to predatory banking and loan options, low rates of homeownership can produce a domino effect throughout a community, the study reported.

“Even when people (are financially stable), they are still put behind the eight ball because there are systemic racial inequalities baked into the financial pipeline process,” Ray said. “This ends up having an impact on the intergenerational transmission of wealth.”

Ray and Perry, along with Brookings co-authors David Harshbarger, Samantha Elizondo and Alexandra Gibbons, examined 17 American cities and found extensive evidence of discriminatory practices and outcomes. In Baltimore, for example, they found more than 60% of Black residents would have to move to a different U.S. Census tract to evenly distribute races across the city; homes in Black-majority neighborhoods are valued about $100,000 less than those in Black-minority neighborhoods; and the credit score in a largely white ZIP code typically exceeds one in a nonwhite ZIP code by 100 points.

“There are clear barriers that prevent Black homeowners and potential homeowners from achieving the American dream,” said Perry, the author of “Know Your Price: Valuing Black Lives and Property in America’s Black Cities.” “We need to move way from these narratives (that Black people) can’t pay our bills on time or we don’t have the kind of financial literacy needed to get a home. It’s really a matter of dealing with past and current policy.”

The study puts forward six recommendations, focusing on the financial sector:

• Increase “small dollar” mortgage loan programs that are generally valued at $100,000 or less;
• Support rate-and-term refinancing options to reduce monthly mortgage costs;
• Extend credit and down payment assistance to borrowers impacted by historic discriminatory housing and lending practices such as redlining and restrictive covenants;
• Expand credit scoring practices to include regular payments from rent and utilities instead of prioritizing loan and credit card payments;
• Hire more diverse property appraisers, who in 2019 were 90% white and only 2% Black; and
• Continue COVID-19 stimulus and relief efforts as the end of foreclosure moratoriums puts more pressure on Black households.

“The fixable part is through policy and structure. It’s not fixable through individual decisions,” Ray said. “If we decide to create equity in housing, not only will it address housing issues, but it then has a positive spillover effect into dealing with the racial wealth gap, dealing with the education gap, dealing with technology gap and health gap.”