Bridging racial homeownership gaps
Racial homeownership gaps persist across the nation, but many cities have made strides to increase access for Black families and individuals and help them remain in their homes. Initiatives such as assistance with down payments and closing costs, education and counseling programs that guide homeowners as they purchase a home, and help with costly house repairs have helped to narrow the gap. Designating housing trust funds to create and preserve affordable housing units, changing zoning regulations to include different types of affordable housing construction in neighborhoods, and establishing community land trusts are some approaches localities can also consider. This brief focuses on these and several other policies local jurisdictions can use to increase net homeownership among households of color and bridge racial homeownership gaps in their communities.
At the end of 2020, the rate of Black homeownership was 44.1%, as compared to 74.5% among white families, and the gap between non-white Hispanic and white homeownership rates is nearly as large. Small and midsize cities have more dramatic Black-white homeownership gaps than their larger counterparts. Access to sustainable homeownership can serve as an important mechanism for both wealth-building and housing stability, and unequal access to homeownership reinforces the broader racial wealth gap.
Cities should work to understand both the magnitude and the causes of local racial homeownership gaps and be aware of the legal frameworks governing efforts to address race explicitly. Some have already embarked on this effort and serve as models outlined below.
Programs that provide financial assistance with down payments and closing costs for eligible households help reduce one of the largest barriers to homeownership and can be a tool to narrow the racial wealth gap and promote ownership among first-generation buyers. Education and counseling programs can also guide new homebuyers through the purchasing process. Tulsa, OK, for example, uses HUD funds to provide potential homeowners with an eight-hour educational program as well as one-to-one credit and budget counseling. Participants with low credit scores work with counselors to develop plans to strengthen families’ credit.
In Rochester, NY, HOME Rochester, a private-public partnership, rehabilitates vacant homes and sells them to low and moderate-income households at an affordable price. Homebuyers agree to live in the homes for 15 years to ensure neighborhood stability. As of August 2022, the program has rehabilitated more than 775 homes, and 51% of participating homebuyers are Black.
Other initiatives pair financial assistance with policies that maintain housing affordability over time, such as deed-restricted homeownership initiatives or community land trusts. These may be particularly effective in communities concerned about future affordability challenges but with lower housing costs and household incomes. The Atlanta Land Trust uses a community land trust model to create and sustain affordable housing. The trust buys and leases land to homeowners who then own the houses themselves. In return for support from the trust in obtaining and maintaining homeownership, homeowners agree to resell to another low-income family using one of two alternative formulas to determine the resale value of the home.
Bridging racial homeownership gaps with the housing policy toolkit
This exhibit describes how stakeholders can use effective policy tools found in the Housing Policy Library to help promote equitable access to homeownership. See the Housing Policy Library for a full listing and explanation of policy options.
I. Create and preserve dedicated affordable housing units
Housing trust funds and other local revenue sources provide a flexible funding source to address local priorities, including affordable homeownership.
Public programs can create permanent affordable homeownership opportunities by using subsidies to bring homeownership costs down to affordable levels and by setting conditions for the resale of participating properties to future homebuyers.
Transferring ownership of dedicated affordable rental properties to organizations that are committed to maintaining affordability—whether private non-profits or tenants’ organizations—helps to ensure that current residents have the option to stay in their homes and that future homeownership opportunities are extended equitably.
Leveraging partnerships with employers to provide housing assistance to employees can make it more affordable for households to live closer to work, supporting economic development and stability at both the community and household levels.
Set aside a portion of the proceeds from the local housing trust fund or dedicated revenue sources for activities that support the development of homes that sell at affordable prices.
Use capital subsidies and operating subsidies to lower the cost of creating homes that will be sold at affordable prices.
Create housing that stays affordable in the long term with strategies such as community land trusts, deed-restricted homeownership, and limited equity cooperatives, all of which restrict the price at which affordable housing can be resold and frequently provide counseling and other services to support new homeowners.
Adopt a right of first refusal policy that gives tenants or mission-oriented buyers priority consideration for purchasing a property when the owner of a subsidized rental property decides to stop participating in the subsidy program.
Develop or support employer-assisted housing programs, which provide a channel for employers to help their employees with housing costs.
II. Promote affordability by aligning supply with market and neighborhood housing conditions
Local zoning provisions that constrain land use to single-family housing, particularly in high-opportunity neighborhoods, can decrease housing affordability and restrict access to homeownership. Increasing the availability of diverse types of housing can expand housing affordability and create more inclusive neighborhoods.
Revise the zoning code to facilitate the development of diverse housing types that provide more affordable homeownership opportunities than single-family homes, including missing middle housing and manufactured housing.
III. Help households access and afford private-market homes
Racial wealth gaps are a major contributor to disparities in homeownership rates. Many families can afford monthly mortgage payments but lack the savings to make heavy lump-sum down payments. Financial assistance can help address the barriers created by racial wealth gaps.
Both prospective and existing homeowners of color face discrimination, whether in the housing search process or in home lending and appraisals. Local jurisdictions can work to prevent discrimination and enforce existing protections.
First-time homeowners may face complex barriers to homeownership. Lack of credit is a significant barrier to homeownership, but cities can work to increase access to credit-building opportunities and support alternative pathways to homeownership. Coupled with financial assistance, housing education and counseling can make homeownership more accessible.
Provide down payment and closing cost assistance for low- and moderate-income households. Jurisdictions and nonprofits can also offer mortgage programs to assist home buyers, such as subsidized mortgages with lower interest rates and shared appreciation mortgages that put off repayment until the homeowner resells or refinances the home. Local governments and nonprofits can also help home buyers who have difficulty getting a loan by offering small balance mortgages for low- value homes.
Strengthen local capacity for effective enforcement of fair housing laws, including support for legal assistance for victims of discrimination.
Conduct or support fair housing education for real estate professionals and consumers in local markets to ensure that professionals comply with fair housing laws and that homebuyers and homeowners know their rights.
Assist prospective homeowners with housing education and counseling to facilitate the home purchasing process.
IV. Protect against displacement and poor housing conditions
Households of color are disproportionately at risk of foreclosure. Financial, legal, and other forms of assistance can help to prevent homeownership losses that exacerbate racial homeownership gaps.
The expense shocks of home repairs can jeopardize housing stability. Providing assistance with home maintenance fortifies housing stability and prevents deterioration and blight within the community.
Target legal and financial assistance, including foreclosure prevention programs and property tax relief for income-qualified homeowners, to households struggling to pay their mortgages.
Cities can leverage federal grants and local funds to provide homeowners with rehabilitation and home repair assistance. Well-designed programs have the potential to mitigate the displacement of low-income households, predominantly those of color, who cannot afford unexpected home repair costs.
Combining policies to bridge racial homeownership gaps
The approaches highlighted in the table can be used in combination, as illustrated in the following scenario.
A city analyzes local housing data and discovers that its Black homeownership rate, while higher than the national average, has declined by nearly fifteen percentage points over the past two decades, and its Black-white homeownership gap has increased. The city has added more Black renters than homeowners over the same period. This city is growing, but is not making homeownership opportunities equally accessible to all residents.
Looking at a local zoning map, housing staff identify several areas currently zoned for single-family homes that could accommodate higher-density “missing middle” housing types. They begin rezoning these areas to allow for duplexes, triplexes, and low-rise condominium buildings. After engaging with community stakeholders, the city determines that down payment costs are a significant barrier to prospective homeowners of color. Working with local housing finance agencies, the city develops a forgivable loan program to assist low-income homebuyers with down payment costs. To address the discriminatory treatment that prospective homeowners of color may face in the housing market, the city partners with a local non-profit organization to conduct fair housing education for landlords and real estate brokers.