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1|P a g e TheGrowingHomeownershipDivide

IntroductionHomeownershipremainsaneffectivemeansofaccumulatingwealth.A2014editorialinTheNewYorkTimesnotedthat“…evenwiththesubstantialdeclineinwealthafterthehousingbust,thenetworthofhomeownersovertimehassignificantlyoutpacedthatofrenters,whotendasagrouptoaccumulatelittleifanywealth.”1Indeed,homeownershipwas central to the ideaof the formationof theAmericanmiddle class in thepost-WWII era. Communities like Levittown in Pennsylvania became symbols of the American Dream, whereordinarycitizenscouldfindprosperity—largelythroughhomeownership.

Inmanyways, this reputation iswelldeserved.By1970,homeownershiphadrisen tonearly65%andmoreAmericansbeganaccumulatingwealthwith theaveragenetworthgrowingby its fastestpace inmore thantwo decades. At the same time, U.S. poverty reached its lowest level (14.0%)—one that we haven’t seensince—in1969,andinequalityhadfallentoitslowestlevelinrecordedhistoryduringthesameyear.

However,asDr.RaphaelBosticpointsoutinhisseminalpiece2onthetopic,thisimportantvehicleforwealthaccumulationandprosperitywasnotuniformlyavailabletoallAmericans.Throughavarietyofmechanisms—includingexclusionaryzoning,restrictivecovenants,discriminatorypoliciesbyrealestateboardsandbrokers,and “red lining” by the FHA, amongst others—the benefits of homeownershipwere largely denied to largeswathsofthepopulation.Researchshowsthat98%ofFHAloansmadebetween1934and1968wenttowhiteAmericans.3EvenLevitthimself,whohasbeendubbed“thefatherofmodernsuburbia,”refusedtosellasinglepropertytoblackfamiliesuntilcompelledtodosofollowingdesegregation.4

Thishistorical lackofaccessfornon-whiteshashadan impactonwealth inequalitythatpersiststothisday.Recent studies show that thewealth gaps betweenwhites and ethnicminorities are at their highest levelssincetheFederalReservebegancapturingthisdatamorethan30yearsago.5Thereissomeevidencethatnon-whiteswerelargelythetargetsofunsustainable lendingandborrowingpractices,whichhaveonlyhelpedtoexacerbatethesegapsinthewakeoftheGreatRecession.

ThereislittledoubtthattheUnitedStateshasmadetremendousstridesinracialandethnicrelationssincethe1950s.However,wefindourselvesstillfacingchallengesintermsofaddressinginequalityandensuringthatallAmericans have equal access to prosperity. Indeed, all evidence points to a problem that is getting worseratherthanbetter,andsuggeststhatreducingwealthinequalityamongstracialandethniclinesbyimprovingminorityhomeownership remainsa relevantand importantpolicyobjectivemoving forward—particularly inCalifornia.

1NewYorkTimesEditorialBoard,“HomeownershipandWealthCreation,”November29,2014,TheNewYorkTimes.2RaphaelBostic,“TheBlackHistoryofHousinginAmerica:HowtheDreamWasDeferred,”HomeMatters,February2016.3GeorgeLipsitz,“GovernmentPoliciesandPracticesthatIncreaseDiscrimination,”July2008,TestimonyfromtheNationalCommissiononFairHousingandEqualOpportunity.4MaryJoPatterson,“OntheFrontlinesofFreedom:AChronicleoftheFirst50YearsoftheAmericanCivilLibertiesUnionofNewJersey,”iUniverse,February29,2012.5RakeshKochharandRichardFry,“Wealthinequalityhaswidenedalongracial,ethniclinessinceendofGreatRecession,”December2014,PewResearchCenter.


LayoftheLandCalifornia is one of the most diversestates in the nation, with no truemajority ethnic group. In fact, morethan 44% of the Golden Statepopulation is comprised of black andHispanicresidents,comparedwith just27% in the remainder of the U.S. Notonly is our population base far morediverse,buthousingplaysanoversizedrole in our economy. To illustrate,consider the Census Bureau’smeasuresofpoverty.Undertheofficialpoverty estimates, California has the18thhighestpovertyrateinthenationat 15.8%. However, the Census’Supplemental PovertyMeasure,whichadjusts the threshold used todetermine whether a family is “in poverty” or not for the cost of living in a state, tells a different story.Californiaranks#1forworstpovertyrateinthenationwith22%offamilieslivinginpovertyafteradjustingforhousingcosts.Becauseofourdiversityandtheimportanceofhousinginoureconomy,thediscussionofraceandhomeownershipisevenmorerelevanttoCaliforniatoday.

62.7% 57.6%

34.5%

41.9%

53.8%

0%

10%

20%

30%

40%

50%

60%

70%

White Asian Black Hispanic

Homeownership by RaceCalifornia 2014

White38.3%

Asian 13.7%

Black 5.6%

Hispanic38.6%

Population by RaceCalifornia 2014


Unfortunately, there remainsapersistentgapbetweenhomeownershipacross racialandethnic lines inourstate. In themost recentdataavailable, 53.8%ofCaliforniahouseholdsowned theirownhome.WhiteandAsianCaliforniansbothexceedtheupperbound,withwhitehomeownershipof62.7% in2014.At theotherendofthespectrum,just34.5%ofblackhouseholdsand41.9%ofHispanichouseholdswerehomeownersin2014baseduponouranalysisofthe2014AmericanCommunitySurvey.

ImpactsoftheGreatRecessionThereisstrongevidencethatnon-whiteswerethetargetofunethicallendingandborrowingpracticesduringthefinancialcrisisandthatthesepracticesexacerbatedtheownershipandwealthinequalityinitsaftermath.Forexample,between2000and2006,homeownershiprosemoreforblackandHispanichouseholds(Hispanichomeownershipupalmosttwiceasmuchaswhitehomeownership).

However,homeownershipratesfellmuchfartherforblacksandHispanics:afterrisingby3percentagepoints,Hispanichomeownershipactuallyfellby5.6percentagepointsbythefirstquarterof2015—wipingoutmorethanadecade’sworthofgrowth.Similarly,blackhomeownershiprose1.8percentagepoints,andfellby6.7percentage points asmarkets collapsed. Black and Hispanic homeownership rates have also yet to recoverwhilewhitehomeownershipappearstohavelevelledoff.

Inotherwords,theGreatRecessionhasactuallyendeduphurtingminorityhomeownershipdisproportionately.

1.7 1.83.0

-4.0

-6.7 -5.6

0.1

-0.4

-2.4

-8

-6

-4

-2

0

2

4

White Black Hispanic

Changes in Homeownership RatesUnited States

2000-2006

2006-2015

2015-2016


AMountingDeficitTherecanbenodoubtthatbothblackandHispanichouseholdshavemadetremendousstrideseconomicallyoverthepastseveraldecades.Forexample,arecentreport6onHispanichomeownershipshowsmanystrongdevelopmentsforHispanichouseholdsnationwide,including:

• Therewere245,000newHispanichomeownersin2015• TheUrbanInstitute’sprojectionthatHispanicswillaccountfor52%ofnewhomeownersby2030• Hispanicincomesareup,whilepovertyisdownsince2012• Hispanicsaccountfor66%ofthegrowthintheU.S.laborforcesince2000• Hispanicsaccountfor73%ofthegrowthinoverallemploymentsince2000

Alsohighlyencouraging is the fact that thepercentageofHispanicsandblackswithadegreehasalso risensignificantly over the decades. And yet, despite this progress, there remains a persistent gap in bothhomeownership and wealth equality across racial and ethnic lines. Specifically, much of these gains in thenumberofhomeownersand jobsandhouseholds reflect the fact that theHispanicpopulation is the fastestgrowingethnicdemographicinthenation.Yes,therewereanadditional245,000newHispanichomeownersin2015, but Hispanic homeownership was essentially flat that same year. In other words, because Hispanicscontinuetogrowasashareofthepopulation,theyneedtocreatenewhomeownersatanincreasingratejustto keep pace. That is not to diminish the considerable gains that have been made by black and HispanicAmericans,aspointedoutbyNAHREPandothers,butrathertopointoutthatdespitethisprogressthere isstillalotofworktobedonetoclosethegap.

6“StateofHispanicHomeownershipReport2015,”NationalAssociationofHispanicRealEstateProfessionals,2015.

18.3%

2.8%

22.1%

53.8%

13.7%

5.6%

38.6% 38.3%

0%

10%

20%

30%

40%

50%

60%

Asian Black Hispanic White

Home Sales vs. Population BaseCalifornia 2014

Buyers Population


Blacks andHispanics inCalifornia continue to “punchbelow theirweight”when it comes to the real estatemarket. In other words, the uptick in homeowners is due to the sheer uptick in the number of black andHispanichouseholdsratherthanadisproportionateeconomicgainthatclosestheownershipgap.

Forexample,Hispanicspurchasedalmost83,000homesinCaliforniaduring2014,whichisupmorethan11%over2008.However,thatrepresentsjust22.1%ofallhomesalesinthestatethatyear.GiventhatHispanicsrepresented38.6%ofthepopulationbase, thatrepresentsa16.6%deficit inthenumberofHispanicbuyersrelativetotheirsizeinthestate.Similarly,blackresidentshaveconsistentlyaccountedforasmallerproportionoftransactionsthantheyrepresentinCalifornia’spopulation.What’smore,thesedeficitsaregrowing.Whilewhite and Asian residents continue to over-purchase homes, relative to their population size, blacks andHispanics continue to fall farther and farther behind with little evidence of abating. In fact, 2014 was thelargestunder-participationinCalifornia’srealestatemarketbyHispanicsinnearly10years.

The unfortunate result of this chronic under-participation in real estate sales is that homeownership ratescontinuetofallforblackandHispanichouseholdsinCalifornia.Partofthisiscyclicalandassociateswiththehousing collapse, but the declines have been much steeper for blacks and Hispanics. More importantly,homeownershiprateshavefalleninrelativetermsaswellbecausethepopulationhascontinuedtoexpand,sothat the number of homes that blacks andHispanics “should” be buying (holding everything else constant)continuestorisewhilehomeownershipfalls.Assuch,thereisamountingdeficit,notjustintransactions,butinoverallhomeownership.WhileAsianshaveactuallyreachedparityinrecentyears,wheretheirshareofthepopulation is roughly equal to their homeownership rate, thedeficit amongst blacks andHispanics remainsnearall-timehighs.

4.6%

-2.8%

-16.6%

15.5%

-20% -15% -10% -5% 0% 5%

10% 15% 20%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

California Transaction Surplus/Deficit by Race/Ethnicity

Asian Black

Hispanic White


57.2%

40.0% 46.8%

66.7%

58.4% 57.6%

34.5% 41.9%

62.7% 53.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Asian Black Hispanic White All Owners

California Homeownership by Race/Ethnicity

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0.3%

-1.6%

-16.3%

18.9%

-20% -15% -10% -5% 0% 5%

10% 15% 20% 25%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Surplus (Deficit) of Homeowners vs. Population

Asian Black Hispanic White


NotJustDemographicsFinally, it isworthnotingthatthis isnotsimplyademographicphenomenon.Onemightarguethatbecausetherehasbeena systematicdeficit ineducation,and therefore incomes, this isnotahousing-specific issue.Somegoevenfurther,suggestingthatthefocusshouldbeonboostingaccesstoeducationandreducingthecostofobtainingadegree,andthatoncethesegoalsareachievedthenthedeficitsinhomeownershipwillsortthemselvesout.

This argument falls flat for two reasons. First, even after controlling for incomes, black and Hispanichouseholds in California own homes in smaller proportions. Analyzing data from the 2014 AmericanCommunitySurvey,C.A.R. foundthatamongsthouseholdsearningmorethan$100,000peryear,77.1%and75.0%ofwhiteandAsianhouseholdsownedtheirownhome.However,just69.6%ofHispanicsand65.6%ofblackhouseholdsearningover$100,000peryearownhomes.Thus,incomecannotexplainawaythisdeficitinhomeownershipasthatgappersistsevenamongsthigh-incomeearners.

Second, this is where the legacy of lack of access for non-whites may be continuing to weigh onhomeownership,andthuswealthinequality,alongracialandethniclines.Thesystematicunder-participationin real estate amongst black and Hispanic households that dates back to the first half of the 1900s hasinhibitedtheaccumulationofwealththatisavailabletobepassedontofuturegenerations.Thus,eventhoughmanymore of today’s black andHispanic Californians are in the upper income brackets compared to theirpredecessors,theydonothaveaccesstotheinter-generationalwealthtransfersthathouseholdswhobeganaccumulatingwealthinearliergenerationsmaybeabletoprovidetheirchildrentohelpthemgetafootonthepropertyladder.

77.1% 75.0%

65.6%

69.6%

58% 60% 62% 64% 66% 68% 70% 72% 74% 76% 78% 80%

White Asian Black Hispanic

Homeownership for $100K+ HouseholdsCalifornia 2014


ConclusionsUltimately,homeownershipisaneffectivemeansforbuildingwealth,reducinginequality,andimprovingthequalityoflifeforallofourresidents.Somearguethatinvestinginthestockmarketwouldyieldsimilarreturnstotheinvestorasinvestinginahomeoverthelongrun.However,theunfortunaterealityisthatrentersrarelyownnon-cashfinancialassetsandfailtoaccumulatemeaningfulwealthfairlyconsistently.Itisalsoimportanttopointoutthatthisisoneofthefewwaysthatatypicalhouseholdcanmakealeveragedinvestment.Yourbankprovidesbetween80%and96.5%ofthecapitalneededtofinancethepurchase,andyetthehomeownerisallowedtokeepanyappreciationonthathomeasprofit.Thebankonlywants itsmoneybackwithsomepre-specifiedamountofinterestfortherisktheyaretaking.

Inthatcontext,homeownershipisanimportantvehicleforwealthcreationbecauseitcreatesaformofforcedsavingswithsignificantupsidepotential. Inaddition, realestate isoneof the few investmentssubsidizedbyfederal,state,andlocalgovernments:ownersreceivemortgageinterestdeductions;theysheltercapitalgainsfrom taxes upon the sale of a primary residence; and they benefit from property tax savings throughProposition13.Oh,andbytheway,inadditiontoallofthesetaxbenefits,yougettolivetheretoo.

Unfortunately,thehistoricdisparitiesofhomeownershiphavepersistedalongracialandethniclinesandhaveindeedregressedinthewakeoftheGreatRecession.Thisposesaproblemnotjustforthecurrentgenerationwho will face challenges getting their feet on the housing ladder in large enough numbers to reduce thehomeownershipgap,butthiswillputsubsequentgenerations inamoredifficultpositionmovingforwardasthey will lack the inter-generational wealth that could otherwise be deployed to help generate wealth formillennialsandbeyond.

Closing the homeownership gap along racial and ethnic lines should remain a priority for reducing wealthinequality, political polarization, and poverty, and improving our quality of life. This will be of particularimportancetoCalifornia,whichhasoneofthemostracially/ethnicallydiversedemographiesinthenation,andaneconomythatisincreasinglyweightedtowardsthehousingsector.


WorksCitedDr.RaphaelBostic,“TheBlackHistoryofHousinginAmerica:HowtheDreamWasDeferred,”HomeMatters,February2016,http://www.homemattersamerica.com/the-black-history-of-housing-in-america-how-the-dream-was-deferred/.

RakeshKochharandRichardFry,“Wealthinequalityhaswidenedalongracial,ethniclinessinceendofGreatRecession,”December2014,PewResearchCenter,http://www.pewresearch.org/fact-tank/2014/12/12/racial-wealth-gaps-great-recession/.

Dr.GeorgeLipsitz,“GovernmentPoliciesandPracticesthatIncreaseDiscrimination,”July2008,TestimonyfromtheNationalCommissiononFairHousingandEqualOpportunity.

NewYorkTimesEditorialBoard,“HomeownershipandWealthCreation,”November29,2014,TheNewYorkTimes,http://www.nytimes.com/2014/11/30/opinion/sunday/homeownership-and-wealth-creation.html.

MaryJoPatterson,“OntheFrontlinesofFreedom:AChronicleoftheFirst50YearsoftheAmericanCivilLibertiesUnionofNewJersey,”iUniverse,February29,2012,excerptpublishedat:https://www.aclu-nj.org/aboutus/50thanniversary/on-the-frontlines-of-freedom/on-the-frontlines-of-freedom-chapter-one-1/.

HispanicWealthProject,“StateofHispanicHomeownershipReport2015,”NationalAssociationofHispanicRealEstateProfessionals(NAHREP),2015,http://hispanicwealthproject.org/state-of-hispanic-homeownership-report/.


AbouttheCALIFORNIAASSOCIATIONOFREALTORS®TheCALIFORNIAASSOCIATIONOFREALTORS®isastatewidetradeassociationdedicatedtotheadvancementof professionalism in real estate. The Association develops and promotes programs and services that willenhance themembers' freedomandability to conduct their individualbusinesses successfullywith integrityandcompetencyand,throughcollectiveaction,promotesthepreservationofrealpropertyrights.Today,theCALIFORNIAASSOCIATIONOFREALTORS®includesmorethan100 localmemberAssociationsandmorethan170,000 REALTORS®, REALTOR®-Associates and affiliatememberswho abide by a rigid code of professionalethics.

ContactUsForfurtherinformationaboutthispublication,pleasecontact:

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TheGrowingHomeownershipDivide

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