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How Home Ownership Keeps Blacks Poorer Than Whites

 
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SamoneLenior View Drop Down
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    Posted: Apr 02 2014 at 6:13pm

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 economically.

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 neighborhoods.

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 geography.

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 rises.

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.


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foxyroy19 View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote foxyroy19 Quote  Post ReplyReply Direct Link To This Post Posted: Apr 02 2014 at 6:18pm

I am the only minority in my community of 33 homes. 

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HaitianDiva64 View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote HaitianDiva64 Quote  Post ReplyReply Direct Link To This Post Posted: Apr 02 2014 at 6:23pm
Gotta start taking careof our communities
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Post Options Post Options   Thanks (4) Thanks(4)   Quote maysay1 Quote  Post ReplyReply Direct Link To This Post Posted: Apr 02 2014 at 6:28pm
Interesting article. Part of me has felt like for a long time home ownership is not the way to go for black people because it encourages such individualism and we need a more collective/interdependent attitude in order to make progress in this world.

Interesting info about the investing. I know I don't invest in the stock market because I don't feel comfortable making my money from companies that historically and currently exploit and enslave people, especially black people. Doesn't make sense to me to put money in stocks and then complain about the racism inherent in the financial world.
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foxyroy19 View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote foxyroy19 Quote  Post ReplyReply Direct Link To This Post Posted: Apr 02 2014 at 6:32pm
Cleveland....
 
 
 
Where they expect people to get money to fix this up and why would I want to move somewhere that looks like that or has the potential to look like this because collectively we can't afford to maintain?  I know I may be off topic.
 
Cleveland middle class....
 
 
 
 
Disclaimer: I don't live in Ohio.
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nitabug View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote nitabug Quote  Post ReplyReply Direct Link To This Post Posted: Apr 02 2014 at 6:42pm
I invest in stocks.
I gave up on home ownership.
its not smart for many.
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melikey View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote melikey Quote  Post ReplyReply Direct Link To This Post Posted: Apr 02 2014 at 6:42pm
I don't agree. Trying to gather my thoughts.
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EPITOME View Drop Down
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Post Options Post Options   Thanks (1) Thanks(1)   Quote EPITOME Quote  Post ReplyReply Direct Link To This Post Posted: Apr 02 2014 at 8:20pm
my dh's sisters worked on wall street so investing is not something they fear.  my SIL checks her stocks regularly and they call each other about stocks all the time talking actually.

when i ran into my ex he told me that he and his wife had been living off the gains he had made on stocks. he is black.

idk if i think this way is best for everyone though.

but this article is short sighted---even if homes in black communities are valued less than those in pred. white ones that means black shouldn't own? how does that prove that they're losing money?


Edited by EPITOME - Apr 02 2014 at 8:32pm
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melikey View Drop Down
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Post Options Post Options   Thanks (1) Thanks(1)   Quote melikey Quote  Post ReplyReply Direct Link To This Post Posted: Apr 02 2014 at 8:49pm
I just think it's best to have a mix of investments.
After 30 years have passed you own a home, so what your home is worth less than homes in white neighborhoods, but by living more cheaply all along in a lower priced area you are able to invest more in stocks and offset the difference.

Funny how the author didn't compare net worth of black families across those categories: renters vs. Homeowners in black neighborhoods vs. Homeowners in white neighborhoods.


Edited by melikey - Apr 02 2014 at 8:52pm
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AmiliaCabral View Drop Down
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Post Options Post Options   Thanks (0) Thanks(0)   Quote AmiliaCabral Quote  Post ReplyReply Direct Link To This Post Posted: Apr 02 2014 at 9:02pm
I guess, but neighborhoods change all the time. I never thought that some parts of ny would be so white. "Minorities" gotta go bc we have no financial stake in the community's future
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