Addressing the Racial Homeownership Gap in Louisville

Homeownership remains the primary driver of wealth-building for U.S. households. However, the legacy of unequal access to homeownership and wealth-building opportunities for households of color continues to adversely impact the Black homeownership rate.See the March 2, 2021, National Community Reinvestment Coalition article “60% Black Homeownership: A Radical Goal for Black Wealth Development” by Dedrick Asante-Muhammad, Jamie Buell and Joshua Devine.

While the country has seen shifts toward closing the Black-white homeownership gap, challenges persist for Black households. In 2021, the U.S. homeownership gap was the largest it had been in a decade, with the Black homeownership rate at 44%, 29 percentage points less than the white homeownership rate of 73%. See the March 2, 2023, release “More Americans Own Their Homes, but Black-White Homeownership Rate Gap Is Biggest in a Decade, NAR Report Finds” from the National Association of Realtors. In Louisville, Ky., Black households even further lag the national average for homeownership—in 2021, 40% of Black households owned their homes compared with 70% of white households. See Haley Cawthon’s Feb. 22, 2023, Louisville Business First article, “Black Homeownership Has Increased in Louisville: Report."

This June, to mark National Homeownership Month, the St. Louis Fed hosted a panel discussion that centered on racial gaps in wealth and homeownership in the Louisville-Jefferson County metro area.

The dialogue highlighted how discrimination and systemic barriers have contributed to disparities between Black households and white households in wealth and homeownership and how local efforts are addressing challenges faced by Black homebuyers.

The Metropolitan Housing Coalition (MHC)—a Louisville nonprofit that advocates for safe, decent and affordable housing for all—found that in 2019 it would have taken an estimated 22,000 Black households becoming homeowners to close the homeownership gap between white residents and Black residents in the Louisville area.See the MHC report 2019 State of Metropolitan Housing Report—22,000 Equities: Addressing Racial Gaps in Homeownership and Wealth (PDF).

“‘Twenty-two thousand equities’ also symbolizes the historical and ongoing disenfranchisement that we’ve talked about for an entire population that reflects the unequal access to homeownership and wealth-building opportunities among Black households. And it reflects this growing and ever-present wealth gap,” MHC Executive Director Anthony Curtis said during the panel discussion.

Tools for Advancing More Equitable Homeownership

In 1934, the Federal Housing Administration was created to increase homeownership in the U.S. In the 1930s, the real estate industry developed a system that assigned a higher value to socioeconomic characteristics than to physical characteristics to determine the value of a neighborhood. The practice was known as redlining, and it would last for another 35 years. Discriminatory housing policies—such as segregated federal housing developments and restricted deeds and covenants—existed before redlining, but redlining essentially allowed households of color to be systematically excluded from opportunities to purchase and invest in the largest driver of wealth in this country: a home.See my Nov. 3, 2021, Open Vault blog, “Narrowing the Racial Homeownership Gap."

Launching the West Louisville Housing Initiative

The legacy of redlining is apparent in neighborhoods like West Louisville, where nearly 75% of residents are Black and 80% of residents are renters.Again, see the MHC report 2019 State of Metropolitan Housing Report—22,000 Equities: Addressing Racial Gaps in Homeownership and Wealth (PDF).

In 2022, the Rotary Club of Louisville announced its West Louisville Housing Initiative,This fact sheet explains the West Louisville Housing Fund (PDF) (or West Louisville Housing Initiative) in more detail. an innovative program that seeks to finance home mortgages for up to 60 families in West Louisville. The initiative was conceived by the club as part of an ongoing effort to identify critical issues in the Louisville community and to develop corresponding solutions. The club conducted meetings with community leaders, and homeownership in West Louisville emerged as a top issue.

The housing initiative will fund an underwriting program that uses expanded financial criteria to establish credit worthiness and provides capital for full, 30-year mortgages. The program requires buyers to live in their homes, and each buyer is offered a two-year home warranty to protect against an unexpected repair.

“The mortgage loan is designed to give all underserved community members the opportunity to gain homeownership that they otherwise would not have had with traditional financing standards,” said David Constantino, senior vice president and chief lending officer at Park Community Credit Union (PCCU), which will administer the program. “Low credit scores, high loan-to-value ratios and no down payments are the gateways for the underserved markets to begin their journey to creating generational wealth.”

The Rotary Club of Louisville is raising funds to underwrite the program through the Rotary Fund of Louisville, with a fundraising goal of $5 million, of which $2.5 million has been met. Through a gift agreement, funds will be transferred into a dedicated account at the Rotary Club of Louisville’s fiduciary partner, PCCU. PCCU will originate and service loans to first-time homebuyers in formerly redlined West Louisville neighborhoods. Borrowers will make payments into the dedicated account, thereby creating a revolving fund that is intended to sustain itself for years to come.

The housing initiative has had two applicants approved and has received inquiries from other Rotary Club chapters interested in replication of the model.

Community Land Trusts and Equitable Housing in Louisville

Increasing opportunities for Black households to become homeowners and to build wealth have long been priorities of Kevin Dunlap, executive director of REBOUND Inc., one of two community housing development organizations in Louisville. Concern about early signs of gentrificationPer Merriam-Webster: Gentrification is a process in which a poor area (as of a city) experiences an influx of middle-class or wealthy people who renovate and rebuild homes and businesses and which often results in an increase in property values and the displacement of earlier, usually poorer residents. in two neighborhoods contiguous with the downtown area motivated him to learn about tools that could help preserve access to affordable housing.

The idea of creating a community land trust (CLT)—in Smoketown (located east of downtown) and Russell (located west of downtown), two Louisville neighborhoods home primarily to residents of color and with low homeownership rates that are currently undergoing revitalization—emerged as a way to mitigate potential problems often associated with gentrification.

A CLT, a nonprofit organization that acquires and manages land upon which affordable homes can be developed, is a model of shared-equity homeownership. CLTs sell homes to low- and moderate-income families at below-market rates but retain ownership of the land; in turn, homebuyers lease the land from CLTs for a nominal fee. In exchange for a CLT property at an affordable price, buyers agree to resell at a price that is affordable for future low-income owners.

In recent years, interest in developing CLTs has gained traction among community organizations and governments seeking solutions for advancing equitable housing. The benefits of this model include efficient investment, wealth creation for homeowners of color and affordability preservation.See my April 27, 2022, Open Vault blog, “How Community Land Trusts Can Advance Black Homeownership.”

REBOUND was awarded a grant of $2.1 million from Louisville Metro to begin working with the Smoketown and Russell neighborhoods to form CLTs.

The Lexington Community Land Trust (LCLT) is the only other CLT in Kentucky. It typically works with buyers who have an income between 56% and 77% of the area median. In January 2016, the LCLT sold its first home. It has since sold 13 more at an average price of $121,783—from a high of $132,834 to a low of $112,244.See the Kentucky Transportation Center 2020 research report Social Justice Mitigation in Transportation Projects (PDF).

Identifying Equitable Mortgage Products

Imagine being a first-generation homebuyer of color who is looking for a lender and feeling overwhelmed. For households of color interested in buying a home, knowing which lenders offer special-purpose credit programs (SPCPs) can be daunting. To make it easier, a new certification mark, EQUIT=Y, has been created by the Homeownership Council of America (HCA) to help consumers recognize those lenders.

Building equitable access to credit for America’s underserved communities is the mission of the HCA. The purpose of the certification mark is to normalize the conversation around racial equity, help qualifying consumers find SPCP lenders and identify their brands, assist lenders that offer SPCPs in reaching qualified consumers, and provide consumer-facing industry partners with materials and information.

A Comprehensive, Multifaceted Approach to Black Homeownership

While there may be a strong desire among Black renters to achieve homeownership, numerous barriers persist. Reducing such barriers and preventing the Black homeownership gap from widening will require an intentional, comprehensive and multifaceted approach, as demonstrated through these examples in Louisville.

Notes

1. See the March 2, 2021, National Community Reinvestment Coalition article “60% Black Homeownership: A Radical Goal for Black Wealth Development” by Dedrick Asante-Muhammad, Jamie Buell and Joshua Devine.
2. See the March 2, 2023, release “More Americans Own Their Homes, but Black-White Homeownership Rate Gap Is Biggest in a Decade, NAR Report Finds” from the National Association of Realtors.
3. See Haley Cawthon’s Feb. 22, 2023, Louisville Business First article, “Black Homeownership Has Increased in Louisville: Report.”
4. See the MHC report 2019 State of Metropolitan Housing Report—22,000 Equities: Addressing Racial Gaps in Homeownership and Wealth (PDF).
5. See my Nov. 3, 2021, Open Vault blog, “Narrowing the Racial Homeownership Gap.”
6. Again, see the MHC report 2019 State of Metropolitan Housing Report—22,000 Equities: Addressing Racial Gaps in Homeownership and Wealth (PDF).
7. This fact sheet explains the West Louisville Housing Fund (PDF) (or West Louisville Housing Initiative) in more detail.
8. Per Merriam-Webster: Gentrification is a process in which a poor area (as of a city) experiences an influx of middle-class or wealthy people who renovate and rebuild homes and businesses and which often results in an increase in property values and the displacement of earlier, usually poorer residents.
9. See my April 27, 2022, Open Vault blog, “How Community Land Trusts Can Advance Black Homeownership.”
10. See the Kentucky Transportation Center 2020 research report Social Justice Mitigation in Transportation Projects (PDF).