Illustration by Rob Dobi
This article appears in the April 2023 issue of The American Prospect magazine. Subscribe here.
The Banker is the Hollywood version of the lives of two California African American real estate investors, Bernard Garrett (Anthony Mackie) and Joe Morris (Samuel L. Jackson). They embrace the idea that homeownership is a prime generator of wealth in America. But where to begin to confront racial discrimination? To snuff out housing segregation in their corner of 1950s Los Angeles, they land on whitewashing. Using white front men like Matt Steiner (Nicholas Hoult), they buy and renovate residential properties in white neighborhoods and move in Black people. The subterfuge works when they buy a downtown L.A. office building filled with bank offices, but Jim Crow has other ideas when they buy actual banks in Garrett’s native Texas. Bernard’s wife Eunice (Nia Long) sums up the inequities this way: “White people get to buy homes and businesses because banks will lend them money, Black people don’t.”
If this sanitized version of mid-century American racism stings, it’s even more disturbing, but not surprising, that African Americans still resort to whitewashing today. Thanks to potent and persistent bias in the housing market, Black homeowners are often on the receiving end of low property appraisals, sometimes by hundreds of thousands of dollars. In 2020, a Marin County, California, couple received a home appraisal for far less than what they expected. To clap back at the first appraiser’s bigotry, they scheduled a second appraisal with a different person and removed family photos and artworks—anything that could point to their African American identity. A friend stood in as the owner. What a difference a white person makes: The value of the home jumped $500,000, from $995,000 to $1,482,500.
Black families can’t begin to benefit from the wealth that they’ve created by owning a home when white appraisers undervalue their homes. A 2018 Brookings study found that homes owned by African Americans in majority-Black areas are valued at 23 percent less than comparable homes in neighborhoods with fewer or no Black residents. Real estate agents use a related tactic, steering Black homebuyers toward lower-income neighborhoods of color and away from white middle- and upper-middle-class neighborhoods with characteristics that drive up home values, like better schools, low crime, good services, transportation links, and cultural amenities.
The homebuyers who end up buying in less appealing, depressed, or dangerous communities see their home values stagnate or decline. There are also tax-related penalties that weigh down Black homeowners. Local property taxes are often higher for Black homeowners than white homeowners in the same neighborhoods. Most of the benefits of the mortgage interest deduction go to high-income white households who could afford a home without it. The overwhelming majority of Black households do not meet the parameters to qualify for that deduction, because even with their mortgage interest, they don’t have enough deductions to itemize.
The Fair Housing Act that Lyndon Johnson signed in 1968 sought to end the most egregious forms of systemic discrimination—redlining, restrictive covenants, and the like—and open up African Americans’ access to the housing market. Home loans and grants, special incentives for first-time homebuyers, and mortgage interest deductions were designed to chart new routes to wealth creation for people with more modest incomes.
But National Association of Realtors data makes plain that homeownership for Blacks has lagged. Even after the housing bubble collapse in 2008, the number of Americans who own their own homes has been steadily increasing, reaching 65.5 percent in 2021. Hispanic and Asian Americans made significant gains over the past decade compared to whites. But the Black-white homeownership gap has barely budged. The African American homeownership rate is 44 percent, nearly 30 percentage points behind the white rate of about 70 percent. After more than five decades and libraries of housing regulations, the gap is larger now than it was before the passage of the Fair Housing Act.
WHY HAVE HOUSING POLICIES DESIGNED to facilitate homeownership had such marginal effects on creating Black American homeowners? The problem starts with how white American economists, who are the majority of the field’s practitioners and the backbone of the federal policymaking sector, view the world. William Spriggs, the AFL-CIO’s chief economist and a member of the Prospect’s board of directors, faults the field for reflexively setting aside race in policymaking, only to cast about for alternative interpretations when weak policies produce poor outcomes for African Americans.
In his 2020 open letter to the Opportunity & Inclusive Growth Institute at the Federal Reserve Bank of Minneapolis shortly after George Floyd’s lynching, Spriggs explained how taking a different approach to race in public-policy modeling would shift that dynamic. “We will no longer look for marginal policies to create change, because we know that we will be skirting the real issues. We won’t be amazed that after too many years of approaching a systemic policy with marginal analysis and marginal policies, we are not going to get the change we need.”
How do policy assumptions that fail to take race into account play out? As Nick Hanauer notes in this issue, budget models presume that worker wages perfectly reflect productivity. Racial discrimination isn’t accounted for, and because wages for Black workers are below average, it leads to the pernicious assumption that they are somehow less productive.
Here’s a good housing-related example. The Housing and Urban Development Act of 1968 spun off the Government National Mortgage Association (Ginnie Mae) from the Federal National Mortgage Association (Fannie Mae). Fannie Mae kept conventional mortgages in its portfolio. To open up homeownership to low-income people who could not qualify for conventional mortgage products, Ginnie Mae became the chief financing mechanism for home loan programs insured by the Federal Housing Administration and the Departments of Housing and Urban Development, Agriculture, and Veterans Affairs.
Housing programs benefit a limited number of Black homebuyers because many white people will reject the operating premise that the country needs to increase Black homeownership.
The Ginnie Mae model, which rests on market mechanisms and private-sector implementation, assumed that the benefits of homeownership, such as asset appreciation and upward mobility, would accrue equally to all comers. Since private-sector lenders were subsidized and insured from losses by the federal government, they operated in a low-risk environment. These protections would allow the private sector to approve mortgages that would be specially tailored to unserved and underserved low-income groups like African Americans.
The major assumption was that the policy would prod lenders to do the right thing without upsetting the systems that rested on segregation and racial bias. The economists’ model-centric way of looking at how the policy would play out, in other words, wrote racism out of the story.
Protected against loses by the full faith and credit of the federal government, white private-sector lenders instead turned to maximizing their profits, and embraced predatory lending practices. They steered many Black borrowers into subprime mortgages, to purchase fixer-uppers and other substandard housing in disadvantaged, segregated Black neighborhoods with limited curb appeal.
These homes were unlikely to appreciate in value, especially when a homeowner had limited access to credit to help budget for repairs or other improvements. Nevertheless, the assumption was that the American dream was available—as long as the homeowner kept up mortgage payments and there were no sudden socioeconomic shocks. When frictions in the system occur, like the subprime mortgage crisis, African American homeowners often suffer the first and greatest housing shocks. In fact, in the run-up of the bubble, mortgage lenders sought out African American families with home equity, selling them cash-out refinances and lines of credit that pushed them underwater and destroyed their wealth when everything collapsed.
In short, Ginnie Mae assumed that lenders would adopt a color-blind approach to lending since they were insulated against losses. But their assumptions ran straight into the twin pillars of white supremacy, endemic housing segregation and racial bias. The United States pays a high price for stamping out African American wealth. A 2020 Citigroup report found that over the past 20 years, the country’s failure to close gaps in housing, wages, education, and investment for African Americans cost the economy $16 trillion.
WHEN ECONOMISTS STUDY RACE, they acknowledge that there are different racial groups that have different economic outcomes—and many economists “are good at measuring that,” says Damon Jones, an associate professor at the University of Chicago Harris School of Public Policy. “But the step before that is to ask why there are different racial groups and what do those mean to you.” “There are a lot of scholars who think about race in other fields—how race is constructed and why,” he adds. “In economics, many economists don’t; they haven’t done that work. So that hinders what economists do next.”
Today, Black homebuyers who should qualify for conventional mortgages run into trouble when loan officers look at monthly expenses like car loans, student loans, and credit card debt. Those can produce poor credit scores and debt-to-income ratios (DTIs) that banks pick apart to deny mortgages. African Americans have higher rates of denials, since their DTIs tend to be worse. But lenders are also twice as likely to deny conventional mortgages to Blacks than to whites with the same DTIs; that is, the same earnings, and similar financial histories. Add FHA loans into the mix, and although applicants of color have a better chance of obtaining those loans, whites also have higher approval rates for those mortgages than African Americans.
Some mainstream economists, however, tend to evaluate policy remedies that place greater emphasis on the human capital an individual homebuyer brings to the table: their incomes, future labor prospects, education, and skills. Rather than analyze how systemic inequities affect African Americans and how those might be addressed in policy frameworks, they conclude that there are financial deficiencies that render them unqualified or otherwise inadequate, and those interpretations fuel their policy prescriptions.
Interpretations about individual inadequacies woven through the warp and woof of housing sector policymaking do not fully account for the failure of loan subsidies, first-time homebuying programs, and other measures designed to scale up wealth up for African Americans. These programs benefit a limited number of Black homebuyers because many white people will reject the operating premise that the country needs to increase Black homeownership. Today, the federal government is fighting an uphill battle against deeply ingrained attitudes that show no sign of powering down. In white neighborhoods where some Blacks settle, whites often flee, convinced that more Black residents will move in and depress their property values.
“If you want to use the housing market as a way to give people more wealth, the housing market discriminates against property owned by Black people. The idea that this asset is a home and that it generates wealth works for white people,” says Jones. “The idea that it works for Black people is not going to work as much because of racism.”
STRATIFICATION ECONOMICS CONSIDERS the role of race in a society, the rationales behind the creation of racial hierarchies, who benefits from these frameworks, and how that dominant group or groups maintains and reinforces systems and institutions against other groups to maintain their own positions, preferences, and privileges. “The debate about what that residual difference is, is what leads to whether or not we address that racial disparity by trying to increase investments in education or something else, rather than directly thinking about how we can address the structural issues that generate that difference, or even how we better enforce antidiscrimination law to eliminate that difference,” says Valerie Wilson, director of the Economic Policy Institute’s Program on Race, Ethnicity, and the Economy.
Washington’s attention to combating housing discrimination is an on-again, off-again political exercise, with the most extreme swing in recent years coming between the Trump administration’s blatant moves to erode fair-housing laws and the Biden administration’s flurry of responses, such as a Property Appraisal and Valuation Equity (PAVE) task force to investigate appraisal bias. In 2021, the Justice Department stepped up activity against housing discrimination, beginning with historic agreements against redlining, including securing the first-ever settlement against a mortgage company that avoided offering products in Black neighborhoods, and filing statements of interests in discrimination cases like the one presented by the Marin County homeowners.
Confronting racial discrimination has to be the starting point for policymakers, rather than creating programs tailored to “deficiencies” in individuals’ personal profiles. After nearly 60 years of fair-housing programs designed to improve wealth creation through homeownership, Black wealth is the same as it ever was, negligible compared to whites’. Few Black households benefit, while white homeowners get richer at dizzying rates. Nevertheless, many African Americans keep making the financial and psychic investments to own a home, even though more than enough white people are determined to devise new ways to close off these pathways to wealth creation every time a new set of antidiscrimination policies hits the books.
There are no laws preventing a Black person from buying a house today, and there are laws that prohibit discrimination based on race. But discrimination still flourishes—and trying to weave one’s way through the thicket of biases that housing actors use to bar entry to the so-called American dream is cold comfort to a Black homeowner faced with asking a white friend to stand in at an appraisal and pretend to own their home.
