Addressing the Wealth Gap in the United States- Part 1

By Tracey Madden-Hennessey

What is the impact of inequity on wealth?  Recent data analyzed and published by The Institute for Assets and Social Policy (IASP) of Brandeis University, indicates that a substantial racial wealth gap exists in the U.S. This is perpetuated by history and policy created, intentionally or not, that drives or retains assets in certain sectors of communities, largely White and more affluent, and away from others, particularly poor Black and Hispanic populations.

Given New Britain’s focus in applying an equity lens to Collaborative Problem Solving, this research is of particular interest.  Dean Starkman, in a 2014 review[1] of the IASP research, indicated the wealth gap is largely attributed to post civil war policies that favor those with assets.  The roots of the gap, according to the Brandeis researchers, can be traced to policies that address home ownership, earnings and inheritance, education access and inequality.[2]  The racial wealth gap between White and Black families has now ballooned to more than $236,000 and its growth doesn’t appear to be slowing.  CFED (Corporation for Enterprise Development) indicates it will take more than 200 years for populations of color to close the gap.

We will look at each of these roots in a separate blog post.  First, housing.  Homeownership is typically an individual’s largest source of personal wealth and one of the largest sources of wealth disparity.   IASP reports whites own homes at a rate of (73%) far above Black (47%) or Latino (45%) counterparts.  This disparity in homeownership, according to the research, is the result of the lasting legacy of discriminatory policies that restricted access to purchasing property and which continue to lead to racial isolation and segregation.  Cited is the practice of redlining (which identified Black neighborhoods as bad credit risks and discouraged lending or resulted in the practice of steering Black and Latino real estate customers to housing in neighborhoods where these populations were already clustered).  Although outlawed, it has left a legacy in communities of color of neighborhoods “characterized by higher poverty rates and lower home values.”  Home equity for white home owners has outpaced those living in communities of color by a large margin. 

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In addition, the research indicates, white families are more likely to have income that can be transferred from one generation to the next.  This resource could be used as a down payment on a home, increasing the buyers attractiveness to lending institutions (think favorable interest rates), and decreasing the amount a family needs to borrow to buy a home.

The mortgage crisis in 2008 and onward only served to compound this issue.  Largely impacted low income families who are more likely to represent communities of color, families lost homes to foreclosure negatively impacting credit and further driving down their assets.

These conditions are compounded over time and negatively impact generations of families.

IASP recommends that public policy intervene, supporting policies that eliminate disparities in home ownership rates and improving the rate of return (the value the house represents based upon the money spent on it versus the amount that can be gained once it’s sold again) for low income families.  Doing so would greatly reduce the racial wealth gap without negatively impacting the wealth of whites.  (47% for Black families and 69% for Latino families)

Recommendations from the researchers to address this housing issue, included:

-Stricter enforcement of housing anti-discrimination laws.

-Loan modifications for struggling home owners supported by federal funding sources Fannie Mae and Freddie Mac.

-Lowering the cap on the mortgage interest rate tax deduction so it targets moderate and low income families.

Several cities in the United States have begun collecting and analyzing data based upon an equity framework and making changes as a result.  New Britain does well to join this trend to create a community whose assets more equitably benefit all of its citizens.

[1] Starkman, “The $236,500 Hole in the American Dream,” New Republic, June 30, 2014, https://newrepublic.com/article/118425/closing-racial-wealth-gap

[2] Sullivan, Laura, et al; “The Racial Wealth Gap; Why Policy Matters,” Demos.org, NY; IASP, Brandeis University; 2015.