Housing Inequality

The ideal of homeownership is deeply imbedded in American history and culture. In the early Republic, many believed that owning land and a home was a necessary precondition of participating in democracy. Property ownership conferred the independence and responsibility necessary for prudent voting. It also ensured that one had a real stake in the success of the nation. Thomas Jefferson’s vision of a “Yeoman Republic” with a citizenry made up of self-sufficient landowners continues to shape the aspirations of Americans today. The average American still hopes for the security, comfort, and status conferred by owning a home free and clear. Unfortunately, this modest goal has gotten ever more difficult to attain. Longstanding racial inequalities are reflected in patterns of homeownership, but Americans of all races now face discouraging barriers in realizing the dream of property.

For black Americans, the barriers appeared early. When enslaved Americans were emancipated in 1865, the majority sought to acquire small farms, in keeping with the mainstream aspirations of the day. This pursuit was frustrated as an early promise to redistribute land from slave plantations to free black men proved illusory. “40 acres and a mule” was the prescription in General Tecumseh Sherman’s Special Field Orders No. 15. 400,000 acres of cotton land that were distributed to emancipated slaves in the Georgia Sea Islands under this order were returned to former slaveowners under Lincoln’s successor Andrew Johnson. Without land and houses of their own, freed slaves resorted to forms of tenancy such as sharecropping. Sharecroppers, a group that also included many poor whites, farmed land owned by former slaveowners in exchange for housing and a small share of the crop they farmed. The system was designed to trap would-be farmers in inescapable debt, preserving them as a dependent labor force. The Southern Homestead Act, passed in 1866, was meant to alleviate this situation by opening up government-owned land in the west to settlement by former slaves. Former slaveowners attempted and sometimes succeeded in keeping black sharecroppers from learning about the opportunity. Moreover, few had the resources to obtain land under the act, and much of the land was marginal and infertile. At the turn of the century, black Americans had failed to realize homeownership on any large scale.

The stagnation of black aspirations in the rural South utlimately led to the abandonment agrarian goals. In the early twentieth century, many moved to cities in both the South and the North, in a process known as the Great Migration. This mass movement helped black people to escape some of the most deadly forms of racism and access resources unavailable in the rural South. A significant “pull” factor was the availability of jobs at munitions plants during World War I. Due to de jure segregation in the South and de facto segregation in the North, black people formed racially homogenous urban enclaves cities both North and South, typically in areas where housing was low-cost and where it was difficult to find other tenants.

Black people would face new kinds of barriers to advancement as members of the urban working class. In the 1930s, as part of the New Deal, FDR established the Home Owners’ Loan Corporation, to finance mortgages for first-time homeowners. The officials of the HOLC created maps designating areas in which property values were high and areas in which they were low or declining. The lowest-rated neighborhoods were not granted support as the chances of recouping the money lent were deemed too low. These neighborhoods were also disproportionately black and indeed racial composition was used to rate the lending risk of neighborhoods. Not only did this phenomenon, called “redlining” prevent black people from benefiting from the HOLC, the maps would be used for decades by private lenders to deny mortgages to black home-seekers. After World War 2, when the GI Bill offered new homeownership loans through private lenders, black people again benefited very little relative to whites due to the persistence of redlining.

Meanwhile, working-class and immigrant whites gained access to single-family homes in the suburbs through of the GI bill and the post-war housing construction boom. These suburbs were often protected by “restrictive covenants” or agreements that limited residency to whites. Additionally, informal acts of intimidation kept blacks from moving to the post-war suburbs. The new postwar white homeowners, conscious of the precarity of their class position, feared a decline in the value of their homes due to an influx of black migrants from inner cities. This, more than simple racism, was the motive for their fierce resistance to black homeownership. Blue-collar and middle-class whites’ desire to protect the benefits they obtained through government sponsored home-ownership fostered a defensive racial politics.

When the Fair Housing Act of 1968 made restrictive covenants illegal, more affluent black people were able to enter these suburbs. While this was a sign of progress, it also heightened the decay of urban black neighborhoods. A side-effect of segregation was that black elites such as doctors and lawyers shared neighborhoods with the black poor and working-class, providing various forms of leadership and aid. With monied blacks at liberty to leave these enclaves, majority-black neighborhoods became the more or less exclusive domain of the poor. This happened at the same time as factories began moving out of urban centers to escape unions, leaving people in these areas without quality working-class jobs. For many of those living in these neighborhoods, homeownership would become a remote possibility.

Measures introduced in the last third of the twentieth century to address this situation, such as subsidized rentals, have had mixed results. The “Housing Choice Voucher Program,” colloquially called “section 8,” was created in 1974 to subsidize rentals for low-income people. The goal was to help people leave the kinds of high-poverty, high-crime neighborhoods created by the processes outlined above. Because the amount that the housing-voucher will pay is a “fair market rent” often well below actual rents, the program has reinforced the concentration of recipients in low-income, low-rent areas. Ironically, it is only by staying in the areas the program was intended to help them escape that people can benefit from it.

Another intervention, arguably less well-intentioned, was the Clinton administration’s promotion of lowered lending standards. The administration required government-sponsored companied Freddie Mac and Fannie Mae to meet a quota for purchasing high-risk, high-interest mortgages, also known as “sub-prime” mortgages. The purpose of these companies is to encourage banks to  lend by buying mortgages from them, thus assuming the risk of lending. These imposed quotas led Freddie Mac and Fannie Mae to lower the standard of mortgages they would purchase. This policy created a very profitable market for private lenders in subprime mortgages. Lenders aggressively promoted these mortgages to black and hispanic borrowers, including those who were credit-worthy enough to acquire low-interest mortgages. These groups were more than twice as likely as financially similar whites to be offered these mortgages. The result of all this high-risk lending, and the subsequent trading back and forth of these mortgages among financiers, was the housing boom and bust behind the Great Recession. The recipients of the mortgages were swept up in a wave of foreclosures, while investors in these mortgages received a government bailout. The ostensibly pro-homeownership program of lowered lending standards introduced under Clinton did far more to benefit private lenders than home-seekers.

While this paper has mostly followed the plight of black home-seekers, people of all races face ever-growing barriers to property ownership in the 2020s. The low prices and high supply of housing that allowed many working-class whites to obtain homes for the first time in the post-war era area  thing of the past. The core problem is a shortage of housing exacerbated by zoning rules. For example, many areas set a minimum area of land that must surround a new buildings, so that a lot that could accommodate several small homes can only be used to build one. Often the bulk of a town or city is zoned only for single-family homes, preventing the constructions of duplexes or triplexes that can house more than one family. At a time of rising demand for homes, zoning restrictions mean that prices rise ever higher. This is a boon to those who already own homes, but disastrous for those trying to enter the market for the first time. Another potential factor is the proliferation of Historic Preservation Districts. These districts, once established, place strict limitations on the construction that can occur within them and also tend to raise property values and rents. Both factors are likely to impact housing affordability and could exacerbate racial segregation. Regulations like zoning and historic districts that place limits on what can be built in a given area are likely contributors to unaffordability and the exclusion of black people from the housing market.

Many who criticize the crisis of affordable housing focus on the dearth of rental properties, but making more rental property available won’t do nearly as much to remedy inequality as making home ownsership more affordable. Owning a home is a cultural ideal of most Americans, offering privacy, independence, and security that an apartment cannot. But it is also a means of building equity. Owning a home means possessing wealth that can grow over time and be passed down through generations. It is a means of securing credit that can be used to start small enterprises. According to Curbed “the average homeowner has a net worth of $195,400, 36 times that of the average renter’s net worth of $5,400.” This difference goes a long way toward explaining the racial wealth gap in the U.S. It also illustrates how homeownership is a critical means of social and economic advancement for people of all races.

One of the most needed interventions to address inequality in the U.S. is the construction of more homes that are within the means of low-income people, with government enforcement of equal access. We need new, affordable homes open to people of all races, and backed by guaranteed loans at reasonable rates of interest similar to those in the GI Bill. Zoning laws should be reformed to allow the building of suburban starter homes and urban triplexes. A post-war style approach to housing, coupled with strict anti-discrimination oversight, can put the dream of property ownership in reach for all Americans.

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