Opening Doors to Black Homeownership

The preface of Richard Rothstein’s The Color of Law puts forth a challenge worthy of mention as Black History Month draws to a close: “The core argument of this book is that African Americans were unconstitutionally denied the means and the right to integration in middle-class neighborhoods, and because this denial was state-sponsored, the nation is obligated to remedy it.”

There’s no doubt that homeownership is a primary driver of wealth. When equity is taken into account, Census Bureau data shows that the median net worth of American homeowners is almost 75 times greater than that of renters.

In 1968, the Fair Housing Act outlawed discriminatory practices such as redlining and covenants forbidding Black ownership of homes in white neighborhoods. Despite this, the gap between Black and white homeownership rates in 2022 (29 percent) was wider than it had been in 1960 (27 percent).

The policies and practices that created this inequity were intentional and demand an equally intentional response, says Jonathan Reckford, the CEO of Habitat for Humanity International (HFHI).

Habitat’s affiliate organizations in the U.S. have long focused on helping families of color become homeowners. A “transformational” donation from MacKenzie Scott, the ex-wife of Jeff Bezos, enabled HFHI to launch an initiative specifically aimed at increasing Black homeownership. It will invest more than $25 million over the next three to five years and aims to raise an additional $100 million or more.

A coalition that includes the NAACP, the National Association of Realtors, the Mortgage Bankers Association and Urban Institute has developed a seven-point plan, 3by30, to create 3 million new Black homeowners by 2030.

An "Ecosystem" Approach

Habitat builds about 4,000 houses a year, says Tawkiyah Jordan, senior director for housing and community strategy at HFHI. “We’re really trying to identify ways that we can help more than families that we can build for — we know there are many more families in need.”

Reckford argues that housing is in a state of market failure, a “perfect storm of unaffordability.” Pandemic impacts, speculative purchases of entry-level housing, supply chain failures and more than a decade of underbuilding are now compounded by inflation and rising interest rates.

Habitat hopes to double its housing production, Reckford says, but its most ambitious goals have to do with addressing the influences of markets, systems and policy on housing supply and affordability.

HFHI’s Advancing Black Homeownership initiative uses several strategies to improve the housing market for Black households. Habitat Mortgage Solutions provides low-cost capital for building and development to its affiliates and offers a mortgage origination platform. It is working to launch a fund to help other nonprofit housing development organizations that could open access to Black households in priority markets, says Jordan.

Another strategy, Cost of Home, is focused on policy solutions in four areas: increased supply of affordable housing, equitable access to credit, optimizing land use and developing “communities of opportunity” characterized by equitable access to jobs and services such as education, health care and transportation.

Habitat also offers financial coaching and counseling to prospective buyers that encompasses both readiness for homeownership and “trauma” such as parental home loss or discriminatory interactions with financial institutions. “One of the most significant barriers to homeownership for Black households is their negative experience in the housing space,” says Jordan.

The Constraints on Housing Supply

Single family homes are the easiest for Habitat to build, Reckford says, but they aren’t appropriate in densely populated communities, where land can be scarce and “impossibly expensive.” Duplexes, triplexes and quadplexes have been a sweet spot, an effective strategy for increasing supply.

Some jurisdictions are experimenting with changing residential zoning laws, but in many cities as much as three-quarters of the land zoned for residential use is single-family only. NIMBYism is one of the uniquely bipartisan things in our polarized country, says Reckford.

Rent control also has the potential to constrain supply in some cases, affecting the willingness of developers to build, including those focused on affordable housing. A combination of city-level reform around zoning and financing and state government support for financing — including coordination with the federal government to increase access to federal funds such as the Department of Housing and Urban Development's (HUD) HOME program — could foster the increase in supply necessary to increased affordability, Reckford says. Government can leverage its investments in affordable housing by partnering with nonprofits.

The climate around increasing Black homeownership varies from state to state, Jordan says. “Washington state is going full bore, working closely with regional and local governments to advance very exciting strategies, and then you have other states where this is not a conversation at all.”

Neighborhoods with cultural and historical significance to Black communities can be transformed in unwanted ways by gentrification. Jordan observes that very few governments are investing resources to stabilize ownership, such as access to legal resources for estate planning or transfer of property that could act as a buffer against predatory activity.

The Twin Cities Program to Boost Black Homeownership

An estimated six million Black Americans migrated from the South to states in the North, Midwest and West between 1910 and 1970. The desire to escape the South’s oppressive Jim Crow laws was a primary force driving this “Great Migration.”

However, as this movement occurred, redlining and restrictive covenants were being entrenched in the North, says Chris Coleman, president and CEO of Twin Cities Habitat for Humanity. The legacy of these practices is deeply felt in the metro area.

The homeownership rate for “foundational” Black families (descendants of enslaved Africans) is 20 percent or less, Coleman says, compared to 75 percent for white families. The gap is far above the current national average of 29 percent, not what an outside observer would expect in a metropolitan area consistently ranked as among the most liberal in the country.

Habitat Twin Cities had long focused on helping families of color become homeowners, and they accounted for 85 percent or more of the residents they served. Several years ago, they discovered something unexpected: more than 60 percent were East and West Africa immigrants, and fewer than 10 percent were foundational Black Americans.

In 2020, Twin Cities hired a researcher to conduct a study of barriers to Black homeownership in its community. This revealed a strong need for less stringent mortgage criteria and assistance in preparing for homeownership from coaches “who looked like and represented them.”

The program Twin Cities developed to address these factors has been buoyed by its portion of the MacKenzie Scott donation and assistance available from the city of St. Paul, where Coleman served as mayor for 12 years.

Restoring Lost Opportunity

In January, the St. Paul City Council approved a proposal from Mayor Melvin Carter to create an inheritance fund that would provide forgivable loans up to $100,000 for repairs or down payments to former residents of the city’s historic Black Rondo neighborhood, which was demolished and divided in the 1950s and '60s to make way for an interstate freeway. As many as 700 homes were torn down.

The Inheritance Fund adds additional layers of funding to existing down payment assistance and homeowner rehab programs, says Tara Beard, housing director for St. Paul. Although it is based on geography, not race, at the time the community was razed it was one of the few neighborhoods where Blacks were allowed to purchase homes.

“They would have had a much more difficult time finding replacement housing, especially ownership housing where they could once again strive toward economic mobility and generational wealth development,” she says. The program has potential to mitigate some of the economic opportunity lost by foundational Black families who were displaced and underpaid for their property.

Coleman appreciates the fact that those who receive these funds will be allowed to use them for residences in any part of the city. “Families have all kinds of reasons to live in all kinds of different places,” he says. “The city’s program gives them the flexibility to live where their kids go to school, where they work, where they pray.”

The Inheritance Fund is only part of what will be needed for the progress Habitat Twin Cities hopes to see. It has set a goal of increasing the percentage of foundational Black families who own homes to 25-30 percent by 2035.

Giving Courage to Lenders

It’s a common misconception that Habitat gives away the homes that it builds to people in need. It does work to make the structures that it builds as affordable as possible, but the families that live in them have mortgages, just as any other homebuyer would. It does have its own approach to mortgages, however.

In the past Black buyers have been the second-largest group to apply to the Twin Cities program and the second least likely to close on a home. Obtaining loan approval from traditional sources can be a stumbling block.

“We have to rethink how we view credit and not penalize people who have paid their rent on time every month for 30 years because they miss a phone bill,” says Coleman. Habitat Twin Cities has its own nonprofit mortgage lending subsidiary, TCHFH Lending Inc., that operates a special purpose credit program.

While the credit score requirements may differ from industry norms, the process is anything but permissive. At the time of purchase, buyers must have enough income for their mortgage payment to be no more than 30 percent of their income. They must have a savings account that provides a cushion in a hard month. If needed, subsidies for this
account can be provided through the Black Homeownership program, as well as down payment assistance. Habitat Twin Cities sells the mortgages it originates to a bank in the region at below market rates, which earns it community investment act credits; default rates are consistent with industry norms.

Habitat has been able to demonstrate that lending to underserved and BIPOC clients is not as risky as lenders think, says Robyn Bipes-Timm, president of TCHFH Lending and chief operations officer for Habitat Twin Cities. She hopes the lessons learned from this work can inspire state and local governments to support similar programs and to take more risks with their own lending and portfolios.

Habitat Twin Cities’ bank partner is making changes in its lending programs based on what it’s learned from Habitat, says Bipes-Timm. “Any lender can do special purpose, legally. We want to hold this model up for government agencies to do the same, we want other Habitats across the nation to replicate this, we need the secondary market to acknowledge that these are homeowners who are succeeding.”

Banks are beginning to acknowledge their role in homeownership disparities, says Coleman. “It’s not just about affordable housing, it is specifically about homeownership because that is the mechanism for people to build wealth that they can pass down to their children.”

Uncomfortable Conversations

Jordan, a Black woman who led affordable housing efforts in New York City before coming to HFHI, knows by experience that many find it uncomfortable to even talk frankly about racial wealth gaps and the history of housing discrimination. This discomfort can prevent recognition of the reality that whole communities benefit when inequities are addressed.
“If we take our hearts out of the equation and just look at the math, we should see that there's a need, there's urgency, and there’s real opportunity for our economy across the board if we're able to make some real strides in this area,” she says.

In addition to a systemic approach, assistance from all stakeholders will be needed to end inequities created (and tolerated) over such a long span of time. “It’s not just Habitat for Humanity in Twin Cities,” Coleman says. “It’s going take all the banks, city resources, state resources, county resources, federal resources.”

And time. “This is a long trek that we’re on,” says Jordan.