President Joe Biden has stressed time and again that the racial inequality that plagues America must be addressed. Nowhere is this inequality as pronounced as in the wealth gap. The typical black family has one-eighth the net worth of white households. Latinos have less than a fifth.
However, most of Biden’s $ 640 billion housing plan proposed during the campaign will do nothing to fill the wealth gap. That’s because he is walking the same worn-out path that so many well-intentioned housing lawyers have walked before him. His housing plan focuses on rental housing, including building more subsidized housing and tripling the availability of rental vouchers that pay landlords a portion of the monthly rent so tenants pay less.
Instead, Biden and his staff should focus more on helping people buy a home – a cheaper approach than you might think, and in many ways cheaper than most rental programs.
In Biden’s favor, his plan included a home ownership component: a $ 15,000 tax credit for first-time home buyers. The administration has suggested that this credit could be brought forward so that it can be used at the time of purchase. However, there are no details and it is not clear how this would work.
There is an easier way to improve home ownership access: a home ownership voucher.
The importance of home ownership for wealth creation is well known. For the majority of Americans, their wealth is kept in their homes. A 2015 report by the Brandeis University Institute of Wealth and Social Policy shows that the homeownership gap is the single most important driver of the racial and wealth gap, and more important than inequalities and access to higher education. The black and white home ownership gap is worse today than it was in 1968, the year the Fair Housing Act was passed, but America spends little to increase home ownership among those left behind.
The only significant federal program specifically designed to help low-income households buy their first home is the FHA mortgage insurance program, which has a current annual budget of approximately $ 3 billion. We’re spending 13x that amount – $ 39 billion a year – on rental vouchers.
But rental coupons can get expensive despite being an important social safety net. The average beneficiary has been using it for six years and the average monthly grant is $ 768, which is roughly $ 55,000. However, rental vouchers are of no use for people who want to own their own apartment and want to avoid having a landlord and increasing the annual rent.
A home ownership voucher program would help black and low-income households get enough down payment to get an affordable, secure mortgage – and get started building equity. In the long run, it would be cheaper than paying part of someone’s rent for months on end.
Home ownership vouchers could have a significant impact. A one-time national investment of $ 39 billion (the same amount spent annually on rental vouchers) could deliver $ 15,000 voucher to 2.6 million new home buyers – a population large enough to support the black home ownership rate to increase significantly from 42% to around 60% Reduce the black and white home ownership gap.
While $ 15,000 may not be enough to help a home buyer in expensive coastal housing markets, it would work in most parts of the country where housing costs are lower. And that amount could be adjusted for higher priced markets, just like rental coupons.
My nonprofit, Homewise, has been running a local version of this idea in New Mexico for years and has helped thousands of new buyers with deposit help, from modest-priced Albuquerque to expensive Santa Fe.
Caution is advised here. As demonstrated during the mortgage credit crisis, the provision of home loans without regard to the borrower’s ability to make payments can cause real harm. However, when homebuyer support is offered along with training and coaching to help buyers reduce consumer debt, improve their credit, and build a saving habit, those buyers can thrive in the long run and make it through the lives of the Curveballs. For example, the 30-day crime rate of homeowners who are supported by Homewise is below 2.5% – much lower than that of home buyers who have not benefited from the same support.
What is needed is a network of organizations that have been proven to serve color communities – organizations that can help individual home buyers overcome certain barriers to buying a home. The good news is that there are hundreds of these organizations already in existence, whether they are community development financial institutions, government real estate finance agencies, or affordable housing nonprofits.
A home ownership voucher is not a silver bullet. But when used properly, it can lower the barriers preventing many rent-paying Americans from buying a home and building equity in an asset. Only then will we begin to improve the playing field for everyone.
(Mike Loftin, a visiting scholar at the Urban Institute, is the executive director of the nonprofit Homewise.)