Owning a home isn't just a fragment of the American Dream, it's the key to it. Homeownership is also the primary way by which Americans accumulate wealth. American asset-building policies are heavily focused on homeownership, but these policies have discriminated against minorities in the past, and have left a lasting scar.
People of color continue to face barriers to homeownership. They are less likely to own a home (below) and less likely to get returns from the homes they do own, says Catherine Ruetschlin, senior policy analyst at Demos, a public policy organization. Ruetschlin and her colleagues have authored a new report with Brandeis University's Institute on Assets and Social Policy showing the extent to which inequality in homeownership drives the racial wealth gap, and how eliminating this disparity could significantly reduce U.S. wealth inequality.
The report finds that if homeownership rates were the same for all races, the wealth gap between black and white families would be reduced by 31 percent. The gap between Hispanic and white families would shrink by almost the same amount—28 percent:
Homes owned by minorities appreciate more slowly than those owned by white families, and also end up with lower values. One of the main reasons behind lower minority home values is residential segregation. Minorities still live in heavily segregated neighborhoods, and still face barriers to purchasing homes outside of these neighborhoods, says Ruetschlin.
If minority families got the same investment returns from their homes that white families do, wealth inequality between white and black families would be cut by 16 percent, and the gap between Hispanic and white median wealth would come down by 41 percent, according to the Demos report:
The report suggests that tweaks to current policies could achieve the above-mentioned reductions in wealth gap. It recommends:
- Stricter enforcement of anti-discrimination housing laws. This would help reduce residential segregation and give minorities access to homes in different neighborhoods.
- Loan modifications for struggling low-income, minority families. These would especially help those hit worst by the sub-prime mortgage crisis.
- Lowering the cap on the mortgage interest tax deduction. This change would help black and Hispanic homeowners, who have lower-value homes and don't get the same benefits from these tax deductions.
As is evident, the fixes are aimed at undoing the damage of the past.