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

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Wealth, Housing and the GapHow 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/

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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

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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)

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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

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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

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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.

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Policy Widens Gap, Most Subsidies to Wealthiest
Households

• 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)

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The Invisible Transformation

• Much of the nations wealth is locked into
  homeownership
• For all households, home equity accounts for an
  average of 21 percent of net household wealthbut
  for all homeowners the share is close to 50
  percent

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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

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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.

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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

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Racial Inequity in Wealth

• 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

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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 Peoples
  Republic of China and higher than the GDPs of
  France and the UK

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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.

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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

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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

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Housing Wealth as a Community Policy

• Create Opportunity in communities of color
• Land Reclamation (aggressive land banking)
• Earmarking Affordable Housing Trust Fund Dollars

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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

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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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