More than a half-century since the passage of the
The reasons for these disparities are easy to cite, but not to solve as they are based on many generations of
And it’s a persistent cycle. Traditionally, homeownership is the primary means by which Americans accumulate wealth, particularly for Black and Hispanic households. Lower levels of ownership in minority communities mean a reduced opportunity to do things like pay for college and cover medical expenses without going deep into debt, fund retirement, provide a cushion against emergencies and pass on wealth to the next generation.
Unfortunately, the barriers to minority homeownership have only gotten worse during the Covid-19 pandemic given its disproportionate impact on minorities and the significant increase in home prices, especially for entry-level homes.
That’s why our industry needs to continue to work to ensure that as many people as possible have
It’s critical that “affordability” and “sustainability” are core components of the homeownership equation. And because minority communities are often more exposed to the effects of volatility in the economy, as we saw in 2008 and again as the pandemic has unfolded, it is especially important that we remain focused on those components from the outset.
Two primary culprits: Housing supply and lack of generational wealth
Many doctoral dissertations have been written about the causes of homeownership disparities, and rightly so as the factors involved are multifaceted and numerous. But it doesn’t take an advanced academic to see that two of the critical areas we should focus on are the limited
For more than a decade, there has been record-high demand for homes, and prices have been going up consistently during that time. That has benefited many housing market participants, but it has also made getting onto the homeownership ladder harder than ever. Inventory shortages and home price growth have been especially acute in the lowest price quartile, as reflected in its significant rate of price growth over the last decade, which has been double the growth rate in the top quartile.
In short, there is a persistent undersupply of moderately-priced homes, which continues to push affordability and the dream of homeownership further into the future for millions of potential first-time minority homeowners. Given demographic trends that will continue to fuel rising demand from prospective first-time buyers, the path to expanding minority homeownership rests on addressing this supply issue.
But even if we had a larger supply of entry-level homes, so many aspiring homeowners would still be facing an obvious but fundamentally important challenge: It’s hard to put together enough money for a down payment. As you might expect, that’s the reason most frequently cited by potential homebuyers as their primary hurdle. Some of this is because our industry needs to do a better job educating homebuyers about low downpayment options, such as mortgage insurance, and debunking the enduring myth that buyers need to put down larger amounts than they actually do.
A 2019 survey by Ellie Mae, for instance, found that nearly one-third of prospective buyers believe you need a down payment of 20 percent or more, while the National Association of Realtors has found that the median down payment for first-time buyers is actually around 6 percent. Nevertheless, a
Working towards solutions
There are not any easy or quick fixes to the problems of perpetually tight housing supply and the lack of generational wealth. On the issue of housing supply, the most significant impediments to building more affordable housing include the availability and cost of land and high (and rising) construction costs. In many parts of the country, regulations that have been standard for a long time, such as zoning restrictions, costly permitting and minimum lot sizes, need to be reformed in order to expand developable land and reduce permitting timelines and costs, as the Biden Administration and local governments around the country have started to explore.
In addition, the cost curve of construction materials and labor needs to be bent.
There are many ways to approach that challenge, but some of the under-discussed ways to help bring down those costs include allowing for more manufactured housing and better incorporation of innovative construction approaches into the home building process, such as 3-D printing technology and panelized and container construction. The way most homes are built today is, quite literally, antiquated, and the cost curve tends to reflect that. Given the particular shortage of entry-level homes, in addition to increasing new home construction, policymakers need to incent the rehabilitation and remodeling of abandoned and distressed properties through tax credits, grant programs and reduced regulatory red tape.
The wealth-building side is even more difficult, but there are several efforts industry should support, including:
— Downpayment assistance programs especially ones that are structured to avoid overleverage
— A pipeline that does a better job of helping renters work towards home ownership
— A regulatory framework that makes it easier and more sustainable for banks to provide low-dollar loans and for builders to profitably build smaller homes
— A streamlining of refinance opportunities, so current homeowners can take advantage of historically low interest rates.
— Forbearance and borrower assistance programs that help keep people in their homes when they run into financial difficulties, as the loss of a home has a tremendous and potentially long-lasting negative impact on the ability to build future wealth.
These are just a few potential steps, and of course none will provide a silver bullet on its own. Making a dent in this longstanding inequity will require a wide variety of approaches and a focused, persistent effort from many different players. Let’s make that a priority for our industry as we begin to re-envision the housing industry for the post-Covid era.
