Black and white wealth disparities: home ownership and policy solutions

Disparities in Socioeconomic Outcomes of Wealth and Social Policies and Other Solutions Aimed at Black/White Wealth Inequality

Differences in the patterns of savings, wealth accumulation, home ownership, and other disparities between races have been demonstrated to exist in previous studies. This work examines these studies and the social policies or solutions that have been historically focused on the inequality of wealth between black and white individuals and families.

The purpose of this study is to examine the differences in the savings patterns, wealth accumulation, home ownership and other disparities, which exist between the black and white races of individuals.

The significance of this study is the additional knowledge that will be contributed to the knowledge already existing in this area of study and the recommendations for future research that may arise from this study having been conducted.

METHODOLOGY

The methodology of this study is one of a qualitative nature and in the form of a review of literature that includes information regarding social policy development and other solutions, which are aimed at the disparities in the socioeconomic outcomes of wealth of individuals of the white and black races.

LITERATURE REVIEW

I. Disparities in Rates of Home-Ownership Among Non-Whites and Whites

The work of Freeman and Hamilton entitled: "The Changing Determinants of Inter-racial Home Ownership Disparities: New York City in the 1990s" relates that a significant change in policy concerning home ownership took place in the 1990s toward reduction of the disparities relating to home ownership between white individual and those of minority races. Specifically stated in the work of Freeman and Hamilton is that home ownership "has long been symbolic of the American dream, but for many non-whites, home ownership has been a dream deferred." (2004) Evidence of this, according to Freeman and Hamilton, may be seen in the existing gaps in home ownership differences between whites and non-whites. Freeman and Hamilton state that several factors can be attributed as causal for the "home ownership disparities between whites and non-whites..." And that included is the "relatively low incomes and lack of wealth [among nonwhites] as well as the discrimination non-whites may encounter in the housing market." (2004) Freeman and Hamilton state that there is a "consensus that non-whites and especially blacks and Hispanics, have fewer resources that would enable them to become home owners." (2004) Policy makers in the 1990s operated "under the implicit assumption that discrimination was a driving force behind white-non-white disparities in home ownership. In addition to acting to combat blatant discrimination, policy makers acted to combat de facto discriminatory policies, which have had a disparate impact on non-whites groups." (Freeman and Hamilton, 2004) on example of this is that there is reliance on the part of nonwhite groups to "rely on non-traditional sources of incomes that lenders may be hesitant to take into consideration in evaluating mortgage applicants." (Freeman and Hamilton, 2004) Black individuals, especially before the era of Civil Rights " (Freeman and Hamilton, 2004) the manifestation of this discrimination was "in the form of financial institutions that refused to make loans in the neighborhoods dominated by non-whites, real estate agents who would refuse to show homes to blacks, and prior to the 1948 Shelley v. Kramer Supreme Court decision, home owners were forbidden by restrictive covenants from selling their homes to blacks." (Freeman and Hamilton, 2004) the coupling of discriminatory housing practices and the social structure which was "caste-like...confined non-whites to the lowest paid jobs..." resulting in the prospects of owning a home stated to be at 34.5% while the entire home ownership rate prospect is stated at approximately 55%." (Freeman and Hamilton, 2004)

II. Policy Reforms that Addressed Home Ownership Disparities

There were policy acts that attempted to address the issue and one of the primary policy reforms took place in 1989 in the form of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) which served to modified "HMDA to require banks to keep track not only of census tracts where they made loans, but also of individual characteristics of borrowers and applicants as well." (Freeman and Hamilton, 2004) the FIREA further served to extend the number of covered institutions under the HMDA provisions and made it a requirement that regulators publish each and every bank's CRA ratings. Changes further took place in the secondary mortgage market in the first part of the 1990s. The availability of capital in the U.S. was ensured through the government treated "Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac during the 1930s." (Freeman and Hamilton, 2004) the GSEs "purchase mortgages and resell them, providing primary lenders with an important source of cash to undertake future mortgage lending." (Freeman and Hamilton, 2004) Freeman and Hamilton state that the 'Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA) of 1992 made it a requirement that the GSE "increase the number of mortgages they purchased from low- and moderate-income households and neighborhoods, among which blacks were over-represented. With the increasing assurance that unconventional loans targeted toward low-income groups and non-whites could be sold in the secondary mortgage market, many lenders were less apprehensive about making loans to formerly under-served groups." (Freeman and Hamilton, 2004) Additionally Housing and Urban Development (HUD) lowered FHA insurance premiums as well as increasing the limits on loans, "acted in way that may have increased under-served groups' access to home ownership." (U.S. Department of Housing and Urban Development, 2001; as cited in Freeman and Hamilton, 2004). FHA has been of primary importance in black individuals accessing convention credit and has served to significantly increase home ownership access to those who are black. Freeman and Hamilton state that the amendment of the 'Equal Credit Opportunity Act of 1991' was significant in policy changes in the requirement for "bank regulators to refer lending discrimination cases to the Department of Justice." (2004) Freeman and Hamilton state that between the years of 1993 and 1999 the rate of black home ownership increased from 59.8% of white home ownership rates to 63.8% of the white home ownership rate.

III. Patterns of Wealth Accumulation Differences

The work of Gittleman and Wolff (2004) entitled: "Racial Differences in Patterns of Wealth Accumulation" states that a great number of studies exist which attribute factors such as "declining race discrimination, affirmative action policies, change in industrial composition, and a narrowing of the gap between educational levels of African-Americans and the rest of the population." (Gittleman and Wolff, 2004) However, it is note that "much less is know...about how African-Americans have fared in terms of wealth, an important measure of economic well-being that is more informative in many respects than those derived from income flows during a particular year." (Gittleman and Wolff, 2004) Additionally stated is that in equality by race in wealth levels in terms of the differences in those patterns of wealth accumulation." These authors examined "wealth changes over the period 1984-1994, showing "how the races differ in terms of the main components of wealth growth-saving, capital gains and inheritances." (Gittleman and Wolff, 2004) it is held to be evident, in the work of Gittleman and Wolff that "the wealthier family is likely to be able to better provide for the educational and health needs of its children, to be living in a neighborhood characterized by more amenities and lower levels of crime, to have greater resources that can be called upon in times of economic hardship, and to have more influence in political life." (2004)

Recent studies only number by the few relating to wealth differences according to racial specifications and additionally have "paid little attention to patterns in wealth accumulation, focusing instead almost exclusively on trying to explain gaps in wealth levels." (Gittleman and Wolff, 2004) Stated as the approach used most traditionally is the "Blinder-Oaxaca means-coefficient analysis, using regressions estimated separately by race, to calculate how much of the gap can be attributed to differences in characteristics that are associated with wealth accumulation, such as family income and education." (Gittleman and Wolff, 2004) the variation of coefficients impact the estimates that arise "depending on whether coefficients are used from the regression equation estimate for whites or from that for African-Americans." (Gittleman and Wolff, 2004) it is stated by Gittleman and Wolff that the reason for this is "because the wealth of whites rises more steeply than that of African-American with increases in such characteristics as income and education, the lower mean levels of these characteristics for African-Americans 'explain' much more when the coefficients for whites are used." (Gittleman and Wolff, 2004) This is not a satisfying explanation according to Gittleman and Wolff who seek "a more complete understanding of the forces behind the racial wealth gap..." And additionally Gittleman and Wolff seek the "efficacy of various public policies designed to narrow it [which] hinge on what causes the wealth functions to differ so much by race" to begin with.

V. Worker-Wage Disparity

The work of Arthur H. Goldsmith, Darrick Hamilton, and William Darity, Jr. entitled: "From Dark to Light: Skin Color and Wages Among African-Americans" states that "conventional wisdom in the social sciences holds that there is a fundamental difference in the construction and understanding of racial categories between most communities in Latin American countries and most communities in the United States of America." (2004) This work states that it is believed by social psychologists that "human categorization is a fundamental cognitive process." (Goldsmith, 2004) Group membership differentiation among human beings was "documented early in the previous century in extensive anthropological observations compiled by Sumner (1906)." (Goldsmith, Hamilton and Darity, 2007) the distinction between "in-group and out-group" was made by Sumner who posited that in-group over out-group preferences "is a universal characteristic of social existence." (Goldsmith, Hamilton and Darity, 2007) Emerging has been a convention for representation of in-group and out-group status "along the racial axis on a bivariate scale with white as the in-group and not white as the out=group." (Goldsmith, Hamilton and Darity, 2007) Evidence of treatment that is preferential when comparing that received by black and white individuals this convention is reportedly departed from in this study and stated is a belief that "patterns of socialization in the United States may be consistent with a gradational model of in-group and out-group with regard to phenotype." (Goldsmith, Hamilton and Darity, 2007)

VI. Social Identity Theory

Social Identity Theory is used in psychology for providing the reason why those who belong to an in-group exhibit prejudice toward members of an out-group." The assertion of the Social Identity Theory is that "people have a fundamental need for self-worth and self-esteem. An individual's self-worth of self-esteem is enhanced by their group's success and achievements - due to a perception of common fate." (Goldsmith, Hamilton and Darity, 2007) This means the individual's outcomes are linked to the outcomes of their group. Goldsmith states that the perspective offered in this work is the theory of "the preference for whiteness" which is a theory that asserts that the possession of the characteristics of the (white) in-group "leads to preferential treatment of workers with lighter skin tone" and makes a prediction of an interracial wage gap "that rises as the shade of the workers darkens and there will be an intraracial wage gap that is greater when the skin-shade differences are larger." (Goldsmith, Hamilton and Darity, 2007) the study concludes: "The evidence we report, which is based on several different model specifications using two different data sets collected over ten years apart, is consistent with the notion that among blacks in the United States, lightness -- "possessing white characteristics as measured by skin shade -- "is rewarded in the labor market." (Goldsmith, Hamilton and Darity, 2007)

VII. Assessment of Affirmative Action

The work of Harry Holzer, David Neumark (2000) Assessing Affirmative Action" states that Affirmative Action is the United States in terms of the future is "uncertain." California passed Proposition 209 in 1996 with prohibits all government institutions from discriminating against or giving f preferential treatment to any individual or group in public contracting on the basis of race, sex, color, ethnicity or national origin." (Holzer and Neumark, 2000) Another initiative, which Washington passed in 1998 "set up strict standards for race-conscious programs to pass constitutional muster." (Holzer and Neumark, 2000) it is related by Holzer and Neumark (2000) that the debate over affirmative action, while "both high profile and high intensity" is a case in which "neither side's position is based on well-established set of research findings." (Hozer and Neumark, 2000) Affirmative action "can be distinguished from other antidiscrimination measures by requiring pro-active steps to erase differences between women and men, minorities and nominorities... In contrast to laws that only prevent employers from taking steps that disadvantage minorities in the labor market, such as refusing to hire them." (Holzer and Neumark, 2000) Stated as key executive orders, regulations and court decisions regarding affirmative action in the labor market are those as follows:

1961 Kennedy Executive Order 10925 - required government contractors to remain from discrimination against employees and job applicants and made it a mandate that contractors "take affirmative action to ensure that applicants are employed and employees are treated during employment without regard to their race, creed, color, or national origin.

1965 John Executive Order 11246 - Reiterated E.O. 10925

1967 Johnson Executive Order 11375 - Amended E.. 11246 to cover women;

1968 Department of Labor Regulations governing E.O. 11246 and 11375 - made it a requirement that federal contractors with 50+ employees or contracts of at least $50.000 to identify underutilization of women or minorities and to establish corrective goals and timetables;

1970 Department of Labor Philadelphia Plan - New regulations under E.O. 11246 and 11375 establishing goals and timetables for employment of minorities in construction;

1979 United Steelworkers of America v. Weber - in-House training program with 50% of space reserved for blacks geared toward the elimination of manifestation of racial imbalance;

1984 Firefighters Local Union No. 1784 v. Stots - U.S. Supreme court ruling that "court authorized affirmative actions plans were authorized by Title VII to provide relief only to those who have been actual victims of legal discrimination. (Holzer and Neumark, 2000)

The work of William Darity, Jr. entitled: "Affirmative Action in Comparative Perspective: Strategies to Combat Ethnic and Racial Exclusion Internationally" states: "Affirmative action constitutes a set of positive antidiscrimination measures intended to insure access for members of groups who otherwise would be excluded or underrepresented in preferred positions in a society." (2005) it is additionally stated: "In particular, affirmative action often functions as a means of desegregating elites. It does not operate to alter the fundamental class character of a society, nor does it operate as a general antipoverty program. It operates to alter the demography of the elite, to make the elite more representative of the ethnic/racial composition of the society as a whole." (Darity, 2005) Darity also relates: "Critics have made two central complaints - first, that the policy is unfair to the members of groups who are not targets for affirmative action and second, that the policy lowers productivity and efficiency in the workplace. The first criticism presumes that in the absence of affirmative action, there would be no special advantages for the dominant social group(s) and members of the dispossessed groups would be evaluated on authentic meritocratic terms; it is a plea for the "race blind" or "caste blind" society that presumes an absence of white privilege or high caste privilege. Such an environment did not exist prior to the adoption of affirmative action, nor is it likely to exist in its absence.." (2005) the work of Chiteji and Stafford (1999) Portfolio Choices of Parents and Their Children as Young Adults: Asset Accumulation by African-American Families" states that the decision concerning composition of the portfolio "often is stylized as either a life-cycle choice to allocate income to consumptions or as a choice along a risk=return locus, with the locus derived from the underlying market equilibrium of asset returns and prices. Empirical work on household financial behavior has identified large differences in wealth levels and in portfolio-composition choices of different demographic groups, well beyond income and risk tolerance." (Chiteji and Stafford, 2005) This study finds that "a young family's likelihood of owning transaction accounts and stocks is affected by whether parents held these financial assets reveals another way that the economic environment of the home in which a child grows up affects the child's adult outcomes." (Chiteji and Stafford, 2005) Chiteji and Stafford state that their research "indicates that discrimination against today's young families may be less severe than previously thought..." And state that the research "also suggests that any past discrimination can have effects that reach across generations." (Chiteji and Stafford, 2005) Chiteji and Stafford additionally state conclusions that "policies to increase educational levels may have effects that have been unappreciated previously, by offsetting the consequences of limited exposure to assets during childhood and boosting blacks' financial marketplace participation." (Chiteji and Stafford, 2005)

The work of Rakesh Kochhar (2004) entitled: "The Wealth of Hispanic Households: 1996 to 2002" states: "Hispanic households have less than ten cents for every dollar in wealth owned by White households." (2004) it is additionally related that an analysis of the Pew Hispanic Center of Census Bureau data tats findings that "the 2001 recession and jobless recovery that followed were much harder on the net worth of minority households." (Kochhar, 2004) Economic downturns exacerbate the vulnerability of minority households and since the net worth of many Hispanic and Black households are "zero or negative net worth" this makes these households particularly vulnerable. Stated as major findings in this report are the findings stated as follows:

The median net worth of Hispanic households in 2002 was $7,932. This was only nine percent of $88,651, the median wealth of White households at the same time. The net worth of Black households was only $5,988;

Between 1999 and 2001, the net worth of Hispanic and Black households fell by 27% each. The net worth of White households increased by 2%.;

Twenty-six percent of Hispanic, 32% of Black and 13% of White households had zero or negative net worth in 2002. These proportions are essentially unchanged since 1996;

Fifty-five to 60% of Hispanic and Black households had wealth less than one-fourth the national median level of wealth between 1996 and 2002. Fewer than 40% have middleclass levels of wealth and this proportion has not changed since 1996. Nearly 75% of White households have middle-class or higher levels of wealth;

The wealthiest 25% of Hispanic and Black households own 93% of the total wealth of each group. Among White households, the top 25% own 79% of total wealth;

The percentage of White households who owned homes in 2002 was 74.3%. The homeownership rates for Hispanic and Black households were 47.3% and 47.7% respectively;

Financial market participation for Hispanic and Black households is well below the norm for White households. More than 25% of Latino and Black households, and only 6% of White households, own no assets other than a vehicle or unsecured liabilities; Home equity is a key component of household wealth and accounts for two-thirds of the mean net worth of Hispanic and Black households. The strength of the housing market in the recent economic slowdown eased the erosion in wealth of households which can be traced to the loss in value of financial assets;

The median net worth of renters is only one percent of the level of net worth of homeowners;

The net worth of immigrant households is only 37% of the net worth of native born households. Immigrants tend to be younger and less educated and their incomes are below average. Many are also in the early stages of assimilation;

Hispanic immigrants from Central American and Caribbean countries had a net worth of only $2,508 in 2002. Cuban immigrants led the way for first-generation Hispanics with a net worth of $39,787. Mexican immigrants are in the middle with a net worth of $7,602 in 2002; and Immigrants, Hispanic and non-Hispanic, show initial signs of rapid assimilation into homeownership, but it takes about 20 years for the homeownership rate among immigrants to equal the rate among native-born households of the same ethnicity. (Kochhar, 2005)

FINDINGS of STUDY

The work of Freeman and Hamilton has informed this study that a change that was significant in nature relating to home ownership policy took place in the 1990s due to the gaps that existed in home ownership differences between whites and non-whites. Freeman and Hamilton have informed this study that the existing gaps in home ownership can be attributed to "the relatively low incomes and lack of wealth among nonwhites." (2004) the assumption under which policy makers operated in the 1990s was one that held discrimination to be the driver behind the disparities in home ownership. However, studies have shown that other factors are causal in this existing gap. Among these causative factors are inheritance proportion comparison among black and whites. Historically and traditional financial institutions refused to make mortgage loans in neighborhoods that were comprised by mostly minorities. This work has also reviewed the reforms in policy, which have taken place including the FIRREA modifying the HMDA as well as GSEs including Fannie Mae and Freddie Mac. Patterns of wealth accumulation have been reviewed in the work of Gittleman and Wolff who have informed this study that families who are wealthier are more able to afford education and health needs of their children and to reside in neighborhoods with less crimes and to weld more political influence than are minorities in neighborhoods that are comprised primarily by minority members of society. Gittleman and Wolff (2004) state findings that: "whites have a higher average saving rate than African-Americans, with this difference being statistically significant in two out of three cases." (2004) the factor of wage discrimination and the associated theories have also been reviewed in this study and findings show that "patterns of socialization in the United States may be consistent with a gradational model of in-group and out-group with regard to phenotype." (Goldsmith, Hamilton and Darity, 2007) While Affirmative Action is intended to address these disparities, the fact is that Affirmative Action often functions as a means of desegregating elites. It does not operate to alter the fundamental class character of a society, nor does it operate as a general antipoverty program. It operates to alter the demography of the elite, to make the elite more representative of the ethnic/racial composition of the society as a whole." (Darity, 2005) Times of economic downturn has been shown in the study of Kochhar (2005) to result in more detrimental effects and harsher impacts on minority poor families than on those with a higher wealth status.

CONCLUSION

While policy reform has attempted to address the disparities that exist when comparing wealth building and other issues affecting minority members of society, it has been found in this study that oftentimes the very policy that intends to alleviate these disparities instead contributes to the existence of these disparities and their negative effect upon minority individuals and families. Policy reform has been successful in some areas to bring about equilibrium in the treatment received by minority individuals however, there are areas that still need to be addressed in removing the barriers to home ownership and equal wages in the workplace for minority workers.

RECOMMENDATIONS

The recommendations arising from this study are that more focused research be applied toward this area of study in order to ascertain further needs of policy reform in order to eliminate the existing disparities among races in the areas reviewed in this study.