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It has been long understood that a nation of stakeholders makes for a strong union, and for that reason, closing the minority homeownership gap has been a goal and a topic of discussion for decades. However, despite a lot of talk and a modest amount of action, the homeownership gap for Black and Latino communities has remained stubbornly large. Homeownership percentages only increase when a large number of first-time buyers enter the market. This is not an easy problem to solve. It’s time to recognize that closing the minority homeownership gap won’t come without a ton of fresh capital and some serious discomfort for the industry and policymakers in the coming years. Below is what I think is required to make a quantum leap forward.
The lack of inventory has driven price points to record highs in almost every major market in the country. Basic supply and demand principles require a substantial increase in affordable housing stock to improve affordability, especially for first-time buyers. The fixed costs associated with building an entry-level home are fundamentally the same as they are for a luxury home. A coordinated effort between federal and local policymakers is necessary to address the substantial barriers that are preventing the creation of the housing stock required to meet the growing demand.
Purchasing a home is the largest and most complicated financial transaction most people will ever experience. Many minority first-time buyers are the first in their entire family to own a home. Language barriers and a lack of information about the process makes the entire ordeal even more intimidating. Access to housing counseling is not a “nice-to-have,” it is a “must-have” for most minority buyers. I also believe financial and homebuyer education should be taught in public schools. In terms of preparing our youth for life in the real world, I can’t think of many things that are more important.
Access to Capital
Without generational wealth, most first-time buyers will require a low down payment mortgage to purchase their first home. While low down payment loan programs are available, most come with what I call a “poor tax.” Lenders charge higher interest rates and fees for loans they deem as riskier. Unfortunately, those surcharges known as risk-based pricing are typically imposed on minorities and the people who can least afford them. Additionally, Latinos and immigrants are almost twice as likely to own a small business, which is great, except when trying to qualify for a mortgage where self-employed borrowers are far more likely to be turned down. Lenders need to utilize new metrics for self-employed borrowers, and the industry needs to stop the counterproductive practice of up-charging low- and moderate-income homebuyers.
To say that the real estate and mortgage industries lack diversity might be the understatement of the century. This is more than a problem, it’s a crisis. You can fit the number of legitimate Black and Latino executives in the industry in a small room. If you remove D&I executives, you might fit them in a phone booth. Occasionally companies will ask my advice around how they can improve diversity in their companies, and I tell them they need to start with operations and their senior management. Diverse executives will attract diverse operations personnel and diverse operations will attract a diverse sales team. It’s not rocket science, but change is hard and it won’t happen without pain. I also believe we need to see more minority-led companies in the industry: brokerages, mortgage bankers, builders, and other businesses in the housing ecosystem…And not just mom and pop shops, large well-capitalized businesses that have scale and influence.
Closing the minority homeownership gap is the first step in closing the even larger wealth gap in America. We already know this won’t be easy, but there is a lot at stake. With massive demographic changes happening everywhere, America’s leadership in the global economy depends on the economic well-being of our minority communities.