Greater homeownership isn’t the answer to ending wealth inequality

It matters where the homes are.
It matters where the homes are.
Image: Reuters/Andrew Nelles
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Whichever way you look at it, the wealth inequality gap between black and white Americans is staggering. It’s far worse than income inequality, and one of the reasons why racial inequality hasn’t improved in the US over the past 50 years, and in some ways has gotten even worse. In the US, the average black family has just one-tenth of the wealth of the average white household.

Black Americans living near the poverty line have, on average, zero net wealth—that is, their debts and other liabilities are about equal to their assets. White Americans near poverty, by contrast, have on average $18,000 of wealth, a much more considerable safety net. At the other end of the spectrum, blacks make up less than 2% of America’s wealthiest 1%. The average black family in the top 1% is worth about $1.6 million, but white families in the top 1% are worth on average $12 million. In the US, fewer than 2% of black households are millionaires or better, compared with 15% of white households.

These figures come from a new study published this week (pdf) by William Darity Jr. of Duke University, Darrick Hamilton of The New School, and others, which uses vast amounts of wealth data to dismantle some long-held beliefs about the best ways to address inequality. Conventional ideas include promoting greater educational attainment, hard work, better financial decisions, and “other changes in habits and practices on the part of blacks.”

“There are no actions that black Americans can take unilaterally that will have much of an effect on reducing the racial wealth gap,” the researchers conclude. Instead, concerted financial intervention by the government is needed.

While higher levels of educational attainment can improve an individual’s income to some extent, the evidence suggests that even college can’t improve inequality. In the US, a college-educated black person has less wealth than a white person with less than a high school education.

One of the other “myths” the study seeks to debunk is that boosting homeownership rates among black Americans will improve wealth inequality. Federal Reserve data from the past two decades show a consistently large gap in homeownership rates by race.

However, closing this gap doesn’t address wealth inequality because it fails to acknowledge the racial gap in home values as well. In 2016, the median value of the primary residence of a white household was $200,000, versus $124,000 for the typical black household.

This disparity in housing values can be traced back to the US’s history of blatantly racist housing policies such as redlining, discrimination in federal home loan subsidy programs, and things like contract buying schemes. (This short video explains it all.) Fifty years after the Fair Housing Act, residential segregation still persists.

“Inequality is preserved by policy and often created by policy; I would contend it’s a major source of racial inequality in the United States,” said Thomas Shapiro, the author of Toxic Inequality, in a speech at the London School of Economics this year.

Shapiro’s research for the Institute on Assets and Social Policy at Brandeis University has tracked the wealth of the same group of families over the past 25 years. Among these families, he said, the largest driver of inequality was housing, namely the differences in home values. At the speech in London, he said:

The ceiling of that accumulation is much greater in communities that tend to be homogenous white and communities that tend to be homogenous in terms of upper or upper-middle class status. And the foundation of that in the United States is persistent residential segregation, where communities are divided by race, ethnicity, and by socioeconomic status. The real estate market reflects that. That’s how value is created in that particular set of institution dynamics.

Policy continues to play a role, he argued, because the tax system is used to redistribute wealth to the rich by subsidizing homeownership. The government puts far more money into subsidies for mortgages than supporting renters or people who live in affordable housing, for example.

The disparity in home equity makes addressing wealth inequality through homeownership more complicated. Darity Jr. says that the focus of federal intervention should be to help black people increase their wealth in general, and then let them decide if they want to put that wealth into homeownership. “You can’t get into the homeownership game with significant equity in your home unless you already have wealth,” Darity Jr. told Quartz.

It’s important to consider wealth, then, independent of homeownership. Black Americans have a larger portion of their wealth in housing than white Americans. The disparity here matters when you consider that the median net worth of a black homeowner is less than the median value of a black home. That’s to say that other household liabilities eat into black families’ home equity. The same cannot be said for the average white household.

To address wealth inequality, “America must undergo a vast social transformation produced by the adoption of bold national policies,” the report states. The authors recommend a reparations program tied to compensation for the legacies of slavery and Jim Crow laws, or policies that seek to address wealth inequality among all Americans, with outcomes that would disproportionately benefit black Americans on account of their extraordinarily low levels of wealth.

But while the data show that more needs to be done to address racial inequality, particularly in housing, there is a worrying change of tone at the US Department of Housing and Urban Development. Under Trump-appointed secretary Ben Carson, the department has scaled back enforcement of fair housing laws and is considering changing the department’s mission statement to remove references to promoting “inclusive” communities that are “free from discrimination.”

Correction: An earlier version of this story incorrectly said 3% of black households are millionaires or better. In fact, fewer than 2% are.