Amber S. Hendley, Woodstock Institute’s Director of Research, writes about how her family’s experience with owning a home across several generations reflects the systemic factors underlying the Black-White racial wealth gap. A shortened version of this article appears in Crain’s Chicago Business and can be found here:
Commentary: Homeownership is not the answer to the gaping gap in wealth
“Race got us into this so only race will get us out.”
– Spencer Cowan, former Woodstock Institute Director of Research
Tracing one branch of my family tree back to 1825, you’ll meet my sixth-great grandmother, Harriett Riggs, born on the Neville plantation in Bulloch County, Georgia, and registered as property. Two generations later, my family entered the era of Reconstruction. This branch of my family had the most formal education. In fact, Harriett’s great-great-granddaughter (my great-grandmother), Zadie Mae, studied at Morris Brown College and graduated from Savannah State College. She was an educator for 44 years and a member of Zeta Phi Beta Sorority. She served as the Senior Choir Musician for fifty years at Original First African Baptist Church where she was also a Deaconess. She played the piano for various churches and taught piano lessons for many years. Zadie Mae was actively involved in her community, and, in her honor, community leaders named a little league baseball field after her. Her husband, Mack, was an equally accomplished WWII veteran, agriculture teacher and assistant principal. Across from the Zadie Lundy Douglas Little League Field lies the home that my great-grandparents, MaMae and Daddy Mack, owned and raised their kids in (including my Grandaddy Gary). It remains in our family today.
Following our ancestors’ wisdom and examples, my first cousins and I have gone to college and graduated, acquired respectable salaried professional positions, owned property, stayed out of trouble, and come from a “good” Black family. We are also five educated and hard-working generations removed from slavery. I know all of this because, while pursuing my MA in Analytical Political Economy at Duke, I began work on 40 Acres and a Mule: A Speculative Fiction. My goal was to rewrite my family’s history as if they had been given reparations in 1865 in full accordance with General Sherman’s Special Field Order No. 15. I was aiming for a hopeful and optimistic counterfactual built on historical literature, family interviews, and intergenerational transfer models to ultimately compare my theoretical and actual net worths (wealth). I never did get around to finishing that work. The more I dug in, the more discouraged I became assessing the negative impact of the various historical public and private policies and practices that directly harmed and disadvantaged my family one generation after another. Some of those policies and practices negatively impacted investment in Black neighborhoods. That home I mentioned earlier has provided stability for my family (my great-uncle lives in it currently) but has done little for increasing our wealth because that home is in a predominantly Black area. Rather than continue my effort to reimagine the past, I chose to redirect my focus to creating a realizable (not necessarily “realistic”), hopeful and optimistic timeline for African American generations to come.
My family has owned property for generations, but because these properties have been in predominantly Black neighborhoods, we’ve gained little to no wealth. Our homes have been wealth-extractive, at times, leaving us without the equity to reinvest or borrow against to maintain the properties. The most common and well-intentioned narrative is that closing the homeownership gap will close the racial wealth gap. The logic is that, since homeownership generates wealth, increasing Black homeownership to equal White homeownership will increase Black wealth to White wealth and thereby close the racial wealth gap. The issue with that line of reasoning is that systemic disadvantage, and lack of intentional disruption of that disadvantage at all levels, prevent homeownership from generating the same degree of wealth for Black people as it does for White people. In March, I launched a solutions-focused series designed to reframe homeownership’s role in closing the Black-White wealth gap. Without strategic transformation and reform, homeownership as it exists will not meaningfully contribute to closing the racial wealth gap for a myriad of reasons.
Unfortunately, location is not the sole deciding factor for whether or not a Black household can build wealth through homeownership. Income inequality has also persisted throughout American history. Extra or “disposable” income provides the resources to invest and accumulate wealth. Since Reconstruction, my family has been well-educated, but we have only had access to certain professions. On both sides of my family, those who achieved college degrees became teachers. Until six years ago, I myself was a “highly effective” high school math teacher. Though a profession I deeply respect, teaching is not a high-paying job. If you were to identify industries with large Black representation in each generation since Reconstruction, you’ll see the trends that racial discrimination in the labor market have left behind. These professions have not offered relative economic upward mobility.
Income inequality is an important driver of the Black-White wealth gap. In all states, White median household income is greater than Black median household income. For Chicago mortgage applicants in 2021, the Black median household annual income was $78,000, while the White median household income is $131,000. Half of Black mortgage applicants had incomes lower than 80% of all White applicants. At some point, I’ll dig into the education gap that contributes to income inequality. For now, I’ll simply acknowledge it.
Directly tied to income is debt. Lower income raises the debt-to-income ratio (DTI), a key component of the mortgage underwriting process. In 2021 Chicago mortgage lending trends indicated that 32% of all Black applicants had a DTI above 43%, compared with only 15% for White applicants. (This is one reason why Black applicants with less income acquire costlier mortgages at the outset.)
Further, Black households generally maintain higher debt loads as a result of carrying more medical debts, higher student loan balances, and credit lines with less favorable terms and higher minimum payments. Altogether, this leaves less disposable income for other investments for wealth accumulation such as money market accounts, stocks and retirement funds.
Because mortgage amounts directly correlate with buying power and property values, property values are lower for Black households compared to White households. For mortgage applicants in Chicago in 2021, the median property value across all Black households was $255k, compared to $445k for all White households. Home equity is the difference between what you owe on your mortgage loan and the current market value of your home. This translates directly to wealth creation. Ignoring different racial home value appreciation rates (although my family hasn’t been able to ignore it), we see that once both mortgages are paid off at the end of that 30-year term, the median White household will have more equity, benefitting more from being a homeowner than the median Black household. Further contributing to the racially uneven benefit of homeownership wealth are differences in mortgage insurance, interest rates, loan-level price adjustments, property tax assessments and homeowners’ insurance – all of which make homeownership more expensive for Black households than White households.
After generations of property ownership and diligent stewardship of the version of American citizenship granted to Black people, my Black family is far from wealthy. There are income, debt and home equity gaps that persist as a result of race-specific policies and practices that have shown preference for some, to the detriment of others. If we are to use homeownership to close the racial wealth gap, we must address the income, debt and home equity gaps that get in the way. To do so, we will need the right large public and private investments to repair harm done in predominantly Black neighborhoods. Until we have a truly competitive market made up of equal incomes and property values, adjustments can be made to our homeownership wealth creation toolkit. I suggest we get race-specific and:
- Subsidize 20% down payments for Black homeowners and homebuyers. Eliminate Private Mortgage Insurance (PMI) and other fees and higher interest rates associated with a lower down payment. Provide home equity and make monthly mortgage payments more affordable.
- Subsidize discount points for Black homeowners and homebuyers. Eliminate higher interest rates associated with higher DTIs. Make monthly mortgage payments more affordable.
- Subsidize a monthly $50-100 principal-only mortgage payment for Black homeowners and homebuyers for the life of the loan. Increase home equity over the life of and make the overall mortgage more affordable.
- Subsidize home improvements that will add value to the home for Black homeowners and homebuyers for the life of the home. Add to home equity and account for income differentials.
- Remove early termination fees from mortgage products used by Black homeowners and homebuyers. Prevent equity stripping and allow the benefit of refinancing.
Beyond homeownership, we must also invest in other avenues for building wealth for Black households. I suggest we subsidize stock and bond investments, business stocks, and retirement accounts, and implement similar lending subsidies as described above for small business lending for Black entrepreneurs.