[An earlier version of this piece appeared in Forbes.com.]
In a recent article here on the Biden housing plan, I mentioned the Paradox of the Black Home Ownership Rate – in the 30 years from 1940 to 1970 when housing discrimination against Blacks was legal and horrific, the U.S. Black home ownership rate nearly doubled going from 23% to 42%, but 50 years after the 1968 Fair Housing Act became law, the U.S. Black home ownership rate was essentially the same as in 1968. It was 41% in 2018. That paradox seems impossible but it’s true.
Another hidden truth is that from 1940 to 1970, the Black home ownership rate increased more in the South than in the North. For example, from 1940 to 1970 the Black home ownership rate in Mississippi increased 31 percentage points (from 18% in 1940 to 49% in 1970) but in New York state the Black home ownership rate only increased 14 percentage points (from 6% in 1940 to 20% in 1970). The economic mystery is why did Black home ownership increase more in the South, despite the South being far more segregated?
A third hidden truth is about redlining. Many mechanisms segregated housing and redlining wasn’t the most common or most violent but redlining is the mechanism most often mentioned in the media. You can see the FDR administration’s 239 redlining maps here. You’ll notice redlining was concentrated in the North, not the South. Massachusetts had 27 redlining maps but Georgia only had five. New York state had 17 redlining maps but Mississippi only had one. The South in the 1930s was already extremely segregated. Redlining wasn’t a Southern-based policy that spread up into the North. The demand for redlining segregation seems to have been strongest in the North.
The shocking truth is that today, the Black home ownership rate in the South is higher than in the North. The Black home ownership rate in Massachusetts is 35% but in Georgia it’s 47%. The Black home ownership rate in New York state is 31% but in Mississippi it’s 54%.
Clearly, we don’t understand what drives home ownership, otherwise, we wouldn’t have failed so spectacularly over the last 50 years – under both Democratic and Republican administrations – to reduce the Black-White gap in home ownership rates.
I doubt the lack of improvement was caused by overt racism. Take, for instance, the famously liberal state of Minnesota. The 1950 census showed the Black home ownership rate in Minnesota was 45% which was very high. Minnesota’s Senator Walter Mondale was one of the two major sponsors of the Fair Housing Act of 1968. Another Minnesotan, Vice President Mondale’s long-time associate and his campaign manager in Mondale’s 1984 presidential campaign, later ran the largest mortgage company in the country, Fannie Mae, and was likely the most powerful person in the U.S. housing industry for several years.
Nevertheless, despite what I assume were good intentions from Minnesotans, the Black home ownership rate in Minnesota plummeted to 24% by 2018. The White home ownership rate was 77%. Similarly, for metropolitan Minneapolis, the gap between the Black and White home ownership rates was 51 percentage points, the largest gap for any metro area in the U.S. with more than 1 million residents.
Minnesota and the U.S. clearly don’t understand how to increase Black home ownership.
Our problem might be worse than having policies that just don’t work. Some of our housing policies in the decades after the Fair Housing Act could be partly to blame for the problem. A few economic misconceptions could have blinded us to bad policies – bad policies that have totally offset the benefits of the good policies enacted. Economics might be like medicine where sometimes “the cure is the cause”?
After 50 years, the Black home ownership rate should be similar to, or at least converging on, the White rate. We would have a far better chance of increasing the Black rate to where it should be if, first, we could explain the Paradox of the Black Home Ownership Rate – why did the Black home ownership rate nearly double from 1940 to 1970 when housing discrimination was legal but today the rate is essentially the same as when the 1968 Fair Housing Act made housing discrimination illegal?
Did something else happen around the same time as the 1968 Fair Housing Act that unintentionally stopped the previous trend of increasing Black home ownership?
We need to know what caused the paradox before we’ll know how to fix our home ownership problem. Clearly, after five decades of failure, any housing market misconceptions we have are so entrenched they’re invisible to us. But perhaps new solutions are hiding in plain sight.
I have some theories.