U.S. homeownership rates have largely recovered since the depths of the Great Recession, except among Black Americans. In 2019, 42 percent of Black households owned a home, compared to 73.4 percent of white ones. Black homeownership is, in fact, lower than it was 50 years ago, making the gap in white-Black homeownership rates the principal driver of persistent, yawning racial disparities in wealth.
Democrats in Congress are circulating ideas to shrink this gap, including a proposal by House Financial Services Committee Chair Congresswoman Maxine Waters to provide up to $25,000 in down payment assistance for low-income, “first-generation” homeowners who are “economically and socially disadvantaged.” It is one of numerous reforms unveiled this spring to “make our housing and financial systems fairer and more equitable,” as the 82-year-old Waters said at a Congressional hearing in March.
Though Waters’ proposal hasn’t been embraced by the Treasury Department and the White House (and may not be), it’s likely to dominate Democrats’ discussions over housing equity in coming weeks. Politico reports the idea is gaining traction among progressives, and Waters’ own advocacy as chair of the powerful Financial Services Committee will ensure the idea stands center stage. Over the last three decades, Waters has shown herself to be an effective and outspoken, if at times controversial, advocate for racial justice. Her proposal for down payment assistance fits her image of firebrand progressivism: big, bold and confrontational.
Perhaps too much so.
Without a doubt, the racial wealth gap is a crisis neglected. The median Black household has just one-seventh of the wealth of the median white household, according to an analysis from the Federal Reserve last year. Lack of savings is also a major barrier to Black Americans’ entry into homeownership, the principal source of wealth for most Americans.
But the idea of racially preferential down payment assistance is politically fraught for Democrats. Waters’ plan is not only racially polarizing, its $10 billion price tag—even at a time when trillion-dollar plans are tossed around like dimes—could make it a non-starter in a divided Congress. Worse, it could distract from other ideas to aid Black Americans’ pursuit of homeownership. As with “free college,” “free down payment” is politically and substantively perilous.
Instead of removing barriers to opportunity—which is more popular—Waters’ Down Payment Toward Equity Act explicitly confers benefits on some racial groups and not others. It’s a divisive formulation that’s likely to invite legal challenge.
The discussion draft of the bill, released in April, limits benefits to “socially disadvantaged” individuals who are members of groups that “have been subjected to racial or ethnic prejudice within United States society.” Blacks, Hispanics, Native Americans or Asian Americans are presumed to be “socially disadvantaged,” but others can “establish individual social disadvantage… by a preponderance of the evidence” (though it’s not clear to whom or how).
Waters’ idea is at once restrictive and an invitation to get in the ring and compete for spoils. Poor whites from Appalachia and the Rust Belt would seem not to benefit, nor would others who don’t fit neatly into the categories laid out in the draft. Irish, Italians or Jewish applicants, if they’re low income now, would seem to have a claim, pointing to past discrimination. There’s really no reason Americans who identify as LGBTQ+ or have a disability couldn’t also press a claim. It doesn’t take much to imagine the outcry from Republicans eager to stoke white resentment, especially in suburban swing districts where vulnerable Democrats might have a tough time explaining this plan to their constituents. In fact, the blowback has already begun. “[T]to determine who is a certain race and see who should get what money—as a policy matter, that is just something we absolutely oppose,” one unnamed GOP Senate aide recently told Politico.
The proposal is also extremely generous, thereby sure to fuel the budget-busting image of Democrats that Republicans are also promoting (Biden’s just-released $6 trillion budget doesn’t help). In 2019, the median down payment by first-time homebuyers was 6 percent, according to the National Association of Realtors—or $15,420 for a home that cost the 2019 median of $257,000. But at $25,000, Waters’ proposed homeownership grant is more than three times the size of the $8,000 first-time homebuyer tax credit offered in 2008 and 2009 during the Great Recession. This money would moreover be available on top of existing down payment help. According to the Urban Institute, more than 1,300 state and local public agencies nationwide already offer down payment assistance through more than 2,500 separate programs, with a typical grant of around $7,500.
At the same time, the idea might be too small as well as too big. Like “free college,” “free down payment” reinforces the idea that distributing big checks can substitute for dismantling structural inequities.
“Free college” lumped all of the inequities of higher education into the single problem of undergraduate affordability at public universities. It ignored other barriers to access and completion faced by prospective post-secondary school students, such as lack of academic readiness, the burden of caregiving obligations, and the absence of guidance in choosing career paths. “Free down payment” is a similarly reductionist idea. It won’t solve the racial wealth gap on its own and doesn’t claim to. But it does risk diverting needed attention away from deeper, systemic problems contributing to the racial homeownership gap.
Black Americans face appalling housing discrimination. High-income Black homeowners earning between $75,000 and $100,000, for instance, pay higher mortgage interest rates than lower-income whites earning less than $30,000, according to a 2021 study by researchers at Harvard University. Black homebuyers are also almost twice as likely to be denied a mortgage as buyers overall, according to a 2020 study by Lending Tree.
Black homeowners also pay higher property taxes because tax assessments as a share of home value are higher in neighborhoods with a high proportion of racial minority residents than in predominantly-white ones. At the same time, the Brookings Institution reports, homes in Black neighborhoods are undervalued by about $48,000 on average, resulting in $156 billion in cumulative losses to Black homeowners. Earlier this month, an Indianapolis woman filed a fair housing complaint when she discovered appraisers had low-balled the value of her home because she was Black. After receiving two suspiciously low appraisals, she asked a white friend to stand in for her and got an appraisal nearly double her original estimate.
None of these systemic problems—including the discrimination that results in lower wages and incomes for Black Americans and hampers their ability to save—is something that a $25,000 homebuyer grant can fix. Granted, Rep. Waters has also proposed legislation to improve existing fair housing laws and grow the supply of affordable homes. But the size and structure of the homebuyer grant make it too tempting a target for Republicans. Their attacks will make any genuine debate on housing equity impossible.
Given the rapidly closing legislative window and Republican intransigence, Democrats might be better off pushing a more modest package of reforms that could squeak through the Senate with a modicum of bipartisan support. In an April hearing before the Senate Banking Committee, neither ranking member Senator Pat Toomey nor the conservative witnesses questioned the reality of housing discrimination or the ugly history of federally sanctioned “redlining” that denied Black Americans home loans. This is not to say the solutions they advocate—such as ending preferences for unionized labor on federally funded housing projects—would appeal to many Democrats, but there are measures that could plausibly win some GOP support.
Instead of Waters’ proposal, Democrats could also embrace a first-time homebuyer tax credit proposed by President Joe Biden as a candidate. Introduced by Democratic Congressmen Earl Blumenaue of Oregon and Jimmy Panetta of California, the First-Time Homebuyer Act would provide a refundable tax credit of up to 10 percent of the purchase price—up to $15,000—to any first-time homebuyer with an income at or below 160 percent of the area median income. Unlike the Waters’ proposal, this credit would be universally available (and thus universally more popular), albeit less generous.
For advocates like David Dworkin, President and CEO of the National Housing Conference, the choice between boldness and incrementalism is clear. A proponent of Waters’ proposal, he acknowledges the potential controversy over its structure but argues the need for an upfront debate about racial equity. “It’ll definitely be difficult for some people to understand, but this is a difficult conversation that we need to have,” he said.
Unfortunately, Republicans aren’t going to want to have this conversation—at least not in a manner that’s even remotely constructive. The question then for Democrats is the kind of tactical, strategic and policy tradeoffs they are willing to make. Democratic leaders and the Biden Administration can try to pass a minorities-only program that will almost certainly go down in defeat and likely inflame voters. Or they could embrace a more inclusive program, albeit one with fewer benefits.
Biden himself seemed to hint at caution. At a recent event memorializing the Tulsa Massacre, Biden unveiled a plan to address the racial wealth gap that put heavy emphasis on enforcement of fair housing laws but made no mention of reparations or student loan forgiveness, two other big-ticket items on progressives’ wish list.
Though these omissions rankled some progressives, Biden has it right. The surest path to equity is embracing the achievable.