Wealth, Housing and the ‘Gap’: How can we understand and close the wealth gap?

1. Wealth, Housing and the ‘Gap’:How can we understand and close the wealth gap? 98th Annual Convention of the National Association for the Advancement of Colored People. Economic Empowerment Panel. Monday, July 9, 2007 john a. powell Williams Chair in Civil Rights & Civil Liberties, Moritz College of Law Executive Director, Kirwan Institute for the Study of Race and Ethnicity The Ohio State University http://www.kirwaninstitute.org/

2. Racial Inequity in Wealth Historical Context Two major national policies to drive wealth creation 19th century policies for land grants 20th century housing policies (primarily the extension of mortgage insurance for housing, tax policies benefiting home owners) During the suburb-shaping years (1930-1960) fewer than one-percent (1%) of all African Americans were able to obtain a mortgage

3. Wealth Gap • The lost opportunity for African Americans was cumulative the mass redistribution of wealth by the Federal Government paved the way for new industries and settlement patterns • These policies benefited White Americans but not people of color • Housing assets (home equity) are the primary source of wealth for middle class White Americans (accounting for approximately 70% of White household net worth)

4. Structural Factors Driving Wealth Divide Contemporary Why Structure Matter for Housing and Wealth in Black Communities Nationwide? Wealth is cumulative and made enduring through policy and relationships Research finds that institutional arrangements resulting in segregation and concentrated poverty affect BOTH housing appreciation and values. Concentrated poverty has the largest negative impact on housing values of all neighborhood characteristics considered Segregation depresses the returns to minority housing investments

5. Capital Formation is a Housing Issue In 2003 $325.2B in Home Mortgage Interest Deductions were distributed to 35 Million homeowners (approx $9,291 per household) If every homeowner in Wayne County applied for the deduction it would amount to 1.4 percent or $4.7B Of that 63% of the total would be directed towards White homeowners (approximately $2.9B.) About 33% would be directed towards Black homeowners ($1.55B) Source: DataPlace, U.S. Census Bureau, Parisi, Michael and Hollenbeck, Scott. (2005) “Individual Income Tax Returns, 2003” Statistics of Income Bulletin. Fall 2005 Vol. 25 Issue 2

6. …and an Income Issue The previous example masks the reality of how deduction credits are distributed by income. Data suggest the more earned income the more likely a homeowner will claim the Interest deduction. African Americans and low income households are leaving significant value on the table.

7. Government tax subsidies to home owners are nearly 500% more than spending for low income housing assistance In 2003 the federal government devoted $23 billion for low income housing assistance, but provided $113 billion in mortgage deduction tax subsidies These subsidies primarily benefit the wealthiest households (chart on right) Policy Widens Gap, Most Subsidies to Wealthiest Households

8. The Invisible Transformation • Much of the nation’s wealth is ‘locked’ into homeownership • For all households, home equity accounts for an average of 21 percent of net household wealth—but for all homeowners the share is close to 50 percent

9. Racial Disparity in Wealth Why is wealth important? Wealth allows participation in opportunities to take risk which creates new wealth Wealth is concentrated opportunity that is often intergenerational Wealth is realized at the individual and community level

10. How Wealth is Held is Important Home equity is the more ‘liquid’ form of wealth exposed to and is most exposed to real estate market downturns For all homeowners, home equity represented 42% of their net wealth. For lower income and minority households, home equity represented four-fifths (80%) of their net wealth.

11. African American Overexposure to High Risk, Illiquid Wealth For moderate-income, African American, and Hispanic households, home equity represented more than one-half of their net wealth”

12. Wealth disparity in America In 2000: The median asset value for a white household was $79,400, for African American households this was $7,500 (a disparity of 900%) For every $1 in assets held by the average African American family, the average white family has $9 in assets Racial Inequity in Wealth Source: “Net Worth and Asset Ownership 1998-2000”. Household Economic Studies. U.S. Census Bureau (2003)

13. A Million Dollars Goes Far, But Not As Far As It Used To! The explosive growth in personal wealth is evident The number of billionaires around the world rose by 102 to a record 793 over the past year, and their combined wealth grew 18 percent to $2.6 trillion. Approximately equal to the GDP of the People’s Republic of China and higher than the GDPs of France and the UK

14. The ‘Gap’ is Present and Changing The net wealth of the typical African-American household rose from $5,919 in 1989 to $19,010 in 2001, an increase of 221%. Post 2001-African American families saw virtually no change in their median net worth from 2001 ($20,300) to 2004 ($20,400), but their mean net worth rose 37.1 percent, from $80,700 to $110,600. Suggests that a few ‘high-wealth’ African American families are establishing an intra-racial gap within the already wide White-Non White wealth gap.

15. Individual Home Wealth Policy • Seizes Opportunity • Mobility programs resulting in homeownership • Inclusionary Zoning at the Regional Level • Must result in creating home ownership in appreciating areas • Do not saddle people with the “segregation tax” which limits the potential to build equity

16. Individual Home Wealth Policy • Reduces Risks • Subprime refinancing • Some states, notably Massachusetts is considering a massive scale ‘buyout’ of individual subprime loans. • The State would float a $200M bond to refinance about 1,000 homeowner subprime mortgages • In addition, momentum to pursue legislation stiffening penalties to unscrupulous subprime lenders

17. Housing Wealth as a Community Policy • Create Opportunity in communities of color • Land Reclamation (aggressive land banking) • Earmarking Affordable Housing Trust Fund Dollars

18. Housing Wealth as a Community Policy • Reduces Risks • Foreclosure prevention programs • An estimated 2 million new foreclosures will occur in the next two years • A recent study found nearly 1 out 5 families in non-conventional mortgages were 90 days delinquent • These trends will have racially disparate impacts disproportionately harming families of color and urban communities

19. Thinking about the future • What is the next wave of wealth generating opportunities to consider? • Capitalizing on investments internationally and domestically • Reconsider how capitalism can be put to work for the African American community. • New forms of engaging wealth-creation through institutions, new ventures and networks

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