4 Reasons Home Ownership Won't Close the Racial Wealth Gap

Joe Cortright employs data from the aftermath of the housing bubble to demonstrate how, for low-income and non-white households, "home ownership could turn out to be a wealth-destroying, not a wealth-building, proposition."

He writes in City Observatory:

"Housing can be a good investment if you buy at the right time, buy in the right place, get a fair deal on financing, and aren’t excessively vulnerable to market swings. Unfortunately, the market for home-ownership is structured in such a way as to assure that low-income and minority buyers meet none of these conditions."

In a national housing market still informed by its history of racism, here's how each of those variables works against non-white and low-income households:

1. Timing.

"The best time to buy, from a wealth-building perspective, is when housing prices are low and growing sluggishly. But generally, such times coincide with limited credit availability … Only the 'best' borrowers have access to home loans when prices are low."

2. Location, location, location.

"In segregated housing markets, the behavior of whites to avoid Black and Hispanic neighborhoods means that it's much more difficult for those communities to see consistently rising home values." As a result, "ethnic minorities tend to buy in neighborhoods that have lower rates of home price appreciation."

3. Access to credit.

"The evidence is that low-income borrowers and ethnic minorities pay, on average, higher interest rates." And of course, "if you pay more for your mortgage, that raises the cost and lowers the returns to homeownership."

4. Economic resilience.

"Low income and minority families often have limited financial resources beyond the equity in their homes and therefore are poorly positioned to cope with financial setbacks—loss of a job, a major medical expense or home repair—and missing mortgage payments can quickly push them into default."

City Observatory follows this analysis with more on how an anti-poverty strategy built on promoting homeownership can actually worsen inequality, and its implications for affordable housing.