Row houses in Philadelphia (Capital-Star file)
By Stephen Williams
PHILADELPHIA — Black home ownership in the city continues to lag that of whites and has steadily declined in the last 30 years, partly because of a legacy of racial discrimination, according to a report released on Monday by the Federal Reserve Bank of Philadelphia.
As a result, many Black Philadelphians have been less able to build household wealth through home ownership and realize associated social and economic benefits, the report stated. But the disparity is also bad for the economies of the city and the region, said Theresa Y. Singleton, Federal Reserve Bank senior vice president and community affairs officer, and an author of the report.
“The home ownership gap that we see between Blacks and whites in Philadelphia is part of the legacy of historical discrimination as well as long-standing inequalities,” Singleton said. “An equitable economy is a strong economy for everyone. So drawing attention to these disparities is not just an issue for black homeowners, it’s a concern for the entire regional economy.”
Housing is a critical part of the economy. More people buying homes means a higher tax base for schools, more construction jobs and more buying of retail household goods.
Here are some of the other key findings of the report: The Black-white home ownership gap in the city is smaller, compared with the rest of the U.S., but little progress has been made in closing the gap in the past 30 years. Lack of access to mortgage credit is still a key barrier to narrowing the gap between white and Black home ownership. And more efforts are needed to address the historical discrimination and structural barriers to home ownership in neighborhoods with large Black populations.
Other factors negatively affecting Black Philadelphians seeking mortgages include thin credit, lower incomes and the fact that many Black residents are looking for homes in neighborhoods that were historically impacted by redlining. And there is a new threat to Black home ownership and maintaining homes that are already owned: gentrification.
As a result, many Black Philadelphians have been less able to build household wealth through home ownership and realize associated social and economic benefits
For example, in the second quarter of 2021, home prices rose 20.5 percent in West/Southwest Philadelphia; and rose 17.6 percent in North Philadelphia, compared to the same quarter a year earlier, according to Drexel University Lindy Institute for Urban Innovation. These areas have large populations of Black residents and people of color.
By contrast, in the same period, home prices in Philadelphia rose by 14.5 percent, compared to the same quarter in 2020, according to the Lindy Institute report.
“There are increasing housing values as incomes haves declined for Black residents,” Singleton said.
Gentrification occurs when low- or moderate-income neighborhoods are flooded with development catering to high-income people. This can increase homes values, prices and taxes, sometimes forcing low- and moderate-income people out of their own neighborhoods.
“There are neighborhoods that were redlined in the 1930s that are still reflecting this lack of access to capital, and this lack of access to mortgage credit is a key barrier in perpetuating these disparities between white and black home ownership,” Singleton said.
During the 1930s, the federal government discouraged banks from providing mortgages to neighborhoods heavily populated with Black Americans, immigrants and people of color, a process known as redlining. It was named for the way banks and governments agencies marked off the areas with red lines. Later, this process caused further disinvestment by insurance companies, and financial and government agencies. The result was widespread blight and decay in many urban neighborhoods through the U.S.
“The place makes a difference here,” said Lei Ding, Federal Reserve community development senior economic advisor and coauthor of the report. “Fifty years after the Fair Lending Act, we still have concentrations of low-income people and people of color.”
According to the Federal Reserve report, the racial home ownership gap is largest among lower- and middle-income residents and those without a four-year college degree. The report states: “Eighty percent of the Black households without a four-year degree were much less likely to be homeowners, compared with their white counterparts.”
Singleton points out that 31 percent of Black mortgage applicants in 2020 were denied because of “debt-to-income ratios.”
By contrast, high-income, college-educated Black households in Philadelphia were just as likely to own homes as their white counterparts.
Historically, the city had a large number of single-family homes. But in the 1960s, Philadelphia started to lose population as many white residents moved to the suburbs, causing an oversupply of single-family homes, the Fed report stated. This lowered prices on homes, putting home ownership within the reach of many working-class households.
According to the report, between 1960 and 1990, lower homes prices in the city and the addition of laws that prohibited housing discrimination resulted in a large expansion of home ownership among middle- and upper-income Black households. During this time, Black home ownership reached a 50-year high of 57 percent.
But since then, Black homeowners across the board has declined, widening the gap with their white counterparts.
“The housing market crash of 2007 disproportionately impacted Black homeowners, who were far more likely to hold a subprime mortgage,” the report stated. “Many majority Black neighborhoods experienced a large spike in foreclosures during the recession.”
Since 2000, growth in home values in Philadelphia doubled, while household median income levels for Black residents declined. During the same time, white residents’ household income rose modestly.
Still, the Federal Reserve report warns that “declining affordability could be a citywide problem, putting home ownership out of reach for low- and moderate-income residents, Black and white.”
Other reports such as Drexel’s Lindy Institute for Urban Innovation and the Center City District’s 2021 housing report has warned of the same.
The Federal Reserve Bank has several suggestions for solutions to the problem, said Ding, such as special lending programs and down payment assistance programs to assist underserved populations get mortgages.
Banks should offer Black aspiring homeowners affordable sustainable mortgage products, not subprime mortgages, Ding said, “so they can reap the full benefits from home ownership.”
“There are a significant number of Black people who are denied mortgages because of poor credit history, but the reality it is a portion of that is thin credit,” Singleton said.
For example, government mortgage agencies such as Fannie Mae are allowing lenders to use an applicant’s apartment rental, utility and other monthly payments in evaluating credit risk.
“So if you did not have a credit card, but you paid your monthly rental payments, just having that recorded increases the opportunity for folks that are good credit risks, but haven’t had the opportunity to demonstrate it through traditional means, Singleton said.
Stephen Williams is a reporter for the Philadelphia Tribune, where this story first appeared.
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