There’s a big wealth gap in America. Wealth – the net value between the value of your assets and what you owe – is 10 times greater for White communities than it is in Black. According to 2020 numbers, the average net worth of a typical White family is $171,000, the average net worth of a Black family is $17,150.
According to a Census Bureau report, two assets — home equity and retirement accounts — account for 63% of American households’ net worth. While the low average net worth in Black families is due in part to a lower level of homeownership in the Black community, another large contributor to the net worth gap is the lower appraised value of homes owned by African Americans.
Everyone knows it. In Kansas City, homes east of Troost cost far less than a comparable house west of Troost. In Wichita, a house in 67214 costs far less to buy than a comparable house in communities that are still predominately White.
For decades, research has shown that houses in predominantly Black neighborhoods have been generally appraised at lower values than houses in majority-White neighborhoods. This is true even when comparing housing stocks that have the same characteristics (age, square footage, number of rooms, etc.) and neighborhoods of equal socioeconomic status.
A new study finds that the racial composition of a neighborhood is an even “stronger determinant” of a home’s appraised value in 2015 than it was in 1980, to Black homeowners’ increasing disadvantage. A Duke University Study, “A Study of Real Housing Appreciation among Black, White, and Hispanic Households,” identifies two principal mechanisms through which neighborhood minority composition affects housing appreciation.
The first is a pure discrimination effect, in which Whites avoid neighborhoods with minority residents because they have a “taste for discrimination.”
The study’s author Chenoa Flippen references previous studies that document Whites express considerable resistance to co-residence with Blacks.
This White preference for racially homogeneous neighborhoods undermines minority housing appreciation by lowering the demand for housing in integrated communities, thereby lowering prices.
The second mechanism through which minority composition could affect appreciation is through its association with other conditions that affect the utility and desirability of neighborhoods, such as school quality, crime, poverty levels, and a host of social ills associated with poverty. A 1999 study demonstrated that for renters, neighborhood racial composition no longer predicted housing values once socioeconomic differences across neighborhoods were controlled. However, among homeowners, housing in neighborhoods that were at least 60% African American had lower values than comparable housing in predominantly White communities.
The Duke study, which looked at the change of housing values from 1970 to 1990 looked at the impact the percentage of Black, Hispanics and poverty in a community had on the appreciation of the housing value. The results were as expected. (See the chart on this page.)
The Duke study concluded for both Blacks and Hispanics, high levels of neighborhood minority concentration undermine housing appreciation. Even controlling for differences across neighborhoods in socioeconomic and housing stock characteristics, highly segregated minority neighborhoods continue to experience lower price growth even net of these nonracial factors.
Segregation Driving Property Values
Despite a steady decline since the peak levels of the 1960s and 1970s, residential segregation still persists and its driving Black housing values and driving down Black wealth.
Despite a steady decline since the peak levels of the 1960s and 1970s, residential segregation still persists in U.S. metropolitan areas, and African Americans continue to experience the highest segregation levels among all racial and ethnic groups. Studies show that today, the typical African American resides in a neighborhood that is only 35% white. That is not any better than what was common in 1940, when the average black resident lived in a census tract where White residents represented 40% of the total population.
The patterns of residential segregation observed today have not emerged by chance. Yes, there is a history of racial discrimination in housing such as redlining, covenants and federal lending practices, the legacy of which are still impacting racial housing patterns today. Despite changes in those practices and the passage of the Fair Housing Act of 1968, new forms of racial bias in housing have emerged.
Racial steering, for instance, has become more common. Under this practice, real estate agents deliberately steer African Americans away from desirable neighborhoods and toward areas featuring larger concentrations of people of color, higher poverty levels, and lower housing quality compared with neighborhoods to where whites relocate. Furthermore, the neighborhoods where white homebuyers are recommended and shown homes tend to be characterized by a larger presence of white residents than the neighborhoods where black homebuyers are recommended and shown homes. The 2012 HUD study indicates that “Whites hear more positive comments about white neighborhoods and more negative comments about minority neighborhoods than do blacks, potentially steering them away from mixed or minority neighborhoods.”
The lower appreciation of minority-owned homes costs Black and Hispanic households literally tens of thousands of dollars in housing equity, with the adverse effects accumulating over the years. The lower appreciation of minority-owned homes costs Black and Hispanic households literally tens of thousands of dollars in housing equity. The adverse effects of this lack of wealth accumulates over the years and continues, by substantially contributing to the intergenerational transmission of inequality.