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Wealth, Housing and the ‘Gap’:Wealth, Housing and the ‘Gap’:How can we understand and How can we understand and

close the wealth gap?close the wealth gap?98th Annual Convention of the National Association for the Advancement of 98th Annual Convention of the National Association for the Advancement of

Colored People. Economic Empowerment Panel. Colored People. Economic Empowerment Panel. Monday, July 9, 2007Monday, July 9, 2007

john a. powelljohn a. powellWilliams Chair in Civil Rights & Civil Liberties, Moritz College of Law Williams Chair in Civil Rights & Civil Liberties, Moritz College of Law Executive Director, Kirwan InstituteExecutive Director, Kirwan Institute for the Study of Race and Ethnicity for the Study of Race and EthnicityThe Ohio State UniversityThe Ohio State Universityhttp://www.kirwaninstitute.org/

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Racial Inequity in Wealth Racial Inequity in Wealth Historical ContextHistorical Context Two major national policies to drive wealth Two major national policies to drive wealth

creationcreation 19th century policies for land grants19th century policies for land grants 20th century housing policies (primarily the extension of 20th century housing policies (primarily the extension of

mortgage insurance for housing, tax policies benefiting mortgage insurance for housing, tax policies benefiting home owners)home owners)

During the suburb-shaping years (1930-1960) fewer than During the suburb-shaping years (1930-1960) fewer than one-percent (1%) of all African Americans were able to one-percent (1%) of all African Americans were able to obtain a mortgageobtain a mortgage

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Wealth GapWealth Gap

The lost opportunity for African Americans was The lost opportunity for African Americans was cumulative the mass redistribution of wealth cumulative the mass redistribution of wealth by the Federal Government paved the way for by the Federal Government paved the way for new industries and settlement patternsnew industries and settlement patterns

These policies benefited White Americans but These policies benefited White Americans but not people of colornot people of color Housing assets (home equity) are the primary source of wealth Housing assets (home equity) are the primary source of wealth

for middle class White Americans (accounting for approximately for middle class White Americans (accounting for approximately 70% of White household net worth)70% of White household net worth)

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Structural Factors Driving Wealth Divide Structural Factors Driving Wealth Divide ContemporaryContemporary Why Structure Matter for Housing and Wealth in Why Structure Matter for Housing and Wealth in

Black Communities Nationwide?Black Communities Nationwide? Wealth is cumulative and made enduring through policy and Wealth is cumulative and made enduring through policy and

relationships relationships Research finds that institutional arrangements Research finds that institutional arrangements

resulting in segregation and concentrated resulting in segregation and concentrated poverty affect BOTH housing appreciation and poverty affect BOTH housing appreciation and values.values. Concentrated poverty has the largest negative impact Concentrated poverty has the largest negative impact

on housing values of all neighborhood characteristics on housing values of all neighborhood characteristics consideredconsidered

Segregation depresses the returns to minority Segregation depresses the returns to minority housing investments housing investments

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Capital Formation is a Housing IssueCapital Formation is a Housing Issue In 2003 $325.2B in Home Mortgage Interest In 2003 $325.2B in Home Mortgage Interest

Deductions were distributed to 35 Million Deductions were distributed to 35 Million homeowners (approx $9,291 per household)homeowners (approx $9,291 per household) If every homeowner in Wayne County applied If every homeowner in Wayne County applied

for the deduction it would amount to 1.4 percent for the deduction it would amount to 1.4 percent or $4.7B or $4.7B

Of thatOf that 63% of the total would be directed towards White 63% of the total would be directed towards White

homeowners (approximately $2.9B.)homeowners (approximately $2.9B.) About 33% would be directed towards Black homeowners About 33% would be directed towards Black homeowners

($1.55B) ($1.55B)

Source: DataPlace, U.S. Census Bureau, Parisi, Michael and Hollenbeck, Scott. (2005) “Individual Source: DataPlace, U.S. Census Bureau, Parisi, Michael and Hollenbeck, Scott. (2005) “Individual Income Tax Returns, 2003” Statistics of Income Bulletin. Fall 2005 Vol. 25 Issue 2Income Tax Returns, 2003” Statistics of Income Bulletin. Fall 2005 Vol. 25 Issue 2

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……and an Income Issueand an Income Issue The previous example The previous example

masks the reality of how masks the reality of how deduction credits are deduction credits are distributed by income.distributed by income.

Data suggest the more Data suggest the more earned income the more earned income the more likely a homeowner will likely a homeowner will claim the Interest claim the Interest deduction. deduction.

African Americans and low African Americans and low income households are income households are leaving significant value on leaving significant value on the table.the table. 0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Percentage of Returns ClaimingMortgage Interest Deduction

Under $20,000

$20,000 - $29,999

$30,000 - $39,999

$40,000 - $49,999

$50,000 - $74,999

$75,000 - $99,999

$100,000 - $199,999

$200,000 and over

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Policy Widens Gap, Most Subsidies to Wealthiest Households

Government tax subsidies to home owners are nearly 500% more than spending for low income housing assistance In 2003 the federal

government devoted $23 billion for low income housing assistance, but provided $113 billion in mortgage deduction tax subsidies

These subsidies primarily benefit the wealthiest households (chart on right)

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The Invisible TransformationThe Invisible Transformation Much of the nation’s wealth Much of the nation’s wealth

is ‘locked’ into is ‘locked’ into homeownershiphomeownership

For all households, home For all households, home equity accounts for an equity accounts for an average of average of 21 percent 21 percent of net of net household wealth—but for all household wealth—but for all homeowners the share is homeowners the share is close to close to 50 percent50 percent

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Racial Disparity in WealthRacial Disparity in Wealth Why is wealth important?Why is wealth important?

Wealth allows participation Wealth allows participation in opportunities to take risk in opportunities to take risk which creates new wealthwhich creates new wealth

Wealth is concentrated Wealth is concentrated opportunity that is often opportunity that is often intergenerationalintergenerational

Wealth is realized at the Wealth is realized at the individual and community individual and community levellevel

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How Wealth is Held is ImportantHow Wealth is Held is Important

Home equity is the more ‘liquid’ Home equity is the more ‘liquid’ form of wealth exposed to and is form of wealth exposed to and is most exposed to real estate most exposed to real estate market downturns market downturns

For all homeowners, home equity For all homeowners, home equity represented 42% of their net represented 42% of their net wealth. wealth.

For lower income and minority For lower income and minority households, home equity households, home equity represented four-fifths (80%) of represented four-fifths (80%) of their net wealth. their net wealth.

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African American Overexposure African American Overexposure to High Risk, Illiquid Wealthto High Risk, Illiquid Wealth For moderate-For moderate-

income, African income, African American, and American, and Hispanic Hispanic households, home households, home equity represented equity represented more than one-half more than one-half of their net wealth”of their net wealth”

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Wealth disparity in AmericaWealth disparity in America In 2000:In 2000:

The median asset value for a white household was $79,400, for African The median asset value for a white household was $79,400, for African American households this was $7,500 (a disparity of 900%)American households this was $7,500 (a disparity of 900%)

For every $1 in assets held by the average African American family, the For every $1 in assets held by the average African American family, the average white family has $9 in assetsaverage white family has $9 in assets

Racial Inequity in WealthRacial Inequity in Wealth

Source: “Net Worth and Asset Ownership 1998-2000”. Household Economic Studies. U.S. Census Bureau (2003)

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A Million Dollars Goes Far, But Not A Million Dollars Goes Far, But Not As Far As It Used To!As Far As It Used To! The explosive growth in personal wealth is evident The explosive growth in personal wealth is evident

The number of billionaires around the world rose by 102 The number of billionaires around the world rose by 102 to a record 793 over the past year, and their combined to a record 793 over the past year, and their combined wealth grew 18 percent to $2.6 trillion. wealth grew 18 percent to $2.6 trillion.

Approximately equal to the GDP of the People’s Republic of Approximately equal to the GDP of the People’s Republic of China and higher than the GDPs of France and the UKChina and higher than the GDPs of France and the UK

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The ‘Gap’ is Present and Changing The ‘Gap’ is Present and Changing The net wealth of the typical African-The net wealth of the typical African-

American household rose from $5,919 in American household rose from $5,919 in 1989 to $19,010 in 2001, an increase of 1989 to $19,010 in 2001, an increase of 221%.221%.

Post 2001-African American families saw Post 2001-African American families saw virtually no change in their median net virtually no change in their median net worth from 2001 ($20,300) to 2004 worth from 2001 ($20,300) to 2004 ($20,400), but their mean net worth rose ($20,400), but their mean net worth rose 37.1 percent, from $80,700 to $110,600. 37.1 percent, from $80,700 to $110,600.

Suggests that a few ‘high-wealth’ African Suggests that a few ‘high-wealth’ African American families are establishing an intra-American families are establishing an intra-racial gap within the already wide White-racial gap within the already wide White-Non White wealth gap.Non White wealth gap.

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Individual Home Wealth PolicyIndividual Home Wealth Policy

Seizes OpportunitySeizes OpportunityMobility programs resulting in homeownershipMobility programs resulting in homeownership

Inclusionary Zoning at the Regional LevelInclusionary Zoning at the Regional Level

Must result in creating home ownership in Must result in creating home ownership in appreciating areasappreciating areas

Do not saddle people with the “segregation tax” Do not saddle people with the “segregation tax” which limits the potential to build equitywhich limits the potential to build equity

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Individual Home Wealth PolicyIndividual Home Wealth Policy Reduces RisksReduces Risks

Subprime refinancingSubprime refinancing Some states, notably Massachusetts is considering a Some states, notably Massachusetts is considering a

massive scale ‘buyout’ of individual subprime loans.massive scale ‘buyout’ of individual subprime loans. The State would float a $200M bond to refinance about The State would float a $200M bond to refinance about

1,0001,000 homeowner subprime mortgages

In addition, momentum to pursue legislation In addition, momentum to pursue legislation stiffening penalties to unscrupulous subprime stiffening penalties to unscrupulous subprime lenders lenders

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Housing Wealth as a Community PolicyHousing Wealth as a Community Policy

Create Opportunity in communities of colorCreate Opportunity in communities of colorLand Reclamation (aggressive land banking)Land Reclamation (aggressive land banking)Earmarking Affordable Housing Trust Fund Earmarking Affordable Housing Trust Fund

DollarsDollars

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Housing Wealth as a Community PolicyHousing Wealth as a Community Policy

Reduces RisksReduces RisksForeclosure prevention programsForeclosure prevention programs

An estimated 2 million new foreclosures will occur An estimated 2 million new foreclosures will occur in the next two yearsin the next two years

A recent study found nearly 1 out 5 families in non-A recent study found nearly 1 out 5 families in non-conventional mortgages were 90 days delinquentconventional mortgages were 90 days delinquent

These trends will have racially disparate impacts These trends will have racially disparate impacts disproportionately harming families of color and disproportionately harming families of color and urban communities urban communities

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Thinking about the future

What is the next wave of wealth generating opportunities to consider?Capitalizing on investments internationally

and domesticallyReconsider how capitalism can be put to work

for the African American community. New forms of engaging wealth-creation through

institutions, new ventures and networks

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