Report Examines How Federal Housing Policies Reinforce Racial Housing Disparities after Economic Crises

A recent report by the Terner Center for Housing Innovation, “Crisis, Response, and Recovery: The Federal Government and the Black/White Homeownership Gap,” argues that federal policies after crises have historically helped forge and reinforce disparities in access to home ownership for Black households. The report also examines demographic and mortgage-lending changes in neighborhoods after the Great Recession, finding racial disparities in how home prices recovered, where institutional investors bought homes, and where single-family rental homes increased.

The paper considers how federal government policy influences racial disparities in recovery from economic crises. The authors review how the establishment of a federal housing financing system after the Great Depression played a role in the expansion of a significant racial disparity in home ownership, since the federal Home Owners Loan Corporation (HOLC) explicitly connected property values and mortgage risk with race by “redlining” Black neighborhoods, deeming them highly risky. Neighborhoods that were redlined are today still associated with higher rates of poverty, reduced housing supply, lower house values, and lower homeownership rates.

Turning to the Great Recession of 2007-2009, the authors argue that the government’s response failed to address the disproportionate impacts of the foreclosure crisis on Black households and communities. Direct borrower relief did not come in time to help many Black communities, credit standards tightened in ways that excluded Black households that faced structural barriers to accessing credit, and insufficient attention was paid to investor purchases of lower-priced homes in Black neighborhoods.

To examine how different urban neighborhoods recovered from the Great Recession and the extent to which Black households were differentially affected, the authors analyzed American Community Survey (ACS) and Home Mortgage Disclosure Act (HMDA) data on 47,000 neighborhoods across the country between 2004 and 2018. They clustered neighborhoods into four groups: those that had low levels of mortgage lending to Black neighborhoods both before and during the recovery, those that saw declines in mortgage lending to Black borrowers, those that saw increases in mortgage lending to Black borrowers, and those that have continuously had a high share of lending to Black households. Neighborhoods that saw a decline in lending to Black borrowers, which were more likely to be in cities experiencing gentrification pressures, saw the most significant home price recovery. Those neighborhoods also had a substantially higher share of single-family rental homes in 2019—likely the result of investor purchases after the Great Recession. Neighborhoods that saw increases in lending to Black households or which had consistently high levels of lending to Black households had the lowest levels of home price recovery.

Finally, the authors note how the economic crisis sparked by COVID-19 threatens to exacerbate the racial wealth gap and increase housing insecurity for Black homeowners and renters. Drawing on Census Bureau Household Pulse Survey data, they note that approximately 55% of Black adults have experienced a loss of employment income since March 2020, compared to 43% of non-Latino white adults. Renters of color are more likely to be behind on their rent than white renters, and as of November 2020, nearly 1 in 5 Black homeowners were behind on their mortgage payments, compared to fewer than 10% of non-Latino white households. The authors suggest that, just as happened after the Great Recession, recovery policies that are purported to be race neutral could fail to address these pre-existing inequalities and differential vulnerability. Consequently, racial equity needs to be explicitly considered in the design and implementation of recovery programs.

Read the full report at: