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  • yorro

Homeownership & Disparities in Wealth

Updated: Aug 16, 2020

If anyone is serious about the racial wealth gap, the only way to fix it is by sharing wealth directly.

Say a guy goes to prison for 50 years for a crime he didn't commit. At some point the state realizes they ruined his life and they exonerate him. When he gets out, which do you think is more fair to make things right: a cash payment of all the money he would have earned during that time he was in jail, or an interview for a "great job" with an investment bank? Even if the job might provide him a great opportunity to become rich, it's not hard to say that the state should probably just give him the money. A material benefit is generally a lot more useful than the chance for a greater (or lesser) material benefit in the future.

Now say the same guy goes to jail for 50 years, still innocent of any crime, and then he dies the day he is supposed to get out of jail. Is it fair to give it to his family? It seems justifiably so. Now say the reparations payment gets lost in the mail for a month, a year or five years. Is it still fair for his family to receive it? What if it was delayed for 100 years? Or 150? At what point is his family or are his descendants no longer entitled to that recompensation? The debt remains owed for as long as it is unpaid. And offering his descendants the same offer of an interview for a "great job" at the bank still isn't a square deal either. But this is essentially what people in the housing industry are advocating for when they push for "more homeownership to build wealth for ______". It's a feel good solution that doesn't really address the problem.

Richard Rothstein's terrific book The Color Of Law was groundbreaking for exposing the decades of injustice and exclusion that have been fundamental to many aspects of urban planning, and fortunately in the last few years it has become pretty widely read throughout the profession. This is great, because it has made clear that for a long time, pretty much everyone in planning was complicit in excluding people of color from the housing markets that everyone else was profiting from. The uprisings related to George Floyd will likely amplify these conversations even louder, which is good. But the players that benefit from the status quo are catching on as well. As usual, we are now seeing banks speaking assuredly about making things right, realtors' organizations putting on their best concerned looks to affirm they're on the right path, et cetera et cetera. But these institutions don't want any real fundamental changes that might lead to a system that was actually equitable. And most of these proclamations ring especially false since many of these corporate actors were the ones that were instrumental in keeping POC and poor people out of homeownership markets in the first place. But no one looks too deeply into that because it's uncomfortable, and in the US, homeownership is a sacred cultural milestone that is generally beyond reproach. So, while we can talk about racial exclusion from homeownership, we still can't really talk about how the homeownership system might be exclusive in itself. Or whether housing should be used for building wealth in the first place.

I imagine as time goes on, larger numbers of public agencies and local and state governments will recalibrate their homeownership policies to be a bit more inclusive of people of color, and again, in general that is good and long overdue. But how far will they really go? The state of Oregon has for some time listed "wealth creation" for disenfranchised groups by means of homeownership as a priority in its Oregon Statewide Housing Plan. Lobbyists and non-profit developers are upping their game as well.

But in all this, no one seems to even consider the idea that using housing as a wealth-building tool might be problematic for in itself. When it comes down to it, this is one of the main reasons why housing is always getting more expensive year after year. If you want a house to build wealth , then you essentially want housing to become more expensive over time--as long as you are the one who sells it at the end of that period. Last I checked, constantly rising prices for housing are what most people would call a "housing crisis", yet the breathless rhetoric of homeownership---now as a tool for solving racial wealth disparities---continues without much mainstream scrutiny at all.

And say we accepted that homeownership is an unquestionably good, and it has the power to transform miscreant renters into model citizens (it doesn't). What's the end game here--every single family in the US having a low density single family home? Has anyone every thought about what that would do to property prices? The early Levittown suburbs were "affordable" in part because they were simple, built en masse, and placed on huge swaths of greenfield land. Building housing on this scale today is largely impossible because of the NIMBYs who don't want "sprawl"--and ironically, many of these exclusionists are often living in the original sprawling suburbs of half a century ago. Sprawl is ugly, but it also means more products on the market. If you could ever get such a large volume of housing products on the market that scarcity disappeared, the whole bidding/offer game would basically disappear over night, and housing would become cheap--which is good. But then no one would be getting as much wealth from selling or developing housing, which according to the "woke" homeownership logic, is bad. In this situation, housing would turn from an appreciating asset into a depreciating consumer good, much like the market for cars: plenty available at just about every price point, and the only parties that make any money are the creators, the dealers, and the highest end collectors. If we really care about housing, this actually sounds good--but again, the primary focus of most of our policy seems to be on "creating wealth". So the attainable housing problem never goes away.

I rarely hear planners, policy advocates, or anyone in the affordable housing industry talk about this. Why don't housing discussions ever connect the reality that appreciating assets = more expensive housing? When people talk about more homeownership for people of color, who do they think is going to benefit most of all? Why don't we talk more fairly about the downsides of homeownership, especially in that it requires:

  • a significant amount of up-front capital (The average family has what, less than $9,000 in the bank?)

  • ongoing maintenance and repair

  • a good relationship with a bank (credit)

  • A perfect confluence of market conditions, interest rates, and behavior of people living next door if you want a profitable return.

Any one of these can be a big hurdle for any family. So why is this our default of what everyone should aspire to?

As a tool for generating wealth, homeownership has worked great for some, but not always for others. Depending on who you ask, in the last housing crash, the average US family lost 1/3rd of its wealth in 2008, and households at the bottom lost the largest share of wealth overall. This 2013 Harvard study celebrates that "Even after the tremendous decline in housing prices and the rising wave of foreclosures that began in 2007, homeownership continues to be a significant source of household wealth, and remains particularly important for lower-income and minority households."

And while the study emphasizes that people can make bank by riding property prices, it also soberly admits that, for many homeowners in the last economic crash, "...fluctuations in home prices are a two-edged sword and a significant share of these gains were subsequently lost when the bottom fell out of the market." Doesn't this seem fairly...risky? That study also notes that their analysis did not attempt to account for selection bias--of course homeowners who ride the market and won are happy to talk about riding the market. And they conclude with this:

Still, it is inevitable that some owners will not succeed. A key challenge for policymakers is to assess what degree of risk of failure is appropriate. From a wealth perspective, the opportunity to realize fairly substantial gains if owning is maintained against the risk of essentially falling back to starting wealth levels if it is not suggests that there is reason to err on the side of fostering attempts at owning. But the calculation also needs to factor in the non-financial costs of failure for these families and individuals as well as impacts on the surrounding community.
To avoid tilting the playing field too sharply towards homeownership and enticing those with low odds of success toward this goal, it is important that housing policies are more tenure neutral, providing supports for renters and owners alike to find affordable, good quality housing. The fact that homeownership will not be appropriate or desirable for all low-income households also argues for a broader range of policies to promote savings and wealth accumulation among those of limited means

I suppose homeownership is a tool that that kind of works, but only in very specific circumstances with any number of federal, state, and local subsidies, benefits, and regulations helping out. And then you'd better hope that the market and your neighbors are perfect precisely at the moment you want to sell.

For everyone who says "But iT's JusT somE PeopLE's PREFerence!" Sure, I don't disagree. Who wouldn't prefer housing stability that also gives you financial stability? But let's see how many people would prefer it if the subsidies went away. And let me be clear here: I'm not saying we should stop fetishizing the homeownership system because I don't want more POC or anyone to have stable homes; I'm saying we should stop fetishizing it and treating it as a solution for racial wealth disparities because it is based upon the commodification of land, and the commodification of land leads to inequality regardless of who is using it to build wealth. Homeownership as a wealth-building tool is a system that thrives off of artificial scarcity and differences in class, which until recently also happened to exploit components of race.

The US has deep structural issues with racism. People of color have been exploited, beaten, murdered, or otherwise marginalized for generations, and clearly it is still happening today. If we are serious about attempting to get anywhere close to correcting this societal injustice, huge changes in policy and direct monetary compensation is the only way to do it. The US can afford this if we make it a priority.

But saying we can address our disparities in racial wealth via more homeownership is not appropriate. Clamoring for more people to get into a highly speculative and single family home property market is not a fair way to redress these wrongs--it is simply the system preserving and reinventing itself. The fundamental commodification problems remain.

Everyone deserves housing, and everyone deserves justice. However, black people, indigenous people, and any other people of color who have suffered at the hands of our society deserve a real, direct, accommodation for the reality that they have been shut out from housing and denied justice for generations. Mealy-mouthed pronouncements, or offers to fast-track people into property speculation are not a good solution, especially if they ultimately just reinforce inequality in other ways. Whether you call them reparations, direct payments, or anything else, a true redistribution of wealth to BIPOC is the only way to address generations of inequality. Housing policy is not a good tool for solving this problem.

yorro is a planner working in municipal housing.

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