The blog of the Urban Institute
February 21, 2020

Breaking Down the Black-White Homeownership Gap

February 21, 2020

Since the Great Recession, the gap between the black and white homeownership rates in the United States has increased to its highest level in 50 years, from 28.1 percentage points in 2010 to 30.1 percentage points in 2017.

The 71.9 percent white homeownership rate in 2017 represented a 0.7 percentage point decline since 2010, and the 41.8 percent black homeownership rate represented a 2.7 percentage point decline during that same period. The 30.1 percentage point gap is wider than it was when race-based discrimination against homebuyers was legal.

Not all metropolitan areas have similar homeownership gaps. Among the 105 metropolitan statistical areas (MSAs) with more than 40,000 black residents, Minneapolis-St. Paul, Minnesota, had the largest homeownership gap (51 percentage points), and Charleston-North Charleston-Summerville, South Carolina, had the smallest homeownership gap (15 percentage points).

Our recent report examines the factors behind the racial homeownership gap and quantifies how major factors contribute to the black-white homeownership gap across MSAs.

After controlling for household-level factors, including sex, employment, and age, and MSA-level factors, including housing supply, housing affordability, and racial segregation, we find that income, marital rate and credit scores are three key factors that explain the greatest proportion of the black-white homeownership gap across MSAs.

Additionally, 17 percent of the homeownership gap across MSAs remains unexplained by the observed variables in our analysis. Notably, we also find differences in education are not a significant factor in differing homeownership rates between black and white households.

Income differences: 31 percent of the gap

The $38,183 median household income of black households is substantially lower than the $61,363 median household income of white households.

About one-third of black households earn less than $25,000, and about 18 percent of white households are below this income threshold. In addition, the homeownership gap is larger among low-income households than among high-income households; the gap is less than 10 percentage points for households earning more than $150,000, and it is about 27 percentage points for households earning less than $50,000.

If the household income distribution was the same for white and black households, while other household and MSA level factors remained constant, the gap between the black and white homeownership rates across MSAs would drop by 31 percent, or 9.3 percentage points.

The bigger racial homeownership gap in lower-income groups may be partly explained by differences in wealth and parental support, which are likely to be more crucial in helping low-income households attain homeownership.

The median wealth of black households in the bottom 20th income percentile was $3,040, substantially lower than white households in the same income percentile, whose median wealth was $11,860, according to the 2016 Survey of Consumer Finances. And with greater wealth, white parents are more likely to provide down payment support (PDF) for their children, which increases the likelihood of owning for young white adults.

Differences in marital status: 27 percent of the gap

Compared with white households, black households are less likely to marry. If black households were married at the same rate as white households, the black-white homeownership gap accoss MSAs would decrease by 27 percent, or 8.1 percentage points, once other factors are controlled for.

Credit score differences: 22 percent of the gap

More than 50 percent of white households have a FICO credit score above 700, compared with only 21 percent of black households. Additionally, 33 percent of black households have credit-use levels that are insufficient to generate a credit score (thin files), and only 18 percent of white households have a thin file.

In addition, MSAs with a relatively bigger share of black households with high credit scores and lower shares of those with a thin file have a smaller black-white homeownership gap.

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Seventeen percent of the gap remains unexplained.

We also find about 17 percent of the black-white homeownership gap across MSAs remains unexplained by differences in income, credit score, marital status, and education after controlling for the level of racial segregation, housing supply, and housing affordability at the MSA level.

This 17 percent could be caused by differences in parental wealth, information access, housing supply challenges, or the vestiges of policies that have made it difficult for black households to obtain homes. We also find that racially segregated MSAs have higher white homeownership rates, and MSAs with more housing permits per household have higher black homeownership rates. We recommend further research into this unexplained gap.

Differences in educational attainment do not contribute to the gap.

For both black and white households, the homeownership rate is associated with educational attainment, but once we control for income, education is not strongly related to homeownership.

In a future blog post, we will explore our troubling finding that college-educated black households have significantly lower homeownership rates than white college graduates and slightly lower rates than white high school drop outs.

Our report also provides guidance for policymakers about effective solutions at the federal, state, and local levels:

Federal policymakers working on reforming our housing finance system, including the government-sponsored enterprises Fannie Mae and Freddie Mac, must focus on reaching underserved geographies and people of color.

Given the disproportionate support the Federal Housing Administration (FHA) provides to black homeowners, federal policymakers must also ensure a continued strong and vibrant FHA. Fair housing and lending policies should also be strengthened and expanded, and laws that address disparate impact, discrimination, and bias should be enforced.

State and local policymakers need to understand their state’s housing supply and housing affordability, current and future community demographics, and credit profiles and consistently apply a racial equity lens to their analyses and planning. They need to enable affordable construction and encourage the renovation of existing units.

As we continue to raise alarms about how the decline in black homeownership threatens to exacerbate racial inequality for decades to come, this new report shines a light on critical areas of focus for policymakers at all levels. Strong collaboration, communication, and persistent effort are also required among various national and local stakeholders.

Photo by Adriana Vargas Chvez / EyeEm.

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