By Charlene Crowell, contributor to NNPA Newswire
Regardless of location, occupation or income, every family needs and deserves a home. But for many — particularly black Americans and other people of color — finding and maintaining affordable housing is becoming increasingly difficult. New research documents not only rising rental costs, but how black Americans’ efforts to buy affordable homes are being stalled by high rejection rates, nearly twice those of white consumers.
While it’s encouraging that this new study documents real-world bargains and places to access the American dream of homeownership, mortgage lenders need to be clear about why they deny black Americans the right to own their own piece of America. The long-standing racial homeownership gap is now just 43% for black households — 30% lower than white households’ 3%. Additionally, while blacks are forced to contend with rising rent costs, these same families are denied the containment of housing costs through a fixed-rate mortgage, as well as family stability and the wealth accumulation that benefits homeowners.
Despite unprecedented state housing assistance during the pandemic, a report by Harvard’s Joint Center for Housing Studies (JCHS) finds stark racial and income disparities in its analysis of the country’s rental market. Nearly a quarter of black renters were in arrears in rent in the third quarter of 2021, as were 19% of Hispanic renters. In contrast, the proportion of defaulting white tenants was half as high: 9%.
“This inequality reflects the long-term discrimination in labor markets that has relegated many black households to low-wage jobs in the service sector,” said Chris Herbert, executive director of the Joint Center for Housing Studies (JCHS). “And this sector has suffered the most drastic job cuts in the last two years, which has only exacerbated existing inequalities.”
The term “rent affordability” is a ratio of monthly housing costs to a percentage of household income. Researchers, legislators and other housing stakeholders assume that affordable rents cost no more than 30%. For homeowners, this ratio must also take into account factors other than the mortgage payment. Property taxes, homeowners insurance, and the personal mortgage insurance required for buying a home with a small down payment also need to be factored in.
But with low rental vacancies in most metro areas, rent increases are common and “affordable” rents are scarce. The number of rental units for less than $600 fell by 3.9 million between 2011 and 2019, according to the JCHS report. In addition, 17.6 million rental homes — 40 percent of the nation’s supply — are located in areas at least moderately at risk from climate change threats. And the number of 7.2 million tenant households headed by a person aged 65 and over is expected to continue to rise over the next two decades.
“Given that people of color tend to have lower incomes and rent rather than own their homes, the geographic concentration of rental housing helps perpetuate patterns of racial and socioeconomic segregation,” noted Whitney Airgood-Obrycki, research associate at JCHS and lead author of the new report.
A transition to home ownership can be key to containing housing costs for families. Other recent research documents how affordable homeownership is still possible for middle-income families.
In its 2022 Rental Affordability Report, ATTOM, curator of a national real estate database, found that paying a monthly mortgage on an average-priced home is 666, or 58 percent, cheaper than the average rent for a three-bedroom home in 1,154 counties analyzed for the report.
“[H]ome ownership still remains the more affordable option for average workers in much of the country as it still makes up a smaller portion of their salary,” said Todd Teta, chief product officer at ATTOM. “Right now, however, rising wages and interest rates around 3 percent are enough to offset recent price increases and keep ownership on the positive side of affordability compared to renting.”
In general, home ownership is cheapest in the Midwest and South, according to ATTOM. In addition, many of these areas are already home to large populations of black and other colored people.
The cheapest housing counties among counties with a population of 1 million or more are Allegheny County (Pittsburgh), PA; Bexar County (San Antonio), TX; Cuyahoga County (Cleveland), OH; Harris County (Houston), TX; Hillsborough County (Tampa); Philadelphia County, PA and Wayne County (Detroit), MI.
Homeownership is also a viable option in smaller locations with populations of 500,000 or less, including: Lake County (Gary), IN; Seminole County, FL (outside Orlando); Knox County (Knoxville), Tennessee; East Baton Rouge Parish (Baton Rouge), LA, and Jefferson Parish, LA (outside New Orleans).
But as long as mortgage rejection rates disproportionately hit Blacks, Black home ownership will continue to lag the rest of the nation. Now, while interest rates remain low, blacks are being locked out of cost savings enjoyed by others and the resulting wealth growth.
The Urban Institute’s new analysis of the annual Home Mortgage Disclosure Act compares the race and ethnicity of those denied mortgages for purchase loans and home improvement and refinance loans in 2020. For each of these types of credit, the largest gaps in refusal occurred between blacks and whites. For home loans, 63% of blacks were rejected, compared to just 39% of whites. Similarly, nearly a quarter — 24.5% of blacks — were denied a home loan, while the corresponding figure for whites was 13.4%.
Instead of being locked out, it’s time to bring the benefits of home ownership and wealth building to more families. Black America must have its fair share of the American Dream.
Charlene Crowell is a senior fellow at the Center for Responsible Lending. She can be reached at [email protected].