Why Black Homeownership Rates Lag Even As The Housing Market Recovers
By Gail MarksJarvis, Chicago Tribune | July 21st, 2017
A decade after the housing crash destroyed the American Dream for millions of homeowners, black homeownership rates have dropped to levels not seen since the 1960s, hobbling African-Americans’ efforts to build their wealth.
Nationally, only 42.2 percent of blacks owned homes in 2016, compared with 71.9 percent of whites, according to a new report by Harvard University‘s Joint Center for Housing Studies.
And in Chicago, the gap between black and white homeownership rates is even more extreme. Only 38.9 percent of African-Americans owned homes in the Chicago area in 2015, compared with 74 percent of whites. Before the housing crash, almost half of African-Americans in the Chicago area owned homes, according to Harvard’s research. Latinos in the Chicago area also lag when it comes to homeownership. Only 50.5 percent of Latinos owned homes in the area in 2015.
Local efforts are underway to help more Chicago-area residents become homeowners, something that would help strengthen neighborhoods and put those individuals on a stronger financial path.
“Homeownership is a way for people to generate stability and wealth and not just go to work every day,” said Deborah Moore, neighborhood planning director for Neighborhood Housing Services of Chicago, a nonprofit that helps Chicago residents buy and keep homes. In addition, homeownership can “change the trajectory of neighborhoods,” she said.
Without homes, blacks lack a powerful source of wealth creation, said Jonathan Spader, senior research associate with the Harvard center. Homeowners generally build equity that allows them to eventually buy other homes or businesses and send children to college. Homes also are passed to younger generations upon death, allowing future generations to build wealth.
“Because whites are far more able to give inheritances or family assistance for down payments due to historical wealth accumulation, white families buy homes and start acquiring equity an average eight years earlier than black families,” researchers Thomas Shapiro, Tatjana Meschede and Sam Osoro of the Institute on Assets and Social Policy at Brandeis University wrote in a report. The Brandeis researchers found that homeownership is the single largest predictor of wealth differences among races.
After decades of making gains, the most recent nationwide African-American homeownership rate was the lowest it’s been since the Fair Housing Act of 1968 began tackling discriminatory housing practices.
Historically, homeownership has been 28.4 percent higher among whites than blacks, but the racial gap in homeownership is now the largest since data became available in 1940, Spader said.
“Prospects for black homeownership have gone from hopeful to pessimistic in only 15 years,” analyst Laurie Goodman said in a recent Urban Institute paper.
Harvard researchers attribute much of the plunge in African-American homeownership to predatory lending practices that saddled buyers in poor minority neighborhoods with more debt than they could afford. Economics professor Amir Sufi, of the University of Chicago, has found that low-income lending was especially prevalent on Chicago’s South Side in the years preceding the housing crash.
As a result, those communities were hit especially hard by the housing crash and the foreclosures that ensued, according to Sufi.
Credit scores damaged by foreclosures and short sales kept people from bargain-hunting in the wake of the housing crash, even though prices were low, according to Urban Institute research. Even people with good credit struggled to get mortgages as lenders focused on borrowers with pristine credit, the Urban Institute has found.
So as home buying has picked up among whites, Asians and Hispanics since the crash, African-American ownership has fallen, according to the Harvard research.
High rents also are keeping some from home ownership. As demand for rental housing has climbed, rents have surged the last few years, making it hard for many to pool enough funds for a down payment.
According to research by the Institute for Housing Studies at DePaul University, 53 percent of renters in Cook County are paying more than what is considered manageable, or more than 30 percent of their income.
Various programs are trying to encourage homeownership in Chicago by rehabbing dilapidated houses and taking other steps to stabilize neighborhoods. In Chicago’s Woodlawn neighborhood, about $2 million from a $30.5 million Housing and Urban Development Choice grant is being used to lure buyers to homes that are empty and in need of rehabilitation. The goal had been to attract 20 buyers, but 25 have purchased homes so far, said Moore, of Neighborhood Housing Services.
Rental property upgrades funded by the Choice grant and plans to develop the Obama Presidential Center nearby also are stimulating interest in Woodlawn and turning it into a hot area, Moore said.
The Cook County Land Bank Authority, meanwhile, is working without grant money to facilitate the rehabilitation of empty homes in Chicago’s South Side neighborhoods. With $4.5 million in settlement money from a federal case against lenders involved with foreclosures, during the last couple of years the land bank has been buying foreclosed homes and selling them to small developers willing to rehab and sell them. Funds generated through the sales are used to acquire additional properties.
Tim Hall, 51, recently purchased a three-bedroom home in the Washington Heights neighborhood that had been gutted and modernized through the land bank program. Hall is paying just $200 more a month now than he was as a renter, and his home purchase is helping him lay a financial framework for his future. Hall is confident that as he builds up equity in the home, he’ll be able to sell it when he retires and moves to the Caribbean.
“When you walk in, it’s a brand-new home — breathtaking,” he said of the house.
Hall, a sanitation inspector, is required as a city employee to live in Chicago. After living in the suburbs for years, he said, he was hesitant about buying a house in the city. But now as he walks through his new neighborhood, he said he’s impressed with the pride of ownership he sees in nearby homes.
“I can only encourage more people to be homeowners,” he said.
When empty foreclosed properties are fixed up and inhabited again, the values of surrounding homes rise, said Rob Rose, executive director of the land bank. Without the rehab projects, the abandoned properties can “become nuisances in the community that bring unintended consequences,” such as crime, he said.
Since beginning the program, the land bank has purchased and facilitated the rehabilitation of 133 homes, 101 of which are occupied. Another 169 rehabs are planned, said Bridget Gainer, Cook County commissioner and chairwoman of the land bank.
The selling prices of rehabbed homes have ranged from about $100,000 to $150,000, and the program tries to link developers and homebuyers to banks that will lend to them.
Before the project, Gainer said, people claimed that there was no interest in the numerous empty homes sprinkling neighborhoods. “We have proved that people are interested in buying and there is demand all over Chicago.”