Black homes in Minneapolis are worth around $33,000 less than white ones. Here's how one expert says racism devalues black neighborhoods across the country.

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Black homes in Minneapolis are worth around $33,000 less than white ones. Here's how one expert says racism devalues black neighborhoods across the country.
FREDERIC J. BROWN/AFP via Getty Images
  • Economic inequality has been thrust into the forefront over the past week.
  • Black Americans lag behind whites on many indicators, particularly on homeownership.
  • A report from the Brookings Institute released last year found that each black home was undervalued by $48,000 on average.
  • One expert called it "a major extractor of wealth."
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Black Lives Matter demonstrations have grown larger in recent days, as calls mount for criminal justice reform. They were touched off after George Floyd, a black man, was killed in Minneapolis by a white police officer who knelt on his neck for more than eight minutes.

The ongoing protests, however, are also shedding light on persistent economic inequalities that black Americans have experienced for generations.

African-Americans lag behind whites on many indicators of economic health, and homeownership is a notable one. The Census Bureau recently reported the black homeownership rate stood at 44% in the first quarter of the year, dropping from its peak of nearly half in 2004. In stark contrast, the level of white homeownership was 73.7% — a gap of nearly 30 percentage points.

The Great Recession a decade ago virtually wiped out gains black homeowners had made since 1968 with the passage of the Fair Housing Act, which barred banks from rejecting mortgage loans based on race.

Homeownership has long been considered a ladder into the middle class and a marker of prosperity. Owning a home propels financial security and provides families with a means to accumulate wealth over many years — as long as the economy is in a healthy state.

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Yet the prospect of building wealth through that route is also undercut by another trend: Black homes are consistently undervalued by the housing market, experts say. A report from the Brookings Institute released last year found that each black home was undervalued by $48,000 on average.

Read more: Jeremy Grantham, the legendary investor who called the past 3 bubbles, says investors should be nervous about recent market moves — and warns of 'deep economic wounds' regardless of a vaccine

In Minneapolis, a black owner-occupied home was worth $33,000 less than a white one.

"That metric shows there's racism in the housing market," Andre Perry, a fellow at the Brookings Institute, told Business Insider. "There's something going on in the practices and policies of appraisals, real estate agent behavior, and lending."

Studies have shown that a long history of structural racism in the housing market dragged down black homeownership rates, given federal homeownership programs that shut out black families from gaining access to loans for much of the 20th century. Today, black people are also denied mortgages at higher rates than whites, even though many are credit-worthy.

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The economic gulf in Minneapolis is also compounded by the city having the worst racial gap in the nation when it comes to homeownership, the Urban Institute said in a 2018 report.

That trend played out across the country in 100 cities with the biggest black populations, which the Urban Institute analyzed. It included large cities like Los Angeles and smaller ones like Bridgeport, Connecticut — not one had an equal homeownership rate between whites and blacks.

The persistent devaluation of black homes leads to $156 billion in cumulative losses each year, cutting funding that could go to support black businesses.

"If you're missing that equity, you essentially have less to pass onto your children, less to pass onto your community," Perry says. "It's a major extractor of wealth when you devalue property."

Read more: 'I'm buying the property with 100% of other people's money': Here's the creative real-estate investing strategy Josiah Smelser used to complete almost $4 million in deals over the past 12 months

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Perry expects credit-tightening from lenders in the years ahead that could further set back the rate of black homeownership. He says federal action on the scale of President Franklin Roosevelt's New Deal is needed to keep people in their homes and extend lifelines for people trying to buy them.

"After the Depression, we saw large investments into poor people in the form of low-interest home loans that was made available to start new communities," he said. "Unfortunately, a lot of that New Deal legislation excluded black people, but it did help to protect people for generations."

He added: "We have models to provide direct investments to people who are economically vulnerable and we need to do that."

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