Mortgage

Constructing Justice By Housing: Increasing Residence Possession by Blacks and Latinos

More than half a century since the Fair Housing Act was passed, the image of home ownership in the US is still markedly uneven. Black Americans and Hispanic Americans have home ownership rates about 30 percent and 25 percent respectively below those of non-Latinx whites.

The reasons for these differences are easy to name but not to be resolved, as they stem from many generations of discrimination in everything from government policy and industrial practices to education and income opportunities.

And it's an ongoing cycle. Traditionally, home ownership has been the primary means by which Americans accumulate wealth, especially for Black and Hispanic households. Lower ownership in minority communities means fewer opportunities, for example, to pay for college and meet medical expenses without going deep into debt, finance retirement, cushion emergencies, and pass wealth on to the next generation.

Unfortunately, barriers to home ownership by minorities have only worsened during the Covid-19 pandemic due to the disproportionate impact on minorities and the sharp rise in property prices, especially for entry-level homes.

So our industry needs to keep working to ensure that as many people as possible have access to affordable and sustainable home ownership – and help them stay in those homes when we are in tough times like the past 12 months. One of the very positive developments in the industry after the financial crisis of 2008 was the increased recognition of the devastating effects of foreclosures, which disproportionately affect minorities. and a deeper commitment to supporting programs and solutions that help keep people in their homes.

It is important that “affordability” and “sustainability” are core parts of the home ownership equation. And because minority communities are often more exposed to the effects of volatility in the economy, as we saw in 2008 and again during the pandemic, it is especially important that we focus on these components from the start.

Two main culprits: housing supply and lack of generational wealth
Many dissertations have been written on the causes of home ownership differences, and rightly so, since the factors involved are varied and numerous. However, it does not take an advanced academic to realize that two of the critical areas we should focus on are the limited supply of homes for sale and the lack of generational wealth among minority communities.

Home demand has been record high for more than a decade, and prices have risen steadily during that time. Many housing market participants have benefited from this, but it's also harder than ever to get onto the home ownership ladder. The inventory shortage and house price growth were particularly acute in the lowest price quartile, as reflected in the significant rate of price growth over the past decade, which was twice that of the high quartile.

In short, there is a persistent shortage of modestly priced homes, propelling affordability and the dream of home ownership further into the future for millions of potential first-time minority homeowners. Given the demographic trend, which will continue to fuel rising demand from potential first-time buyers, the way to expand minority home ownership is to solve this supply problem.

But even if we had a wider range of entry-level homes, so many aspiring homeowners would face an obvious but fundamentally important challenge: it is difficult to raise enough money to pay a down payment. As you might expect, this is the reason that potential homebuyers most often cite as the primary hurdle. Part of this is because our industry needs to better educate homebuyers about low down payment options like mortgage insurance and debunk the lingering myth that buyers are paying larger than they actually are.

For example, a 2019 survey by Ellie Mae found that nearly a third of potential buyers think they need a 20 percent or more down payment, while the National Association of Realtors found the median down payment for first time buyers is actually around 6 percent. Still, a down payment can be a major stumbling block, especially given the rapid rise in property prices, stagnant wages, high rental costs that make it difficult to save, and other related factors. And less generational wealth among minorities means that they are less able to draw on family support and therefore have a lower chance of home ownership at a young age, which is strongly correlated with future wealth.

Work towards solutions
There are no simple or quick solutions to the problems of constantly scarce housing and the lack of generational wealth. In terms of housing supply, the availability and cost of land, as well as high (and rising) construction costs, are the main barriers to building more affordable housing. In many parts of the country, long-standing regulations such as zone restrictions, costly permits, and minimum lot sizes need to be reformed to expand arable land and reduce permit deadlines and costs, as the Biden administration and local governments across the country have begun exploring.
In addition, the cost curve for building materials and labor needs to be bent.

There are many ways to address this challenge, but some of the ways discussed below to reduce these costs include enabling more prefabricated houses and better incorporating innovative construction approaches into the housing process, such as: B. 3D printing technology and panel and container construction. The way most homes are built today is literally out of date, and the cost curve tends to reflect that. In view of the particular shortage of entry-level houses, in addition to the increasing number of new houses being built, political decision-makers must encourage the renovation and conversion of abandoned and distressed properties through tax credits, grant programs and less regulatory effort.

The wealth creation side is even more difficult, but the industry should support various efforts including:
– Down payment support programs, especially those structured to avoid overfunding
– A pipeline that will better help tenants work towards home ownership
– A regulatory framework that will make it easier and more sustainable for banks to lend in low dollars and builders to build smaller homes profitably
– Streamlining refinancing options so current homeowners can benefit from historically low interest rates.
– Forbearance and borrower assistance programs that help people stay in their homes when they run into financial difficulties as the loss of a home has a tremendous and potentially permanent negative impact on their ability to build future wealth.

These are just a few possible steps, and of course, none of them will deliver a silver bullet on their own. Curbing this longstanding inequality requires a multitude of approaches and a targeted, persistent effort by many different actors. Let's make this a priority for our industry as we start reimagining the housing industry for the post-Covid era.

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