Black Poverty Is Rooted in Real-Estate Exploitation
A new study in Chicago shows how the dream of homeownership was converted into a poverty trap.
Mark Whitehouse, Bloomberg, June 17, 2019. Available here.
One question is -- or should be -- central to any assessment of the state of America: Why, more than a century and a half after slavery ended, does the typical black family remain so much poorer than the typical white family?
A new study on housing in Chicago illustrates a big part of the answer: Generation after generation, the U.S. system of real-estate finance has enriched whites at the expense of blacks.
Housing has long played a crucial role in American wealth accumulation: People buy homes with federally subsidized mortgages, build up equity and pass the assets on to their children. But as recently as the 1960s, government policy excluded blacks. In a practice known as redlining, the Federal Housing Administration designated predominantly black neighborhoods as no-go zones for government-insured mortgage loans. The FHA also wouldn’t guarantee loans for new mixed-race developments: The presence of even a single black family was enough to warrant rejection.
Hence, blacks had to find other ways to obtain shelter. One was “contract for deed,” an arrangement usually offered by speculators who bought properties expressly for the purpose. It required a down payment and regular monthly installments from the occupant, but that’s where the similarities to a mortgage ended. The sale price and effective interest rate tended to be wildly inflated. The “buyer” assumed all the responsibilities of a homeowner, including repairs and taxes, while the “seller” retained title, along with the power to evict for missing even a single payment. As a result, families who bought “on contract” didn’t accumulate equity, and faced a long and precarious path to ownership.