Rent shortages and mortgage denials block home ownership

Regardless of location, profession or income, every family needs and deserves a home. But for many — especially Black Americans and other people of color — finding and keeping affordable housing is increasingly difficult. New research not only documents escalating rental costs, but also how black Americans’ efforts to buy affordable homes are being stymied by high rejection rates, nearly double those of white consumers.

While it’s encouraging that this new research documents real deals and places to access the American dream of homeownership, mortgage lenders need to make clear their reasons for denying Black Americans the opportunity to own their own piece of home. ‘America. The long-standing racial gap in homeownership is now only 43% for black households, 30% lower than that for white households at 3%. Moreover, as long as black people are forced to fight rising rental costs, these same families are denied the housing cost containment of a fixed rate mortgage, as well as family stability and wealth creation. which belongs to the owners.

Despite unprecedented federal housing assistance during the pandemic, a report from Harvard’s Joint Center for Housing Studies (JCHS) reveals stark racial and income divides in its analysis of the nation’s rental market. Nearly a quarter of black renters were behind on rent in the third quarter of 2021, along with 19% of Hispanic renters. In contrast, the share of white tenants in arrears was only 9%.

“This disparity reflects a long-term discrimination in labor markets that has relegated many households of color to low-wage jobs in the service sector,” says Chris Herbert, CEO of JCHS. “And this sector has suffered the most drastic job cuts in the last two years, which has only worsened existing inequalities.”

The term “rent affordability” is a ratio of monthly housing costs as a percentage of household income. Researchers, legislators and other housing stakeholder groups consider affordable rent to cost no more than 30% of income. For homeowners, this ratio must also take into account factors other than the mortgage payment. Property taxes, home insurance, and private mortgage insurance required for home purchases with a small down payment should also be included in the calculation.

But with low rental vacancy rates in most metro areas, rent increases are widespread and “affordable” rentals are scarce. The number of units rented for less than $600 fell by 3.9 million between 2011 and 2019, according to the JCHS report. Additionally, 17.6 million rentals – 40% of national supply – are located in areas with at least moderate risk of threats from climate change. And the 7.2 million renter households headed by someone aged 65 and over are expected to continue to rise over the next two decades.

“Because people of color are more likely to have lower incomes and rent rather than own their homes, the geographic concentration of rental housing helps perpetuate patterns of racial and socioeconomic segregation,” noted Whitney Airgood-Obrycki, JCHS research associate and lead author of the new report.

A transition to home ownership can be essential to contain housing costs for families. Other recent research shows just how affordable homeownership is still possible for low-income families.

In its 2022 Rent Affordability Report, ATTOM, custodian of a national property database, found that paying a monthly mortgage on a median-priced home is more affordable than the average rent in a three-bedroom home in 666 counties, 58% of the 1,154 U.S. counties analyzed for the report.

“[H]Homeownership remains the most affordable option for average workers in the majority of the country, as it still represents a smaller portion of their salary,” said Todd Teta, chief product officer at ATTOM. “For now, however, rising wages and interest rates of around 3% is enough to offset recent price increases and keep property on the positive side of the affordability ledger relative to the rental.”

In general, according to ATTOM, home ownership is the most affordable in the Midwest and South. Additionally, many of these areas are already home to large numbers of black and other people of color.

The most affordable homeownership among counties with populations of at least 1 million is Allegheny County (Pittsburgh), Pennsylvania; Bexar County (San Antonio), Texas; Cuyahoga County (Cleveland), Ohio; Harris County (Houston), Texas; Hillsborough County (Tampa), Florida; Philadelphia County, Pennsylvania and Wayne County (Detroit), Michigan.

Home ownership is also a viable option in smaller communities with populations of 500,000 or less, including: Lake County (Gary), Indiana; Seminole County (outside Orlando), Florida; Knox County (Knoxville), Tennessee; East Baton Rouge Parish (Baton Rouge), Louisiana and Jefferson Parish (outside New Orleans), Louisiana.

But as long as mortgage denial rates disproportionately impact black people, black homeownership will continue to lag behind the rest of the country. Now, as interest rates remain low, black people are being excluded from the cost savings enjoyed by others and the resulting growth in wealth.

The Urban Institute’s new analysis of the annual Home Mortgage Disclosure Act compares the race and ethnicity of those turned down in 2020 for purchase loans as well as renovation and refinance loans. In each of these loan types, the largest refusal gaps occurred between blacks and whites. In home improvement loans, 63% of blacks were turned down, compared to just 39% for whites. Similarly, almost a quarter – 24.5% – of blacks were refused loans to buy a home, while the corresponding number for whites was 13.4%.

Instead of locking them in, it’s time to bring more of the benefits of home equity and wealth building to families. Black America must have its fair share of the American Dream.

Charlene Crowell is a senior researcher at the Center for Responsible Lending.

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