Quick Hit Ashlee Rezin Friday March 1st, 2013, 3:02pm

Report: Racial Wealth Gap Nearly Tripled Over Last 25 Years, Home Ownership A Factor

Derived from a long history of discrimination, a staggering opportunity gap has widened financial disparities between black and white Americans, condemning African Americans to less home equity, according to a new report by the Institute on Assets and Social Policy (IASP) at Brandeis University.

After studying 1,700 American families for 25 years, the report examines the major causes of America’s racial wealth gap. Researchers found that the total wealth gap between white and African American families had almost tripled during the study, increasing from $85,000 in 1984 to $236,500 in 2009.

The study revealed the median net worth of whites was $265,000 in 2009, compared to just $28,500 for African-Americans.

The leading contributor to disparity in wealth, which the report defines as “what we own minus what we owe,” is home ownership, according to researchers.

“Residential segregation by government design has a long legacy in this country and underpins many of the challenges African American families face in buying homes and increasing equity,” the report reads. “Homes are the largest investment that most American families make and by far the biggest item in their wealth portfolio.”

The home ownership rate for white families is 28 percent higher than it is for black families, and is attributed to residential segregation, average lower income and lack of access to credit. During America’s housing crisis, between 2007 and 2009 when more than 10 million homes went into foreclosure, 21 percent of African American families lost wealth, according to the study's authors. Only 12 percent of white families experienced the same loss.  

“For many years, redlining, discriminatory mortgage-lending practices, lack of access to credit, and lower incomes have blocked the home ownership path for African Americans while creating and reinforcing communities segregated by race,” explains the report. “African Americans, therefore, are more recent homeowners and more likely to have high-risk mortgages, hence they are more vulnerable to foreclosure and volatile housing prices.”

Dr. Thomas Shapiro, director of IASP and one of the report’s principal authors, said our economy cannot sustain growth in the face of extreme wealth inequality.

“What these particular factors provide is compelling evidence that various government and institutional policies that shape where we live, where we learn and where we work, propel the large majority of the widening racial wealth gap,” Shapiro said in a statement.

The report’s findings can be seen everyday in Chicagoland, according to Bob Palmer, policy director for Housing Action Illinois. He said there are prevalent racial segregation patterns in Illinois’ most populated city.

“If we look at the racial segregation patterns in the Chicago metropolitan area, regardless of whether people are homeowners or renters, most places are very racially segregated and the difference in home values between different communities reinforces that racial segregation,” he said.

Palmer referred to SB 1728, pointing out that foreclosure prevention initiatives may positively impact Illinois’ black community.

“In the aftermath of the foreclosure crisis we hoped that the new protections for borrowers instituted by federal and state governments will result in home ownership opportunities that are sustainable and available to people regardless of race or ethnicity,” he said.

In addition to a lack of home ownership as a driver for the racial wealth gap, the report also attributes the disparity to lower income, unemployment and a lack of college education, family inheritance and preexisting wealth.

The report recommends that legislators support fair housing proposals and mortgage and lending policies that will diversify neighborhoods and deliver impartial opportunities for growing home equity.

It also suggests raising the minimum wage, implementing equal pay provisions into legislation and reinforcing employer-based retirement plans. Shapiro and his co-authors also suggest that lawmakers support policies that help more low-income or minority students attend college as well as invest in affordable childcare and early childhood development programs. The report also calls for the elimination of preferential tax treatments for wealthy Americans, saying it would level out the wealth gap.

“Economic demands which the civil rights activists were very wise in seeing as absolutely necessary for black advancement have never been realized,” said Algernon Austin, director of the program on race, ethnicity and economy at the Economic Policy Institute. “What people unfortunately have not paid sufficient attention to was that civil rights activists also had economic demands, including demands for a national full employment program, a demand for the ending of discrimination in the labor market and for a high minimum wage.”

Austin said all of the drivers for an increasing the wealth gap are connected and related, and that if you combine low income with unemployment you will, consequentially, see a lack of home ownership.

Calling the contributing factors to the racial wealth gap “major economic drivers”, he said there is not much that can be done on the ground level. He said to affect policy change in American society, individuals should contact their elected officials and encourage them to make job creation number one on the agenda.

“To reduce the wealth divide, we need policies that will increase the incomes of blacks and reduce the employment gap.”

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