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What does housing inequality look like in 2021?

It’s undeniable that the total financial impact of the pandemic has taken a large toll on communities of color. This article will cover what housing inequality looks like in 2021 and how real estate agents can work to reverse this trend.

The pandemic has widened the United States’ racial wealth gap, and black communities have suffered some of the worst health-related and economic consequences as a result. What does housing inequality look like? We want through the numbers.

The losses brought about by COVID-19 have affected racial and ethnic minority groups for a myriad of reasons. Black and Hispanic individuals are disproportionately represented in essential work settings (i.e., healthcare, retailers, grocers, public transportation, farms, factories, etc.) and are more likely than non-Hispanic whites to live in areas with higher rates of infection (i.e., geographic areas with higher social and economic inequities, lack of access to healthcare, crowded living conditions, etc.).

The issues brought forth by coronavirus have also translated to less opportunities in the housing market for minorities. Despite the fact that residential sales have been on the rise for the past year, the chance to buy property or make significant returns on currently owned property has been unequal.

Consider: The median sales price of a home was 19% greater in April 2021 than April 2020, yet houses in predominantly black zip codes are still worth less than half as much as homes in predominantly white neighborhoods.

These unequal housing prices not only affect residents in black communities but also current and prospective investors in these areas, whether they’re flipping houses using a 1031 exchange or renting out their properties.

Housing Inequality in 2021

Over the last 50 years, the annual rate of income growth for all Americans has decreased. From 2000-2018, growth in household income slowed to only 0.3% per year, compared to an annual average rate of 1.2% from 1970-2000. This phenomenon contributed to a 10% decrease in middle-income households between 1971 and 2019.

Basically, the middle class is shrinking, and the numbers only get worse when analyzing minority communities. According to U.S. census data, the typical black family has approximately $12,780 in household wealth, compared to $139,300 for white families.

Meanwhile, as the millennial generation (approximately 72 million people) was working its way through college and entering the job market, housing inventory was shrinking. Now that this group is at the “household formation” age, lack of affordable housing is presenting issues for those plagued with debt and middle- to lower-income salaries. Some even have to work multiple jobs to afford a home.

What does this mean for the current housing market? Logic should follow that as housing prices continue to increase and inventory continues to decrease, only upper-income buyers will be able to afford housing, leaving behind middle- and low-income buyers until more homes hit the market (which, by some estimates, could take between 5 to 10 years).

The current house price “bubble” is particularly troublesome for black Americans, who statistically earn less and have a harder time getting mortgages. When black applicants are approved for a home loan, they tend to be charged higher interest rates than other racial groups. Consequently, black homeowners spend more of their income (nearly 25%) on housing costs than other groups, and Black homeownership rates have also declined to levels not seen since the 1960s, when private race-based discrimination was still legal.

Moreover, the typical median listing price for homes in predominantly black, metro areas is around $167,508 — compared to $355,000 in neighborhoods where the percentage of black residents is under 1%.

Possible Solutions

To achieve a truly equal housing market, there needs to be an inclusive, 360-degree approach to community development, which encompasses quality investment opportunities, construction efforts, employment rates and educational standards.

There are a number of nonprofit organizations already building out structures to democratize the housing market, which real estate agents, investors and developers can take into consideration when creating their own community revitalization efforts.

The St. Louis-based nonprofit Dream Builders 4 Equity (DB4E) is one such organization that has built a model to transform communities by providing underserved youth the necessary skills to succeed academically and professionally. DB4E’s real estate program provides the opportunity for teens and young adults to work alongside minority contractors and rehabilitate vacant homes to be sold to first-time homeowners. The revenue from the sale of the property is invested back into the youth program and into college savings funds for each student.

The goal is to create communities of colors that residents build, own and invest in, producing generational wealth and knowledge along the way.

Equalizing homeownership rates among black and white communities would decrease the racial wealth gap by more than $40,000; and building just 100 new low-income housing units could immediately create 80 jobs, plus an additional 72 jobs for new residents.

Nurturing strategies to combat housing inequality and long-term goals that build homeownership in black and minority communities helps surrounding neighborhoods and businesses as well. Building high-quality, affordable, safe communities will unlock new opportunities for local businesses and jobs, and financial institutions, consequently, will increase investment in the area.

A better future is what we should all be striving toward, and that cannot be accomplished without equal access to housing.

Luke Babich is the Co-Founder and COO at Clever Real Estate, the nation’s leading real estate education platform for home buyers, sellers, and investors.

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