Part 1:How the Racial Wealth Gap Affects Black Households Today

What is the racial wealth gap?

Although the term "racial wealth gap" technically refers to the difference in assets owned by different racial or ethnic groups, this gap results from a range of economic factors that affect the overall economic well-being of these different groups. The term reflects disparities in access to opportunities, means of support, and resources.

The racial wealth gap is the largest of the economic disparities between Black and white Americans, with a white-to-Black per capita wealth ratio of 6 to 1. It is also among the most persistent. 

Federal surveys reveal a large disparity among racial and ethnic groups in the U.S. For example, the 2019 Survey of Consumer Finances—which examined assets such as savings, investments, retirement, pensions, and especially homeownership—found White families had eight times the wealth of Black families and five times the wealth of Hispanic families.

It's well known that one of the major ways of wealth building is property and/or homeownership. Contrary to popular knowledge, wealth does not mean income. Wealth is a combination of your savings, income and your assets minus your debts. This combined, is what makes up wealth. Wealth is a much more accurate read on your financial standing than simply income.

In 1963, the median Black families had about 5% or  1/20th  of the wealth of that of white families. In case you thought it has gotten much better, In 2016, Black families had about 10% of the wealth of white families. So white families have 10x the wealth of Black families. So, this shows that there is still a huge problem with inequalities even today.

When we talk about affordable housing, we think about social safety net programs such as Section 8, Low Income Tax Credits, Rental Housing. We rarely think or talk about wealth creation and equity when we talk about affordable housing. Affordable housing can’t just be about safety nets, it should also be about elevators allowing people who have been left behind the opportunity to move up. And upward mobility is critical and it’s about wealth building and race.

Only 44% of Black households own their own property compared to 73% of white households. And if you’re Black and do own your own home, you have about a 50% chance of being able to buy your home before you’re 35.

The largest housing program in the United States is the mortgage interest deduction, where people get a chance, if they own their own home, to write their interest off on their taxes. Even though it is the largest housing program in the US, if you’re Black household or Latino household who have equally low home ownership rates, you don’t have a chance to participate in our countries largest housing subsidy program.

Here's something disturbing, when you look at home values, on average Black owned homes are worth $50,000 less. Black people are buying in smaller percentages and when we do buy, Black owned homes are worth less and we’re buying later in life. All of those factors combined, tell the story of what’s happening and the gap between Black wealth and white wealth. Also, studies show that 63% of all wealth for the typical family comes from a combination of home ownership and retirement accounts. So, if you’re lagging this far behind in homeownership, there’s no way that you’re going to make a dent in the racial wealth gap. And this goes back decades.

Redlining and Housing segregation has affected many things within the Black community, such as, School/Education, Health, Family Wealth, and Policing.

A bit of history. President FD Roosevelt, in an effort to bring economic relief to millions of Americans, created a collection of federal programs called The New Deal. One part of that project was the National Housing Act of 1934. This Act introduced the infamous 30 yr mortgage and low fixed rates which allowed lower income people to be able to afford homes. Sounds great, right? So, in an effort to soothe the worry of these new homeowners not defaulting on their mortgages, a new program is introduced known as the Home Owners Loan Corporation (HOLC). But, this is where it dives deep and goes dark. The HOLC created residential security maps using color codes which broke down as follows:

Green (white business men), great residential area

Blue (white collar, white workers) good residential area

Yellow (declining/working class) area

Red: Detrimental or hazardous influences, such as low class whites, foreign born immigrants and definitely Black people.

The most consistent criteria for redlined areas was the presence of Black and brown people. The thing is, the people who lived in these redlined areas, despite what was assumed, did not default on their mortgages. The major issue of redlining is that it created huge obstacles, if not impossible abilities to buy or refinance. Because of this, landlords abandoned their properties, city services became unreliable,  affecting job security, crime increased and property values dropped. This festered for at least 30 years as whites fled to the new suburbs that were popping up all over the country.

Then came the ‘covenants’. Covenants were rules that explicitly forbid the selling of homes in these white suburbs to Black people and the sad part is that these rules were perfectly legal. So, then the Fair Housing Act of of 198 was introduced as a way to encourage equal housing opportunities regardless of race, religion or national origin. It also offered protection for future homeowners and renters. The major issue was that it did little to fix the years long of damage that was already done. Over the next 50 years, the Fair Housing Act was rarely enforced. We still see the effects of housing segregation and how it hindered much of the Black wealth, hence the extremely wide wealth gap between Blacks and white households. For almost 30 years, 98% of FHA home loans were handed out to white borrowers. So, not only were Black neighborhoods redlined and the Fair Housing Act not enforced, and even today it is still more difficult for a Black person to get a home loan than it is for a white person, these factors heavily influenced the wealth gap among Black and white households.

So, when it comes to education, the primary way that Americans pay for public education is buy paying property taxes. People who live in more valuable homes have better funded public schools, better paid teachers, better facilities and more resources. Look at it this way, the better the schools are in a neighborhood, the more homes are worth. The higher the property value of those homes, the more money there is for schools and so on and so forth.

Look at how this affects health.

Because of urban planning that benefitted those richer whiter neighborhoods, Black and Brown people are more likely to live in industrial areas and neighborhoods. This means exposure to more toxic fumes and living in areas of food deserts where grocery stores with fresh food is not as easily accessible. Water is less, if at all, drinkable and they’re more likely to live in homes with crumbling infrastructure and places with toxic lead paint. These factors affect the health of Black people and other people of color in these areas. There are higher incidences of certain cancers, asthma and heart disease. With housing segregation, there are vast differences of crime and vast differences of policing. Many times, racial profiling is camouflaged as ‘spatial’ profiling. This means that living in certain areas can create the extremely high likelihood of being stopped by the police at much higher rates. That heavy and aggressive policing that you see in Black neighborhoods causes a distrust towards police. When people don’t trust the police, crimes go unsolved and this forces people to find other ways to stay safe. Racial Inequalities will grow unless we consciously work to eliminate them.

How did we get here? Want to learn more? Tune into our latest chat: Episode 10: Pay Me My Money: How The Racial Wealth Gap Affects Black Households Today?