Rates for younger African Americans and Latinos still dramatically below those for Whites

WASHINGTON, DC ? The rate of homeownership increased at a faster pace among African Americans and Latinos than among whites in the two age categories most commonly associated with first-time home buying according to research results released today by the Fannie Mae Foundation. An analysis of recent data from the U.S. Census Bureau shows that homeownership rates for both African Americans and Latinos aged 25 to 34 increased by 4 percentage points in the 1990s, substantially more than the 1.9 percentage point gain experienced by whites in the same age group. Among households aged 35 to 44, the Latino homeownership rate rose 3.2 percentage points and the African American rate rose 1.5 percentage points, while the rate for whites rose 1.4 percentage points. Despite these gains, homeownership rates for African Americans and Latinos aged 35 to 44 remained 20 percentage points or more below the rates for whites.

Racial/ethnic homeownership attainment trends and the persistent homeownership gap are important for several reasons. First, homeownership is an important indicator of socioeconomic achievement. Buying a home is the most expensive purchase ever made by most households, requiring at least a modest level of assets to cover the down payment and closing costs and sufficient income to repay the mortgage. Thus, a narrowing homeownership rate gap between whites and minorities would be one indication of increasing socioeconomic equality between groups.

Homeownership attainment is not just an outcome of socioeconomic achievement, but it is also an important input to socioeconomic mobility (Masnick 2001; Oliver and Shapiro 1997). For most homeowners, equity in the home offers an opportunity to build wealth and is the single largest asset held (Joint Center for Housing Studies of Harvard University 2000). In addition to its role in building wealth, home equity can be used for a variety of mobility enhancing activities, such as funding a child’s education or starting a business. Home equity is also an important source of intergenerational wealth transfers.

The study of minority homeownership attainment is also important because minorities are a key source of housing demand growth in the United States. Over the next two decades, minorities are projected to account for two-thirds of total household growth, and in recent years they have contributed an estimated two-fifths of the net increase in homeowners (Joint Center for Housing Studies of Harvard University 2001). It is likely that these shares are significantly higher in certain age groups or regions of the country.

The single largest item in most people's nest egg is the family home. That has enormous consequences for the next generation. It means, for example, that if you own your home and have significant equity, you're in a high-property tax district, and you're going to a good, well-funded public school.

It means that when it's time to go to college, if you don't have money in the bank, you can always take a second mortgage and draw off the equity in your home to finance your kids' college education. It means that you're in a neighborhood, most likely in the suburbs, where jobs are on the increase, and not in the inner city where jobs are on the decrease.

It means that you're in a neighborhood where your neighbors control information and access to jobs. So you're getting the cultural aspects by virtue of living in a high property value area and you can get your kids better job connections. It means that if you want to finance your kids' job search after school, you'll have equity to support them for a while.

These are just a few of the ways that having wealth, or owning a home, has enormous consequences for the next generation, not to mention one's own old age.

How does home ownership help you accumulate wealth?

There is this tendency for white Americans to see the structure of their aid in the form of tax credits and not as aid, or government assistance, or welfare. But they see other forms of assistance, like reduced rents or welfare benefits, as a direct handout from Big Brother.

Owning your home, first of all, gets you a big mortgage deduction. That means you pay less income tax than you would be paying if you were renting and making similar monthly payments. Second, it probably places you in a community that has higher property values than one where you were just renting. Owner-occupied communities tend to be valued more, and that means that the property tax base is higher. That means that local services, everything from garbage services on up to the public school system, most importantly, are going to be better off in that community. So, without even having to spend your equity in your home, you are getting benefits from it.

Third, there is the ability to borrow off that equity. You can finance starting up a business by taking a second mortgage. You can pay for your kids to go to college through a second mortgage. You can finance your retirement by selling your home. Since homes have increased so much in value over the course of the latter half of the 20th century, people can finance their retirements through the sale of their home and the capital gains they get from it. The home has been a central part of savings for most American families in the latter half of the 20th century. White Americans that is.

What role did the government play in shaping housing and wealth?

The American government provided low-interest loans to returning veterans and other white Americans after World War II. This created a boom in home ownership and helped suburbanize America, but blacks were excluded from participating. At this same time, the government was building high-rise public housing for minorities in inner cities. The segregation in America between a largely dark inner city and a largely white suburban community is not something that just magically happened from market forces. It is part and parcel government policy.

When the government instituted rental housing in inner cities, in the form of public housing projects, for poor minorities, and then developed home ownership in low-cost, suburban communities for low-income whites, where you could put almost nothing down, they created this incredible wealth gap.

What does housing have to do with wealth?

Where one's family lives in America is not just a matter of taste and preference. It has important consequences for the perpetuation of advantage or disadvantage across generations for a lot of reasons. First, you have the issue of housing and wealth. The majority of Americans hold most of their wealth in the form of home equity. So, that is their nest egg. It is their savings bank. They are living in their savings bank.

To make matters worse, the way that we finance education in America public schools is based on local property taxes. This means even if you never cash in the value of your home, just living in a high property value district or a rental and low property value district is going to affect what kind of school your kids go to.

Increasingly, there are lawsuits in various states against this way of financing, where school funding is based on local property taxes. But still, it's the dominant form. We pay for our schools locally based on property taxes. So, in high value neighborhoods, which are predominantly white, you are getting well-funded schools. And in low-value neighborhoods, which tend to be predominantly minority, you are getting inadequately funded schools.

The constraints that minorities face in the housing market doesn't just affect quality of life issues, you know, and the selection of homes and styles that people can live in. It really has enormous consequences for economic stability and upward mobility and the life chances of the next generation.

Because minorities have faced limited housing options in the past, now they are usually confined to areas that have worse environment conditions, have poor school funding, have increased risk of violent crime, have worse tax bases. Plus their homes have less equity value, so even if they want to move, they are less able to afford to. Therefore the whole economic structure of the next generation can be really readily viewed in the limited housing selections of the previous generation.