American dream? How government initiatives made Blacks house poor

Crisis, The, Sep/Oct 2003 by Oliver, Melvin L

At the turn of the 21 st Century, America is still mired in a history that casts a long shadow over the life chances and opportunities afforded many African Americans. Nowhere is this more evident than in the key indicator of wealth. African Americans today have only eight cents for every dollar of wealth that White Americans possess. Class status does not erase this striking difference, as even middle-class Blacks have substantially less wealth than their White counterparts.

A key part of this disparity is related to housing, the largest component (44 percent) of a household's net worth. Despite impressive gains in the last decade, Black Americans continue to lag behind Whites in terms of homeownership. According to the Census Bureau, the homeownership rate for Black heads of household is 47.3 percent, compared to 75.2 percent for White heads of household. More importantly, African Americans tend to own homes that generate less equity than White-owned homes, and this disparity is at the heart of a deepening wealth gap, as Whites over time build greater equity in their homes, while African Americans see only paltry gains and in some cases losses in equity. The cause of this is America's lingering curse on African Americans: racial residential segregation.

Take the stories of two colleagues, Larry Adelman and Cornelius (who prefers that his last name not be used). They have worked together for 20 years as co-directors of California Newsreel, a documentary production company in San Francisco. In 1951, Cornelius' parents bought a two-story duplex in Chester, Pa., near Philadelphia, for $6,500. Over the years, the family remodeled and improved their home and after almost 50 years sold it in 2000 for $29,500. Larry's parents bought a house in a suburban development in Merrick on Long Island, N.Y., in 1952 for $21,500. In 1991, Lurry's parents sold their home for $299,000, after 39 years, reaping almost 14 times what they originally paid for it.

Cornelius is Black; Larry is White.

Cornelius' parents purchased their home in one of the few areas of Chester that would sell to African Americans at the time; when they sold their home, Chester was 76 percent Black. Merrick was ail-White when Larry's parent's bought their home; when they sold it, Merrick was still 95 percent White. The gap in home equity earned by each of these families over a similar period of time, $269,500, is illustrative of the wealth gap between Blacks and Whites.

The separation of Whites and Blacks in this country is no accident. America's ghettos were built with deliberateness, both in individual actions and institutional directives. The pattern of "chocolate cities" and "vanilla suburbs" that has dominated metropolitan areas since the 1950s was the product of government policy.

New Deal programs enacted during the Depression era played a key role in laying the foundation that supported this housing segregation. Faced with mounting home foreclosures, President Franklin D. Roosevelt launched the government's entrance into the home financing business. Before this time, mortgages were exclusively held by wealthy Americans. Prospective homebuyers had to make a substantial cash down payment, had only short-term loans and were often burdened with a "balloon" payment at the end.

Starting with the Home Owners Loan Corporation, which refinanced tens of thousands of mortgages on the verge of default, and the Federal Housing Authority (FHA), which provided millions of home loans with little or no money down, low interest rates and 30year mortgages, the federal government began financing simultaneously the ghettoization of Blacks and the suburbanization of Whites.

The key mechanism in this development was the introduction of appraisers' assessments to determine the fitness and appropriateness of loans. As Kenneth Jackson writes in Crabgrass Frontier: The Suburbanization of the United States, "a formal and uniform system of appraisal, reduced to writing, structured in defined procedures, and implemented by individuals only after intensive training, government appraisals institutionalized in a rational and bureaucratic framework a racially discriminatory practice that all but eliminated Black access to the suburbs and to government mortgage money."

Neighborhoods were put in categories and assigned various colors on a map, ranging from green for the most desirable (all-White), to red, which included racially mixed or all-Black, old and, therefore, undesirable areas. Thus, African Americans living in all-Black and mixed neighborhoods were "red-lined" and denied loans, while White suburbanites benefited from the government's largest asset-building opportunity.

The FHA, established in 1934, achieved remarkable success. Housing starts jumped from 332,000 in 1936 to 619,000 by 1941. With the favorable conditions for home ownership created by FHA, the incentive for owning a home increased to where it was cheaper, in many cases, to buy than to rent. According to Crabgrass Frontier, one former White resident of New York who moved to suburban New Jersey pointed out, "We had been paying $50 per month rent, and here we come up and live for $29 a month." This included taxes, principal, insurance and interest. Class was no longer a barrier to home ownership. Most African Americans could have afforded to become homeowners under those favorable conditions.