The Relationship Among Homeownership, the Federal Budget, and the Racial Wealth Gap

The Asset Building Program’s analysis of the President’s FY 2013 budget reveals two key trends about the accessibility of homeownership and its relationship to overall wealth over the past few years. First, the benefits of the2013 federal budget’s investment in homeownership, which are delivered primarily through tax deductions, accrue chiefly to those who already have high incomes and substantial assets. Second, the housing crisis disproportionately affected black and Hispanic families, significantly widening the racial wealth gap and creating further barriers to savings and economic mobility.

Owning a home has historically been the most direct and accessible way to build wealth and equity. Presumably in recognition of this principle, the FY 2013 federal budget devotes over a third of its total asset spending to homeownership. However, of the nearly $200 billion dedicated to supporting homeownership, over half is a result of the deductibility of mortgage interest. Taxpayers making over $50,000 a year file the vast majority of returns claiming the mortgage interest deduction, and around half of the total benefits of the deduction go to those making over $200,000. Another $22 billion of the federal budget’s homeownership allocation reflects the deductibility of property tax, while $23 billion comes from the exclusion of capital gains on home sales.

By contrast, a mere $86 million is budgeted for NeighborWorks, an organization that offers foreclosure mitigation counseling and helps more families avoid losing their homes. Likewise, only $45 million is provided for housing counseling assistance, despite recent reports forecasting that rates of foreclosure will actually rise over the next year.

With respect to the recession’s impact on racial equity, black and Hispanic families lost a far greater proportion of their net worth from 2005 to 2009 than white families. While the racial wealth gap was already a serious issue before the recession, the housing crisis has greatly exacerbated the problem because an especially high proportion of the losses faced by black and Hispanic families were losses in the equity value of the home. For Hispanic families, for example, of the 66% of their net worth lost during the recession, 96% resulted from declining home values.

Thus, while the housing market formerly excluded people of color through zoning, restrictive covenants, and formal restrictions on lending, the most recent crisis reveals that lending practices that were (until recently) completely legal have yielded functionally similar consequences. Foreclosures have stripped black and Hispanic families of assets that took decades to build—and the results for racial wealth disparities are dramatic. For example, the ratio of wealth held by white families compared to black families has grown from 12:1 in 1984 to 19:1 in 2009, briefly reaching a low of 7:1 in 1995. In other words, in the wake of the housing crisis, for every dollar held by a white family, the average black family has a nickel. We hardly live in a post-racial society.

NAF proposes a variety of solutions to address some of the inequities in homeownership and access identified in the Assets Report. First, provide greater support for mediation and other alternatives to foreclosure to decrease the burden on struggling families. Second, increase the accessibility of homeownership through the development of appropriate, transparent products. Finally, promote Rental Assistance Asset Accounts, which would allow families receiving housing assistance to divert a portion of their rent into a savings account that could be used for a down payment on a home, among other purposes. While the scope of housing inequity is great, these policy interventions would be first steps toward promoting more universal access to homeownership.