How do racial inequities limit homeownership opportunities?
Black and Hispanic/Latino households face unique barriers to homeownership that prevent access to the beneficial outcomes associated with homeownership,
such as wealth building, improved health, and higher educational attainment. Historically, structural and institutional obstacles faced by racial and ethnic minorities compounded over time to produce these inequities.
The racial homeownership gap
The homeownership rates for Black and Hispanic/Latino households continue to trail that of white households. As of the first quarter of 2021, the homeownership rate of white households exceeded those of Black and Hispanic/Latino households by 25-30 percentage points, similar to the pre-pandemic gap. This gap has persisted despite homeownership gains by Black and Hispanic/Latino households before the Great Recession.
In fact, the homeownership rates for Black households have yet to recover to their pre-recession levels, unlike those of white and Hispanic/Latino households, and the gap is wider than it was before the passage of the 1968 Fair Housing Act.
What are the key barriers to accessing affordable homeownership for Black and Hispanic/Latino homebuyers?
Higher income and wealth are associated with higher homeownership rates, but Black households’ income and wealth distributions are notably lower than those of white households.
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Racial differences in the income distribution exist where almost 33% of Black households earn below $25,000, as compared with 16% of white households. Furthermore, only 7.2% of Black households make at least $150,000, compared with 17.7% of white households. If Black and white households had similar income distributions, the Black homeownership rate would increase by 9 percentage points.
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White households with low incomes (50.8%) have a higher homeownership rate than Black households with low incomes (24.1%), which contributes to wealth disparities. According to the 2016 Survey of Consumer Finances, Black households with low incomes — those with incomes in the 20th percentile group — had a median wealth of $3,040, as compared with a median wealth of $11,860 for white households with a similar income.
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Disparities in parental wealth and homeownership help to explain 12-13% of the Black-white homeownership gap among young adults, pointing to the importance of intergenerational transfers of wealth.
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Income reduction and loss have a greater effect on Black and Hispanic/Latino households than on white households. A 1% reduction in income lowers the homeownership probability by 18% and 19% for Black and Hispanic/Latino households, respectively, compared with a 6% decline for white households.
Greater access to credit promotes higher homeownership rates, but Black households are less likely to have sufficient credit to qualify for mainstream, private lending products.
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Over 50% of white households have a FICO credit score higher than 700; only 20.6% of Black households have a similar credit score. This is compounded by fewer Black households (69%) having credit histories, sufficient credit and a credit score than white households (82.1%). If the same credit score distribution is applied to white and Black households, Black homeownership rates would rise by 10.6 percentage points.
Systematic inequities hamper homeownership rates for households of color because of discriminatory housing policies and institutional barriers.
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As much as 17% of the homeownership gap cannot be explained by sociodemographic factors (e.g., income, age, family size, marital status, gender), and researchers hypothesize that the remaining gap may be explained by information networks, limited access to credit, discriminatory housing policies (e.g., redlining, racially restrictive covenants and zoning policies), and other institutional barriers.
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Black and Hispanic/Latino prospective homebuyers still face disparate treatment by real estate agents, such as more stringent financial requirements for showings, steering to minority neighborhoods, and fewer showings.
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Between 1976 and 2016, despite the passage of laws aimed at reducing discrimination in private lending, the racial gaps in loan denial remained persistent. Black and Hispanic/Latino borrowers had a higher probability of being denied a loan and of receiving a high-cost mortgage compared with their white counterparts.
How Habitat responds
Habitat serves a diverse base of homeowners, providing more equitable access to housing. Habitat provides homeownership opportunities that are accessible to homebuyers with low incomes who otherwise may not be able to access homeownership. Habitat offers low-down-payment mortgages that are designed to work even for homeowners who lack pristine credit, thereby helping those homebuyers who are not able to secure traditional loan products. Habitat supports and follows Fair Housing and Equal Housing Opportunity standards.
Habitat for Humanity advocates for anti-racist housing and land-use policies at the local, state and federal levels that seek to increase racial equity in homeownership.
The Why Home Matters evidence series is a multi-part exploration of existing research on the impact of homeownership created by Habitat for Humanity International. Each evidence brief in the series investigates and presents evidence on outcomes related to affordable housing and homeownership while also highlighting specific ways that Habitat’s work contributes to improving outcomes for families and communities.