Buying a home is a costly undertaking but it’s money well spent when you consider owning a home is one of the best ways to build generational wealth. This is why homeownership is such an integral part of the American dream. However, the cost of homeownership for Black American’s can be over $13,000 higher when compared to White homeowners.
These additional costs are due to unfair and discriminatory practices on the part of lenders, insurance companies, and assessors. These collective price hikes are often referred to as the “Black tax”. Real estate leaders and government officials are working hard to create a more just and equitable homebuying system to close the housing gap that’s been perpetuated over the past half-century.
Discriminatory Practices of the Past Have Left Lasting Effects
Even though redlining, the practice of discriminatory lending, and government mapping to create segregated communities, was outlawed with the creation of the Fair Housing Act in 1968, its effects have left Black American homebuyers at a disadvantage from the get-go.
Redlining and discriminatory lending practices left many Black Americans unable to become homeowners, thereby reducing their potential for generational wealth and additionally limiting their ability to raise their credit score. As a result, the homeownership gap in the United States between Whites and Blacks is worse in 2020 than it was in 1968 when the Fair Housing Act was created.
Despite Protections, Housing Related Discrimination Continues
Today, even though lenders are prohibited from discriminating against borrowers based on their race, Black homeowners pay up to $600 more a year on their mortgages than White homeowners. While that number may seem fairly insignificant, it adds up to $30,000 of lost savings over the course of 50 years.
Moreover, the MIT study The Unequal Cost of Black Homeownership reports Black homeowners have allegedly been denied refinancing opportunities and, as a result, pay another $475 more per year in interest than their White counterparts.
“In addition to the extra costs from higher mortgage interest rates and mortgage insurance premiums, recent research shows that Black homeowners pay more in property taxes than similarly situated white homeowners,” the authors wrote in the study. What’s more, a 2018 report confirms what anecdotal data suggests: homes owned by Black Americans often appraise for less than their White neighbors with comparable properties.
Real Estate Leaders and Government Officials Are Making Moves to Address the Problem
President Biden has proposed a tax credit for first-time homebuyers that can be used toward a down payment. Through this legislation, first-time homebuyers would receive a tax credit after purchasing a home instead of current tax deduction programs which require the buyer to wait until they file their taxes to see their money.
While this credit will certainly provide relief for first-time homebuyers of all kinds, it does little to address the systemic issues that have resulted in the unequal cost of homeownership for Black Americans. To fight this discrimination, industry leaders must make strategic plans to combat the problem on a variety of levels.
The National Association of REALTORS® (NAR), which represents more than 1.4 million real estate professionals, implemented the ACT plan in 2019 to address these issues. ACT (Accountability, Culture Change, and Training) includes a five-point plan to help close the gap in homeownership rates.
- Increase the Housing Supply: Building more homes will help address supply issues that drive home prices up. By building affordable homes, more people will be able to move from renting to buying.
- Revitalize Communities in Need: NAR supports building homes in opportunity zones that are designated economically disadvantaged areas.
- Expand Access to Down Payment Assistance: Many Black Americans, due to historical gaps in wealth accumulation, can’t rely on their family for help with a down payment. Increasing access to federal down payment assistance programs will help level the playing field for Black Americans seeking homeownership.
- Increase FHA Loan Programs: Historically, federal loans have been important for minority homebuyers. NAR notes, “Shifting federal dollars to strengthen the FHA program could lower mortgage insurance premiums and monthly mortgage payments.”
- Broaden Alternative Credit-Score Models: Homeownership opportunities can be increased by including utilities and rent payments in credit score models. Black Americans who often have limited means to improve their credit scores can benefit from this expansion.
Elizabeth Korver-Glenn , a sociology professor at the University of New Mexico, notes, “We need new, bold federal legislation that reshapes how we buy, sell, manage, and inhabit housing – legislation that prioritizes the housing of people over profit.” NAR is making great strides to take action against this systemic issue and the real estate community is hopeful that the Biden administration will pass legislation in support of this initiative.