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 proposed $ 640 billion housing plan will do nothing to fill the wealth gap. That’s because his apartment plan focuses on rental apartments and rental vouchers.
In Biden’s favor, his plan included a tax credit of $ 15,000 for first-time home buyers. The administration has suggested that this credit could be used at the time of purchase, but it is not clear how this would work. However, there is an easier way to improve home ownership access: a home ownership voucher. The importance of home ownership for wealth accumulation is well known. 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 race and wealth gap, and more important than inequality of income 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.
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 uses them for six years. The average monthly subsidy 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.
Home ownership vouchers could have a significant impact. A one-time national investment of $ 39 billion could earn 2.6 million new home buyers a voucher worth $ 15,000 – a population large enough to take the black home ownership rate from 42% to around 60% increase.
While $ 15,000 might not be enough to help a 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 low-priced Albuquerque to more 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 assistance is offered along with training and coaching to help buyers reduce consumer debt, improve their credit, and build a saving habit, those buyers can be successful in the long run. For example, the 30-day crime rate of homeowners supported by Homewise is below 2.5% – much lower than for home buyers who did not benefit from the same support.
A home ownership voucher is not a miracle cure. But when used properly, it can lower the barriers preventing many rent-paying Americans from buying a home. Only then will we begin to improve the playing field for everyone.