This article is by Dorothy Brown, a professor of tax law at Emory University Law School.
The racial wealth gap has hit an all-time high while Barack Obama has been president. The median net worth of white households is now 20 times that of black households. Why?
Some argue that the gap is a current manifestation of a historical
problem. Others say blacks are to blame. While I can’t eliminate the
lingering effects of slavery and Jim Crow, or change stereotypes, I can
highlight one area where blacks may be inadvertently contributing to the
racial wealth gap: When most black people buy homes, we hurt ourselves
Home ownership has been an important vehicle in creating a solid
white middle class, but it has not done the same for most black
homeowners, because blacks and whites buy homes in very different
neighborhoods. Research shows that homes in majority black neighborhoods
do not appreciate as much as homes in overwhelmingly white
neighborhoods. This appreciation gap begins whenever a neighborhood is
more than 10% black, and it increases right along with the percentage of
black homeowners. Yet most blacks decide to live in majority minority
neighborhoods, while most whites live in overwhelmingly white
If you think this is class and not race, you are wrong. A 2001
Brookings Institution study showed that “wealthy minority neighborhoods
had less home value per dollar of income than wealthy white
neighborhoods.” The same study concluded that “poor white neighborhoods
had more home value per income than poor minority neighborhoods.” The
Brookings study was based on a comparison of home values to homeowner
incomes in the nation’s 100 largest metropolitan areas, and it found
that even when homeowners had similar incomes, black-owned homes were
valued at 18% less than white-owned homes. The 100 metropolitan areas
were home to 58% of all whites and 63% of all blacks in the country.
Those conclusions are supported by a large body of research. Put
simply, the market penalizes integration: The higher the percentage of
blacks in the neighborhood, the less the home is worth, even when
researchers control for age, social class, household structure, and
A 2007 study by George Washington University
sociology professor Gregory D. Squires comments on why most whites
avoid racially diverse neighborhoods: “Evidence indicates that it is the
presence of blacks, and not just neighborhood conditions often
associated with black neighborhoods (e.g., bad schools, high crime),
that accounts for white aversion to such areas. In one survey, whites
reported that they would be unlikely to purchase a home that met their
requirements in terms of price, number of rooms, and other housing
characteristics in a neighborhood with good schools and low crime rates
if there was a substantial representation of African Americans.”
When blacks buy homes in majority minority neighborhoods, we increase
the racial wealth gap. Whites who want to experience racial diversity
at home also pay dearly.
Of course, home ownership has significant benefits even if it is not a
great financial investment. Homeowners generally experience lower crime
rates and better schools and municipal services. Also, not all black
homeowners increase the racial wealth gap when they buy homes. Blacks
who live in overwhelmingly white neighborhoods win as long as they
remain a very small part of the community.
The recent crash and subsequent rebounding of the market—”fiscal
cliff” jitters notwithstanding—show how meaningful this is: White median
net worth is down by only 16%, while black median net worth is down by
50%. This is because the stock market has significantly rebounded and
compensated for whites’ losses in home equity, but blacks, without
comparable stock investments, have not benefited.
This leads to my final point: While many whites are comfortable investing in the stock market, most blacks are not.
White middle-class families are more than twice as likely to own
stock as black middle-class families. Why? Blacks’ wages tend to be
lower, so we have less disposable income, but even when studies control
for income, they find that blacks are less likely to invest in the stock
market. The reasons are complex. Blacks in the middle class are often
called on by family members for financial assistance, leaving less
income for investing. We’re less likely to have grown up in homes where
investing in the stock market was commonplace. And it can’t help that
the securities industry is overwhelmingly white. Recent data show that
fewer than 6% of Wall Street professionals are black.
To be sure, investing in the stock market is a risky endeavor even
when you know what you’re doing. However, the rewards are great.
Investing in stocks not only builds wealth by paying dividends, but all
income from stocks is taxed at a much lower rate than income from wages:
15% versus up to 35%. This problem is not eliminated as black income
We can end this discussion where we began, with President Obama. For
the years the Obamas’ income was over $1 million, their tax rate was 10
percentage points higher than that of their white peers, who get at
least a quarter of their income from stocks. The Obamas got less than 1%
of their income from stocks. (Those who would argue that President
Obama avoided investing in the stock market because he knew he would run
for president someday ignore the reality of the many other presidential
candidates with capital gains and/or dividend income.) Higher income
alone will not cure the racial wealth gap.
Hopefully someday homeowners, black and white, won’t be penalized for
wanting diversity at home. In the meantime, in order for blacks to
have more wealth at home, we need to start investing outside of it.