It’s been almost 50 years since Lyndon Johnson signed the Fair Housing Act (FHA) of 1968, a landmark law passed in the aftermath of Martin Luther King’s assassination that banned discriminatory practices in housing.
The law was part of a spate of civil rights legislation in the 1960s—spurred by the movement led by black Americans—that sought to pave a way for African Americans to attain higher levels of education, employment, income, and health in an unequal country.
But there’s one aspect of the American dream that, despite the Fair Housing Act, remains largely elusive for black Americans—homeownership.
More African Americans than ever owned homes in the early 2000s, alongside every race and ethnicity, when easy credit and loose lending led to higher rates of homeownership, peaking in 2004 and 2005 at 69 percent.
But the same lending practices that led to these all-time highs also became responsible for their lows: Since the financial crisis, the average home ownership rate has fallen below 64 percent, not much higher than it was in the 1960s.
And while every racial demographic suffered as a result of the housing collapse, none suffered more than African Americans. At the height of the bubble, nearly 50 percent of black Americans owned homes. That share has now fallen to 42.3 percent—exactly where it was in 1994—which itself is only marginally better than in 1970, two years after the FHA passed, when it was 41.6 percent.
As the chart below shows, homeownership rates for African Americans took the biggest dive after the housing bust and didn’t begin rebounding until recently. Other racial groups have recovered, not fully—but still ahead of their rates in 1994.
The steep decline in black homeownership is connected to a higher proportion of subprime lending in the run-up to the financial crisis. Research by NYU sociology professor Jacob Faber concluded that blacks and Latinos were 2.4 times more likely to receive a subprime mortgage than whites, even in cases where the black family made considerably more money than the white family. Subprime mortgages are given to buyers with low credit scores or history, and often come with considerably higher interest rates.
This was profitable for lenders, as a subprime mortgage for a black family making $200,000 a year would mean the lender could collect a higher interest on the loan. For black families that weren’t as well-to-do, a subprime mortgage meant inevitable default when the rate reset, which wiped out their credit during the crisis. Ten years later, that credit loss makes it harder to re-enter the home-buying market.
Latinos passed African Americans in homeownership just before the housing bust, and have recovered much stronger: Latinos have largely fueled the market since 2008 because of high workforce participation and “fervent desire to own a home,” according to demographers. Their 46.2 percent homeownership rate is less than two percentage points off their pre-crisis peak, the smallest of any ethnic group.
The Urban Institute drilled into the numbers a little further and found that the biggest drop in black homeownership from 2000 to 2018 was among those aged 45 to 64. And over the same time period, the only group whose homeownership rate fell among those 65 and older was African Americans.
The consequences of these losses for older black people could be dramatic. Those in older age groups begin looking toward retirement, which is much easier to secure when you own your home and don’t have to come up with money for rent. Homeownership is also a vital wealth-building tool, returns on which often outpace the stock market: The ability to pass a home to heirs is a way of setting up the next generation of a family.
The Economic Policy Institute notes that without homeownership, among other things, black wealth has suffered. The median wealth of a black family is $17,409, compared to $171,000 for a white family—nearly 10 times as much. Because homeownership has been so central to America’s post-war economy, those shut out of it tend to be left behind.
And it may get harder before it gets better—for everyone. The tax bill Congress passed in December weakened a number of tax incentives for homeownership, including the mortgage-interest deduction and state and local property tax deductions. While these incentives tend to favor the wealthy and vary in impact from state-to-state, they’re still valuable incentives that help get people in homes.
The market is also incredibly tight right now. Rising construction costs and construction labor shortages have kept home builders from producing at a rate that satisfies the current high demand, due to a strong economy and low unemployment. The result is a brutally competitive housing market where the winners have forked over the biggest down payments. Because white families have more inherited wealth, the market favors them.
Is there a path to greater homeownership for black Americans? The Urban Institute notes that expanding credit options would help jumpstart things. Opportunities for credit building have tightened since the financial crisis, but incorporating new options like rental payment history and utilities into the mortgage evaluation process could help black families build credit and buy homes without having to resort to less dependable lending practices, like subprime mortgages.