This is the fourth piece in an ongoing series that examines the role that control of land has played in racial injustice throughout Black history in the United States:
Part 1: Slaveholders and Land Monopoly (1619 to 1865)
Part 2: 40 Acres and a Ghoul (1865 to 1910)
Part 3: Homeownership: White Subsidy, Black Exclusion (1910 to 1970)
Part 4: The Invisible Hand of the Housing Market (1970 to Today) 👈 (you are here)
Part 5: Reaping What Was Sowed
In this article, we examine the period following the Civil Rights Movement, during which it was hoped that a combination of fair housing policy and inclusion in the housing market would promote racial equality. Alas, the government failed to promote the former, and discrimination ran rampant in the latter. Advantages acquired by White households of the past were passed down through generations, enhanced by tax policies which favored homeowners, and a ‘financialized’ housing market constructed novel mechanisms through which to continue funneling Black incomes into the hands of White owners of real estate.
Unfair Housing
So far, this series has mostly focused on explicitly racist policies which directly erected barriers to Black land ownership while deliberately privileging their White counterparts. Many readers may feel that this unjust story drew to a close with the passage of the Civil Rights and Fair Housing Acts of 1968, which prohibited housing discrimination and required the Department of Housing and Urban Development (HUD) to take meaningful actions to repair past injustices. America entered her neoliberal era, riding high on expectations that the free market would serve as the ‘great equalizer’ by rewarding those who worked hard, regardless of their race.
But this was not to be. As detailed by Keeanga-Yamahtta Taylor in her book “Race for Profit’, HUD failed to meaningfully move the needle towards fair housing, being blocked at every turn by local opposition to ‘economic integration’ or the construction of ‘low-income housing’ in suburban communities. When George Romney’s ‘Open Communities’ initiative sought to build affordable housing and end exclusionary zoning in predominantly white suburbs, President Nixon fired him. Further, where Blacks were brought into the housing market, it was through what Taylor describes as ‘predatory inclusion’, on terms favorable to “profit-motivated interests aware that housing value depended on the absence of African Americans”.
Racial discrimination remains rampant throughout the housing market to this day. Black borrowers are more likely to be denied mortgage credit than their White counterparts, even where their credit history, income and wealth are accounted for. When they do get a loan, Black borrowers are given interest rates 3-8 basis points higher. ‘Racial steering’ directs prospective Black homeowners into different neighborhoods. Black homeowners face a double-whammy in property appraisals, finding their homes overvalued when it comes time to pay property taxes, and undervalued by an average of $48,000 when it comes time to sell. When shown video footage of identical neighborhoods with actors of different races playing the role of residents, test subjects rate all-white neighborhoods as the most desirable. All of these factors contribute to an ‘appreciation gap’ between Black and White homeowners:
Tax policy continued to subsidize homeownership, to the disproportionate benefit of wealthy White households. Seeking to entrench their ill-gotten property values, White homeowners sought to cut and constrain property taxes during the 1960s and 1970s ‘tax revolts’. For example, Proposition 13 passed in California in 1978 and severely curtailed the property taxes faced by incumbent property owners, ultimately “undermining equality by entrenching property wealth across generations”.
Likewise, the 1986 Mortgage Interest Deduction (MID) allowed homeowners to deduct mortgage expenses from their taxable income, with the effect of raising house prices. In 2012 more than three quarters of the benefits of the MID went to homeowners with incomes over $100,000. Analysis by the Tax Policy Center concluded that the MID is “the largest tax expenditure for home ownership… zip codes with high claiming rates tend to be disproportionately White.”
Injustices Passed
All of the privileges handed to White homeowners by 1970 would return dividends not just for themselves, but this “intergenerational wealth” would also transfer advantages to their children and grandchildren. In their recent study, ‘Investigating the U.S. Racial Wealth Gap’, Kathryn A. Edwards and Jonathan W. Welburn of RAND Corporation detail the myriad ways in which wealth disparities persist between generations. Black and White children begin life at different socioeconomic levels, enjoy different volumes of parental investment during childhood, different levels of support when trying to purchase a home, leading to different reliance on debt, and ending with different amounts of parental bequests. These massive divergences are exacerbated even further by racial discrimination in employment, credit markets, education and housing. No wonder then, that studies find that intergenerational transfers are a key driver of the racial wealth gap, nor that parents’ economic status is so highly predictive of the outcomes experienced by their children.
“Even if mortgages are secured, Black and Hispanic homeowners experience higher rates of foreclosure and housing distress than White families, in part because they receive riskier loans. Further, home equity for Black homeowners has not increased at the same rate as it has for White homeowners (…) Other research suggests that inheritance and other intergenerational wealth transfers often benefit White families more than Black families.” – Pew Charitable Trust
Free (Market) at Last
Over the past fifty years, the housing market has becoming increasingly “financialized’” as access to mortgage credit has expanded and real estate investment has shifted from direct ownership of individual properties to the trading of packaged financial products through REITs, CDOs, MBS, and so-on. While these market mechanisms may have been expected to expand access to homeownership and real estate investment among Black families, they have instead continued to facilitate the extraction of their wealth into the hands of wealthy White investors. During the run-up to the global financial crisis, subprime lenders disproportionately targeted Black borrowers, resulting in foreclosure rates among Black households being nearly twice as high as those experienced by white families during the 2008 market crash. Black-owned homes appreciated more slowly during the boom, and experienced higher rates of devaluation during the bust. New legal structures, like Limited Liability Companies (LLC), are disproportionately owned by wealthy & white investors, have elevated rates of building code violations, and help facilitate speculative land banking and the institutionalized extraction of wealth from tenants, who are disproportionately black.
Conclusion
Working in tandem, government failures to further fair housing, tax subsidies for homeowners, discrimination in the housing market, and baked-in systems of intergenerational privilege, have continued to funnel funds out of the pay packets of Black families and into the pockets of White real-estate investors. It should therefore be no surprise that homeownership continued to serve as the single largest contributor to the racial wealth gap between 1984 and 2009.
Having completed our exploration of the relentless waves of past injustices which prevented Black Americans from obtaining their fair share of the nation’s land bounty, the next article in this series will explore the many ways in which this history shows up in present-day socioeconomic indicators of racial inequality.
