12/10/2012 @ 12:28PM 106,990 views
How Home Ownership Keeps Blacks Poorer Than Whites
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This article is by Dorothy Brown, a professor of tax law at Emory University Law School.
The racial wealth gap has hit an all-time high while Barack Obama has been president. The median net worth of white households is now 20 times that of black households. Why?
Some argue that the gap is a current manifestation of a historical problem. Others say blacks are to blame. While I can’t eliminate the lingering effects of slavery and Jim Crow, or change stereotypes, I can highlight one area where blacks may be inadvertently contributing to the racial wealth gap: When most black people buy homes, we hurt ourselves economically.
Home ownership has been an important vehicle in creating a solid white middle class, but it has not done the same for most black homeowners, because blacks and whites buy homes in very different neighborhoods. Research shows that homes in majority black neighborhoods do not appreciate as much as homes in overwhelmingly white neighborhoods. This appreciation gap begins whenever a neighborhood is more than 10% black, and it increases right along with the percentage of black homeowners. Yet most blacks decide to live in majority minority neighborhoods, while most whites live in overwhelmingly white neighborhoods.
If you think this is class and not race, you are wrong. A 2001 Brookings Institution study showed that “wealthy minority neighborhoods had less home value per dollar of income than wealthy white neighborhoods.” The same study concluded that “poor white neighborhoods had more home value per income than poor minority neighborhoods.” The Brookings study was based on a comparison of home values to homeowner incomes in the nation’s 100 largest metropolitan areas, and it found that even when homeowners had similar incomes, black-owned homes were valued at 18% less than white-owned homes. The 100 metropolitan areas were home to 58% of all whites and 63% of all blacks in the country.
Those conclusions are supported by a large body of research. Put simply, the market penalizes integration: The higher the percentage of blacks in the neighborhood, the less the home is worth, even when researchers control for age, social class, household structure, and geography.
A 2007 study by George Washington Universitysociology professor Gregory D. Squires comments on why most whites avoid racially diverse neighborhoods: “Evidence indicates that it is the presence of blacks, and not just neighborhood conditions often associated with black neighborhoods (e.g., bad schools, high crime), that accounts for white aversion to such areas. In one survey, whites reported that they would be unlikely to purchase a home that met their requirements in terms of price, number of rooms, and other housing characteristics in a neighborhood with good schools and low crime rates if there was a substantial representation of African Americans.”
When blacks buy homes in majority minority neighborhoods, we increase the racial wealth gap. Whites who want to experience racial diversity at home also pay dearly.
Of course, home ownership has significant benefits even if it is not a great financial investment. Homeowners generally experience lower crime rates and better schools and municipal services. Also, not all black homeowners increase the racial wealth gap when they buy homes. Blacks who live in overwhelmingly white neighborhoods win as long as they remain a very small part of the community.
The recent crash and subsequent rebounding of the market—”fiscal cliff” jitters notwithstanding—show how meaningful this is: White median net worth is down by only 16%, while black median net worth is down by 50%. This is because the stock market has significantly rebounded and compensated for whites’ losses in home equity, but blacks, without comparable stock investments, have not benefited.
This leads to my final point: While many whites are comfortable investing in the stock market, most blacks are not.
White middle-class families are more than twice as likely to own stock as black middle-class families. Why? Blacks’ wages tend to be lower, so we have less disposable income, but even when studies control for income, they find that blacks are less likely to invest in the stock market. The reasons are complex. Blacks in the middle class are often called on by family members for financial assistance, leaving less income for investing. We’re less likely to have grown up in homes where investing in the stock market was commonplace. And it can’t help that the securities industry is overwhelmingly white. Recent data show that fewer than 6% of Wall Street professionals are black.
To be sure, investing in the stock market is a risky endeavor even when you know what you’re doing. However, the rewards are great. Investing in stocks not only builds wealth by paying dividends, but all income from stocks is taxed at a much lower rate than income from wages: 15% versus up to 35%. This problem is not eliminated as black income rises.
We can end this discussion where we began, with President Obama. For the years the Obamas’ income was over $1 million, their tax rate was 10 percentage points higher than that of their white peers, who get at least a quarter of their income from stocks. The Obamas got less than 1% of their income from stocks. (Those who would argue that President Obama avoided investing in the stock market because he knew he would run for president someday ignore the reality of the many other presidential candidates with capital gains and/or dividend income.) Higher income alone will not cure the racial wealth gap.
Hopefully someday homeowners, black and white, won’t be penalized for wanting diversity at home. In the meantime, in order for blacks to have more wealth at home, we need to start investing outside of it.
How Home Ownership Keeps Blacks Poorer Than Whites
Comment Now
This article is by Dorothy Brown, a professor of tax law at Emory University Law School.The racial wealth gap has hit an all-time high while Barack Obama has been president. The median net worth of white households is now 20 times that of black households. Why?
Some argue that the gap is a current manifestation of a historical problem. Others say blacks are to blame. While I can’t eliminate the lingering effects of slavery and Jim Crow, or change stereotypes, I can highlight one area where blacks may be inadvertently contributing to the racial wealth gap: When most black people buy homes, we hurt ourselves economically.
Home ownership has been an important vehicle in creating a solid white middle class, but it has not done the same for most black homeowners, because blacks and whites buy homes in very different neighborhoods. Research shows that homes in majority black neighborhoods do not appreciate as much as homes in overwhelmingly white neighborhoods. This appreciation gap begins whenever a neighborhood is more than 10% black, and it increases right along with the percentage of black homeowners. Yet most blacks decide to live in majority minority neighborhoods, while most whites live in overwhelmingly white neighborhoods.
If you think this is class and not race, you are wrong. A 2001 Brookings Institution study showed that “wealthy minority neighborhoods had less home value per dollar of income than wealthy white neighborhoods.” The same study concluded that “poor white neighborhoods had more home value per income than poor minority neighborhoods.” The Brookings study was based on a comparison of home values to homeowner incomes in the nation’s 100 largest metropolitan areas, and it found that even when homeowners had similar incomes, black-owned homes were valued at 18% less than white-owned homes. The 100 metropolitan areas were home to 58% of all whites and 63% of all blacks in the country.
Those conclusions are supported by a large body of research. Put simply, the market penalizes integration: The higher the percentage of blacks in the neighborhood, the less the home is worth, even when researchers control for age, social class, household structure, and geography.
A 2007 study by George Washington Universitysociology professor Gregory D. Squires comments on why most whites avoid racially diverse neighborhoods: “Evidence indicates that it is the presence of blacks, and not just neighborhood conditions often associated with black neighborhoods (e.g., bad schools, high crime), that accounts for white aversion to such areas. In one survey, whites reported that they would be unlikely to purchase a home that met their requirements in terms of price, number of rooms, and other housing characteristics in a neighborhood with good schools and low crime rates if there was a substantial representation of African Americans.”
When blacks buy homes in majority minority neighborhoods, we increase the racial wealth gap. Whites who want to experience racial diversity at home also pay dearly.
Of course, home ownership has significant benefits even if it is not a great financial investment. Homeowners generally experience lower crime rates and better schools and municipal services. Also, not all black homeowners increase the racial wealth gap when they buy homes. Blacks who live in overwhelmingly white neighborhoods win as long as they remain a very small part of the community.
The recent crash and subsequent rebounding of the market—”fiscal cliff” jitters notwithstanding—show how meaningful this is: White median net worth is down by only 16%, while black median net worth is down by 50%. This is because the stock market has significantly rebounded and compensated for whites’ losses in home equity, but blacks, without comparable stock investments, have not benefited.
This leads to my final point: While many whites are comfortable investing in the stock market, most blacks are not.
White middle-class families are more than twice as likely to own stock as black middle-class families. Why? Blacks’ wages tend to be lower, so we have less disposable income, but even when studies control for income, they find that blacks are less likely to invest in the stock market. The reasons are complex. Blacks in the middle class are often called on by family members for financial assistance, leaving less income for investing. We’re less likely to have grown up in homes where investing in the stock market was commonplace. And it can’t help that the securities industry is overwhelmingly white. Recent data show that fewer than 6% of Wall Street professionals are black.
To be sure, investing in the stock market is a risky endeavor even when you know what you’re doing. However, the rewards are great. Investing in stocks not only builds wealth by paying dividends, but all income from stocks is taxed at a much lower rate than income from wages: 15% versus up to 35%. This problem is not eliminated as black income rises.
We can end this discussion where we began, with President Obama. For the years the Obamas’ income was over $1 million, their tax rate was 10 percentage points higher than that of their white peers, who get at least a quarter of their income from stocks. The Obamas got less than 1% of their income from stocks. (Those who would argue that President Obama avoided investing in the stock market because he knew he would run for president someday ignore the reality of the many other presidential candidates with capital gains and/or dividend income.) Higher income alone will not cure the racial wealth gap.
Hopefully someday homeowners, black and white, won’t be penalized for wanting diversity at home. In the meantime, in order for blacks to have more wealth at home, we need to start investing outside of it.
