Suburbs of San Diego, California
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Racial housing inequality is imposing an economic price tag, according to an analysis by Morgan Stanley, which has cost nearly 800,000 jobs, $ 400 billion in tax revenues, and prevented about five million people from owning homes.
Home ownership differences are one of the main drivers of wealth disparities in society, the Wall Street company said in a study that also looked at the increasing unaffordable rental housing and how that fits into the broader problem.
The analysis found that blacks are still finding it harder to get a mortgage than whites, creating a snowball effect that leads to lower credit ratings and pushes minorities into lower quality housing and further into the margins of society.
“Inequality connects just like interest rates – small, almost negligible differences emerge over time into substantial gaps,” said Morgan Stanley analysts in a detailed report. “Racial inequality in home ownership is real, exacerbating existing inequality and contributing to a rent affordability crisis that is particularly acute for low-income earners.”
Despite rising, the home ownership rate among blacks remains well below that of whites, Asians and Hispanics.
The rate was 46.4% for blacks as of the third quarter of 2020, compared to 67.4% for whites, according to the Census Bureau. The black rate at the beginning of 2016 was 41.5%; The gap to the whites was then 22 percentage points, while it is currently 21 points.
While Morgan Stanley said the gap can be explained somewhat by age, income and education, discrimination in home finance also plays a big role.
“Disproportionately high home loan refusal requests for black and Spanish applicants are a key contributing factor to the home ownership gap,” the report said. Citing data from the Home Mortgage Disclosure Act, the report found that 16% of black households and 12% of Hispanics were denied a mortgage in 2019, compared with just 8% of white households.
Morgan Stanley makes several proposals to solve the problem.
The report cites the likelihood that President-elect Joe Biden will introduce more regulations that address inequality. However, it also indicates the need for more rental units rather than just introducing different regulations for the existing stock.
There’s also a recommendation for a closer look at lending by banks and other financial institutions, especially for loans that are not backed by state-owned companies like Fannie Mae and Freddie Mac. Even when they get mortgages, black and Hispanic families usually pay significantly higher interest rates – usually more than half a percentage point above the applicable interest rate.
Morgan Stanley analysts are also calling for a Bill of Rights for landlords and homeowners, the expansion of the Community Reinvestment Act and the creation of a $ 100 billion fund for affordable housing.
The authors also look at financial literacy and what it means to help potential borrowers know what they are getting.
Addressing the disparities could result in 4.9 million more households, 784,000 jobs and $ 400 billion in tax revenues by balancing home ownership from a racial standpoint.
The report cites a number of major Wall Street banks’ initiatives to eradicate inequalities: $ 1 billion from Citigroup and $ 30 billion from JP Morgan Chase, two names two.