Narrowing the Racial Homeownership Gap

November 03, 2021
Metropolitan map of St. Louis from the 1930s. Enlarge image

In the 1930s, maps like this one of St. Louis were created to assess mortgage defaulting risk, with Home Owners’ Loan Corp. staff and real estate professionals considering race and class in their evaluations. Areas rated as the highest risk were shaded pinkish-red.
Map image via Mapping Inequality

Homeownership tends to be viewed as the gateway to the American dream and one of the primary mechanisms for wealth building in the U.S. However, Black Americans have been excluded from building wealth this way throughout history, from the Homestead Act of 1862 to redlining. Today, the gap in the homeownership rate between Black and white Americans is wider than it was prior to the civil rights movement, according to the Urban Institute’s Housing Finance Policy Center.

In 1934, the Federal Housing Administration (FHA) was created to increase homeownership in the U.S. In the 1930s, there was a commonly held notion in the real estate industry that the socioeconomic rather than the physical characteristics of a neighborhood were more important in determining the value of a house, as an Aug. 23, 2017, article in Bridges explained. The notion was put into practice as “redlining.”

Through redlining, the FHA and other public and private sector actors “shut out households of color from the opportunity to purchase and invest in the largest driver of wealth in this country: a home,” according to an August 2016 report, “The Ever-Growing Gap (PDF).”

“Redlining went on for another 35 years until the practice was banned by the Fair Housing Act of 1968. However, by then the damage was done; the practice resulted in households of color receiving just two percent of the FHA loans made between 1934-1968,” said the report, which is from community wealth building organization CFED, now called Prosperity Now. Information from another report, “The Future of Fair Housing (PDF),” was cited.

Redlining’s Legacy Shows in Homeownership and Neighborhoods

The legacy of redlining contributed to the low Black homeownership rate, as well as to the high rate of segregation in U.S. cities, and devaluation and disinvestment of Black neighborhoods even today.

In 2020, NBC News conducted an analysis of data from the Census Bureau’s 2014-18 American Community Survey to determine the size of the gaps between Black and white homeownership levels in metropolitan statistical areas with at least 40,000 Black households.

“Nationally, the 29-point gap between Black and white homeownership rates in the second quarter of 2020 was greater than it was in 1940,” according to the Aug. 3, 2020, article accompanying a ranking of the cities by the size of the gaps. Louisville, Ky., and St. Louis, two of the four largest metropolitan areas in the Federal Reserve’s Eighth District, ranked 11th and 12th.

Homeownership plays a greater role in building wealth for Black families than it does for white families, Urban Institute researchers said in a Nov. 23, 2020, report. Housing equity comprises almost 60% of total net worth for Black homeowners, compared with 43% percent for white homeowners, according to the report.

This difference is significant because households with little wealth tend to suffer during economic crises without assets to fall back on, according to a May 1, 2020, In the Balance article. A strategic and targeted approach to increasing the Black homeownership rate could play a critical role in building wealth among Black families and improving their financial security.

Event: Narrowing the Racial Homeownership Gap

The St. Louis Fed’s Institute for Economic Equity understands that addressing entrenched structural barriers would require changes from multiple market actors from across the housing ecosystem. A two-part virtual event will feature discussions on issues and strategies.

Part One: Addressing Systemic Racism and Bias in the Housing Market

Nov. 9, 9-11 a.m. CT

  • Keynote address by Andre Perry, Senior Fellow, Metropolitan Policy Program, Brookings Institute
  • Moderated panel discussion on racial barriers and biases baked into the current system
  • Strategies to help Black homeowners sustain and preserve homeownership

Part Two: Practices, Policies and Partnerships to Increase Black Homeownership

Nov. 10, 9-11 a.m. CT

  • Real examples of policy interventions that advance equitable and accessible housing finance and local policy solutions and of partnerships between national and local stakeholders to increase the Black homeownership rate

While there is no fee to attend, registration is required. Please click for individual links to register for the two-day event.

Economic Crises Have a Bigger Effect on Black Households

However, it’s also important to pay attention to sustaining Black homeownership, as economic crises tend to disproportionately impact Black families. The housing crisis in the 2000s erased the gains made in the three decades after the 1968 Fair Housing Act, according to information on reducing the racial homeownership gap on the Urban Institute website.

“On average, Black families did not benefit as much as white families from the economic recovery since the housing market crashed in 2008,” according to the Urban Institute’s Housing Finance Policy Center. Similarly, during the pandemic, Black homeowners were more likely to be behind on housing payments compared with white homeowners, according to an April 12, 2021, On the Economy blog post. Reducing the Black homeownership gap will require a comprehensive and multi-faceted approach. If not addressed, the decline in Black homeownership could continue to exacerbate racial inequality for future generations. At a two-day event, experts will talk about barriers and solutions. (See box above.)

About the Author
Woman with dark hair in business attire
Faith Weekly

Faith Weekly is a community development advisor for the St. Louis Fed's Louisville Zone. Read more about Faith's work.

Woman with dark hair in business attire
Faith Weekly

Faith Weekly is a community development advisor for the St. Louis Fed's Louisville Zone. Read more about Faith's work.

This blog explains everyday economics, consumer topics and the Fed. It also spotlights the people and programs that make the St. Louis Fed central to America’s economy. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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