RACIAL DISPARITY STILL HAUNTS HOUSING MARKET
July 3, 2003
By Anders Hoerlyck
IN THEORY, the American housing market is free and open. Theory would then predict that market forces would control supply and demand and thereby distribute houses in a fair manner depending on the economic choices of the household.
But this is still not the case for black homebuyers in metropolitan areas.
For a variety of reasons - including continued, if not so open, racism and discrimination - black homebuyers pay more than their white counterparts, get stuck with higher-interest loans and get less home value for the money spent. This is especially true for black homebuyers in low-income neighborhoods, and it has made homeownership for these individuals and their families a risky business.
A recent study published by the U.S. Department of Housing and Urban Development (HUD) uncovered striking racial disparities in the open housing mortgage market. The report found that high-interest loans, many of which are illegal, are three times more likely in low- income neighborhoods than in high-income areas, and five times more likely in black neighborhoods than in white neighborhoods.
In predominantly black communities, high-cost lending accounted for 51 percent of home loans in 1998, compared with only 9 percent in predominantly white areas. HUD further noted that homeowners in high-income black neighborhoods are six times as likely as homeowners in upper-income white neighborhoods, and twice as likely as homeowners in low-income white neighborhoods, to have high- interest loans.
Another study found that black homeowners receive less value for their homes than white homeowners.
The study, which compared home values to homeowner incomes for owners of different ethnic and racial groups in the nation's 100 largest cities in 1990, found that, equalizing for income, black homeowners received 18 percent less value for their homes than white homeowners; white homeowners owned $2.64 worth of house for every dollar of income, while black homeowners owned only $2.16 worth of house. Or to put in another way, for every dollar African-Americans spend on a house, they receive only 82 percent of the value that white homeowners receive.
The study further revealed that the 18 percent gap imposed on black homeowners - the so-called segregation tax - primarily results from a high degree of racial segregation in neighborhoods. Baltimore's segregation tax of 30 percent ranks among the 10 highest of metropolitan areas in the United States, according to the study.
High-cost lending and the segregation tax, combined with block busting, "flipping" and other illegal housing practices, have contributed to a sharp increase in mortgage foreclosures in Baltimore.
The St. Ambrose Housing Aid Center in Baltimore found that the number of foreclosure petitions increased 250 percent between 1996 and 1999, from 2,000 in 1996 to 5,000 in 1999.
The consequences of foreclosure are devastating, not only financially to the individual borrowers but also to whole neighborhoods, which are often diminished or destroyed by the resulting vacancies. Many of the foreclosures actually were made with loans insured by the Federal Housing Administration (FHA), and the involvement of FHA included poor underwriting, inflated appraisals and outright fraud.
The lesson to be learned is that in America's supposedly free and open housing market, discriminatory behavior continues to be a devastating force preventing African-Americans from fair participation in the American dream.
Despite the barriers faced by blacks, there are positive stories to tell. It has been a great experience for me to observe the passionate and very important work carried out by nonprofit organizations such as Habitat for Humanity and the Enterprise Foundation. In Sandtown-Winchester, for example, potential homeowners are guided, offered counseling and, most important, provided very low-interest loans by the nonprofit organizations.
At the same time, in the same neighborhoods, one will see the presence of community development organizations working closely together with the citizens. In this protected and somehow artificial housing market, low-income African-Americans have a chance to gain economic, social and psychological benefits from being homeowners - something they have long been denied.
Anders Hoerlyck is a Danish housing professional who, as a visiting fellow in urban studies at the Johns Hopkins Institute for Policy Studies, spent the last four months in Baltimore studying U.S. housing policies in an effort to help guide policy decisions in Denmark.
