Hamson McPherson, 77, who was denied a home loan modification request by his bank after the foreclosure crisis, stands outside his house in 2011. Andrew Burton/Reuters

A new paper debunks various myths about the wealth gap between blacks and whites in the United States, and the methods for bridging it.

The wealth gap between blacks and whites would take 225 years to disappear, according to one recent, rather optimistic, estimate. As to how this could happen, theories abound.

Squeezing shut the homeownership gap is a popular solution, and understandably so. A century of racist housing policy—redlining, mortgage loan discrimination, preferential housing subsidies—has created major barriers to homeownership for black Americans. Simultaneously, the federal government has long promoted homeownership as one of the primary asset building mechanisms in the U.S. The result: A homeownership gap that largely overlaps with the wealth gap. But will eliminating the former also do away with the latter?

According to a new paper from the Samuel DuBois Cook Center on Social Equity at Duke University: Not really.

In this report, authors William Darity Jr., Darrick Hamilton, Mark Paul, Alan Aja, Anne Price, Antonio Moore, and Caterina Chiopris set out to debunk a number of myths about this racial wealth gap—and its fixes. Improving financial literacy, elevating educational achievement, increasing savings, and encouraging entrepreneurship may be helpful, but ultimately insufficient, they argue; these solutions place the brunt of the responsibility on black Americans, to correct a problem they did not create.

But bridging the homeownership gap is a long-touted piece of the solutions puzzle. In 2017, in an article for The New York Times Magazine, sociologist Matthew Desmond wrote: “Differences in homeownership rates remain the prime driver of the nation’s racial wealth gap.” And research by various public policy organizations and housing experts appears to back this up. Technically, they’re not wrong: Housing market conditions and policies do worsen economic inequality. But what the authors of the Duke University paper take issue with is the implication—or perhaps more accurately, the inference—that the homeownership gap causes the wealth gap. They write:

The word “drive” suggests a causal link between homeownership/home equity and the generation wealth. However, a major flaw in this reasoning is that, by definition, homeownership/home equity is a component of wealth. Hence, the statement that “homeownership drives wealth” is equivalent to saying that “wealth drives wealth.”

In other words, there’s a chicken-and-egg problem in the way we talk about the relationship between homeownership and wealth. And the authors of the Duke University paper are arguing that the wealth disparities came first. They write in the paper:

Without sufficient wealth in the first place, households have limited means to invest in homeownership. Wealth, after all, begets more wealth.

Of course, the decades of discriminatory housing policy have driven a deeper wedge between racial groups, but the seed of the black-white wealth gap was sown back during slavery. For this argument, the researchers have some support. A recent historical analysis found that there’s a significant economic penalty for being black in America, and it has remained constant for over 100 years.

That’s why doing away with the homeownership gap, by itself, will not create wealth parity for blacks and whites (although the authors of the Duke paper agree that it will help). They have numbers to prove it: White households that do not own homes have 31 times more wealth than black counterparts. The net worth of the latter group is just $120, according to the researchers’ calculations of 2014 government data.

Among homeowners, too, racial differences exist. White households who own homes have $140,000 more in net worth than black ones. That’s a much narrower gap, but still pretty significant, the authors write in the paper. They conclude that it’s not just that white households, on average, have greater housing equity, but they appear to have greater equity from all other types of financial assets.

(Duke University)

According to the authors, a true reckoning with the black-white wealth gap in America requires a meaningful consideration of the idea of reparations—compensation for the damages of slavery and everything that came after it. With respect to housing, in particular, it could work something like this:

If the goal truly is to eliminate the racial wealth gap, policymakers should be concerned with providing, at the very least, an initial, significant financial endowment to black young adults to invest in an asset like a new home, as well as an aggressive campaign against housing and lending discrimination, which limits the asset appreciation of the housing stock and financial products available to blacks.

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