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February 2021

"Black tax" constrains wealth accumulation, homeownership opportunities

February 4, 2021

Black households are unable to accumulate housing wealth at the same rate as white households due to a combination of income gaps, a "Black tax," and other factors that unfairly raise the cost of homeownership for African Americans, according to a report from a trio of authors.

In a paper titled "The Unequal Costs of Black Homeownership" published on October 1, 2020, the authors calculated the overall differences in mortgage interest payments at $743 per year, mortgage insurance premiums at $550 per year, and property taxes at $390 per year. Over the life of the loan these differences total $13,464, which amounts to $67,320 in lost retirement savings for Black homeowners.

"The black-white income gap of $25,800 is exacerbated by this 'black tax' on homeownership," stated civil rights attorney Michelle Aronowitz of the Law Office of Michelle Aronowitz, PLLC; Edward Golding, executive director at MIT Golub Center for Finance and Policy/Senior Lecturer; and Jung Hyun Choi, research associate with the Housing Finance Policy Center at the Urban Institute.

While the inequities can be traced to the long history of slavery, segregation, and race discrimination, the authors said their focus was on identifying current policies that maintain disparities and suggesting reforms to eliminate them. Their research uncovered inequities with federal, state, and local policies.

Their four primary conclusions were:

  • Black homeowners pay higher mortgage rates at origination, due in part to overpricing for perceived risk factors such as LTV, credit score, and loan size.
  • Black homeowners continue to pay higher interest rates post-origination due to the lack of refinance opportunities.
  • Black homeowners pay more in insurance premiums.
  • Black homeowners pay higher property taxes. The authors identified large tax assessment areas and "an appeal process that tends to benefit white homeowners" as predominant factors.

Among policies the authors analyzed were risk-based mortgage pricing, prepayment differential (Black homeowners refinance less frequently than white homeowners, usually resulting in lowered mortgage rates), mortgage insurance, and various other factors that unfairly raise the cost of Black homeownership (e.g., lower appraisals in Black communities, leading to higher LTV; less competition among mortgage originators in Black communities; steering Black homeowners to higher cost products; and higher rejection rates).

With regard to the more than $50,000 of wealth differential at retirement, the authors stated, "The policy response should not be to try to justify the differential, but to eliminate it."

Antoine Thompson, executive director of National Association of Real Estate Brokers (NAREB), whose mission is democracy in housing, called the suggestion in the MIT study to pool risk among borrowers in lieu of risk-based pricing a "great idea" and noted it had been discussed in the past.

In its 2019 "State of Housing in Black America" report, NAREB, the nation's oldest minority trade association, cited data documenting Blacks' "most substantial loss of homeownership since 2004." It has declined more than 8.5 percentage points, or 17 percent. For non-Hispanic Whites, the decline has been less than 4 percent. Stated another way, Blacks have lost more than four times the share of homeownership as non-Hispanic Whites since 2004.

Also notably, the gap is larger now than in 1934 when the Federal Housing Administration (FHA) was formed, and the modern housing finance system got underway.


The American Dream - What Matters to Blacks

A survey for The National Newspaper Publishers Association (NNPA), a trade group of more than 200 African-American-owned community newspapers from around the U.S., asked 452 African Americans which aspect of the American Dream is most important. Branded Research, which conducted the poll reported:

  • 30% said having a comfortable retirement;
  • 21% said homeownership;
  • 21% said setting up their children for success;
  • 15% said owning a business;
  • 7% said a college education;
  • 6% said having a nuclear family.

Broken down by gender, 22% of men identified homeownership as most important, slightly more than women, at 21%.


NAREB called for a two-pronged effort to improve Black homeownership. First, initiatives "must break down discriminatory barriers and change public policies that unfairly preclude access to mortgage credit for Blacks." The second effort is focused on encouraging Black households to apply for mortgage credit, and to assist them in selecting the most affordable and sustainable loan products for which they are eligible.

The 2019 report emphasizes the "enormous untapped Black homeownership potential," noting Urban Institute research indicating if the Black homeownership had remained constant at the 2000 level, there would be 770,000 more Black homeowners. NAREB also highlighted the fact that 1.7 million Black millennials qualify for homeownership.