Why do middle-class blacks have far less wealth than whites at the same income level? The answer is in real estate and history.
Meanwhile, most African Americans earned too little to save; most lacked access to the loans and capital necessary to start a business or buy stock or own their own homes. Lack of financial assets made African Americans more vulnerable to unemployment and medical emergencies, less likely to be able to pay for their children’s college education, and more likely to be stuck with the burden of supporting impoverished parents or to face poverty themselves in old age.
Even with the coming of Social Security and stronger protections for organized labor under the New Deal, most blacks were excluded from the benefits because they worked as tenant farmers or domestics who were not covered by the new plans. Two other Depression-era federal programs—the Home Owners’ Loan Corporation and the Federal Housing Administration—encouraged homeownership and bankrolled suburbanization, but in the North and South alike, whole neighborhoods were redlined, many of them black.
Many African Americans lost out on the benefits of the post-World War II GI Bill as well. As Ira Katznelson points out in his book When Affirmative Action Was White, of the 3,229 home, business, and farm loans made under the GI Bill in Mississippi during 1947, black veterans received only two. Until 1968, it was virtually impossible for blacks to get access to the kinds of long-term, low-interest mortgages that made wide-scale homeownership possible.
Even after the passage of civil rights laws, dozens of studies showed that minorities had a harder time getting access to market-rate mortgages. Moreover, black home buyers were likely to be steered to neighborhoods of older housing stock, often in declining central cities, places where housing values often depreciated rather than appreciated. This meant that blacks, if they were lucky enough to be homeowners, were often trapped in neighborhoods on the margins, economically and politically. As it turns out, the Sugrues and the Smiths were fairly typical of the black and white families that Oliver and Shapiro studied in the mid-’90s. And what has happened since then is even more disheartening.
Beginning in the ’90s and lasting until the bursting of the real estate bubble, some progress was made. The percentage of black households that owned their own homes increased from 43.3 percent in 1994 to 47.2 percent in 2007. Partly this reflected a still-growing black middle class; partly it reflected important government efforts to end racial discrimination in mortgage lending, along with the arrival of new, responsibly crafted forms of mortgages for which more people, particularly African Americans and Latinos, could qualify.
But around the turn of the twenty-first century, there also grew up a huge new industry of predatory lenders that targeted members of minority groups, including those who already owned their homes and were persuaded to refinance on what turned out to be usurious terms. In 2006, more than half of the loans made to African Americans were subprime, compared to about a quarter for whites. And a recent study of data from the Home Mortgage Disclosure Act found that 32.1 percent of wealthy blacks, but only 10.5 percent of wealthy whites, got higher-priced mortgages—those with an interest rate 3 or more points higher than the rate of a Treasury security of the same length.
The bursting of the real estate bubble has been a catastrophe for the broad American middle class as a whole, but it has been particularly devastating to African Americans. According to the Center for Responsible Lending in Durham, North Carolina, nearly 25 percent of African Americans who bought or refinanced their homes between 2004 and 2008 (and an equivalent share among Latinos) have already lost or will end up losing their homes—compared to 11.9 percent of white families in the same situation. This disparate impact of the housing crash has made the racial gap in wealth even more extreme. As Reid Cramer, director of the Asset Building Program at the New America Foundation, puts it, “Basically, we have gone from an average minority family owning 10 cents to the dollar compared to the average white family to now owning less than a nickel.” The median black family today holds only $4,955 in assets.
In recent years, concerns about racial disparities have largely faded from national politics. It is now a commonplace that we have entered a post-racial era. The concerns of the civil rights era are obsolete. A black family occupies the White House. Conservative jurists and even many liberals are arguing with greater conviction than ever that affirmative action programs and the Voting Rights Act are no longer necessary in a color-blind America. For his part, the first African American president has been remarkably silent on questions of race. University of Pennsylvania political scientist Daniel Gillion examined decades of presidential speeches and found that Barack Obama has said less about race than any Democratic president since 1961.
But for all of the talk about hope and change, the racial wealth gap has not only persisted, it has worsened. And it is this gap that is the most powerful measure of differential well-being by race. Wealth has profound consequences throughout the life cycle, from putting a down payment on a first home to spending your last days in a skilled nursing facility. Starting a business? Paying for college tuition? Making ends meet when you’ve lost your job? Covering extraordinary medical expenses? Retiring? Assets matter.
On each of these counts, minorities face an insecure present and a very precarious future. Consider just one measure: the Brandeis Institute on Assets and Social Policy estimates that only 8 percent of black seniors and only 4 percent of Latino seniors have sufficient economic resources to be economically secure in retirement. “These seniors,” write a team of Brandeis scholars, “do not just have to watch their pennies; they are truly struggling every day, forgoing basic expenditures, such as medical appointments and household maintenance, just to make ends meet.”
A few years ago, I met Roosevelt Smith. He still owned my parents’ old house on Detroit’s West Side, which was a rental property by then, and he gave me a tour. It was in good shape—pretty much the same house that my parents sold, but with newly refinished floors and some new kitchen cabinets and tiles and the garage out back. He’s a resourceful guy who bought a second, larger house nearby—another asset, a nest egg for the future. But together, the two houses aren’t worth much. The median listing price for homes in Detroit is now just $21,000, or about the cost of a Chevy Malibu—and, like the car, likely to depreciate in value from the moment you buy it. Detroit’s population has fallen from 1.85 million in 1950 to a little more than 700,000 today, and as population falls housing demand falls with it. Today, nearly every block has abandoned homes on it. The Smiths probably have more in household assets than the $4,955 median for black families, but not a lot.
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