Are Income Disparities Driving the Racial Homeownership Gap?

Fifty years after the adoption of the 1968 Fair Housing Act, which prohibits discrimination in the housing market, homeownership rates have not increased for Black or Hispanic[1] households. What factors are suppressing homeownership growth for these households? In this article, researchers analyze how differences in households’ current and expected lifetime income (i.e., household endowment), market conditions, and citizenship status account for disparities in homeownership rates between white, Asian, Black, and Hispanic households.

Researchers used demographic, income, housing tenure, and housing market data from the US Census Bureau’s American Housing Survey from 1989, 2005, and 2013. The researchers measured household endowments using two key metrics: current household income and permanent household income, which is the expected income over the course of a head of household’s lifetime, based on their educational attainment, age, gender, marital status, race, and geographic region, among other qualities. Given the limitations of the data, researchers were unable to factor in current household wealth or parental wealth, but past studies have found that permanent income can proxy for household wealth. After controlling for demographic effects, researchers used the household endowment metrics and data on market conditions to examine the factors driving the decreases in homeownership gaps between 1989 and 2005 and the increases in homeownership gaps between 2005 and 2013. The analysis estimated the percentage of homeownership gaps explained by household endowments and the share explained by unobserved factors, such as disparities in parental wealth, access to credit, and various forms of discrimination. Researchers also explored the role of citizenship status on homeownership rates across racial and ethnic groups for the years 2005 and 2013.

Key findings

• Between 1989, 2005, and 2013, the increasing Black-white homeownership gap was primarily driven by factors unrelated to current and expected household lifetime income (i.e., household endowments). In 1989, 65 percent of the gap was explained by differences in household endowments between white and Black households. By 2013, differences in endowments only accounted for 52 percent of the gap.
• Between 1989, 2005 and 2013, changes in the Hispanic-white homeownership gap were primarily driven by disparities in household endowments. The Hispanic-white homeownership gap decreased between 1989 and 2005 and then increased between 2005 and 2013. The “endowment effect” mirrored those trends. In 1989, 49 percent of the gap was explained by differences in household endowments between Hispanic and white households. In 2005, 36 percent of the gap was explained by differences in endowments, suggesting that the decrease in income disparities drove the decrease in the overall homeownership gap. By 2013, the trend had reversed, with 41 percent of the Hispanic-white homeownership gap explained by differences in household endowments.
• Between 1989, 2005, and 2013, changes in the Asian-white homeownership gap were primarily driven by disparities in household endowments. The Asian-white homeownership gap decreased between 1989 and 2005 and then increased between 2005 and 2013. The “endowment effect” mirrored those trends. In 1989, 15 percent of the gap was explained by differences in household endowments. In 2005, the current and expected income of Asian households surpassed white households, so the gap was entirely explained by factors unrelated to household endowments. By 2013, the trend had reversed, with 13 percent of the Asian-white homeownership gap explained by differences in household endowments.
• For Asian and Hispanic households, citizenship status is an important driver of homeownership gaps. In 2013, Hispanic and Asian households without US citizenship were 5.8 and 10.0 percentage points less likely to own a house than their US-born counterparts. These trends are consistent with the data from 2005.
• Shocks to expected lifetime income are a key driver of homeownership gaps across all racial and ethnic groups, but particularly so for Black, Hispanic, and Asian households. In 2013, a 1 percentage-point decrease in permanent income reduces homeownership probability by 18 percent, 19 percent, and 17 percent for Black, Hispanic, and Asian households respectively, compared with a 6 percent reduction in probability for white households.

[1] The How Housing Matters editorial team decided to use the term “Hispanic” to refer to people of Latin American origin, in alignment with the terminology used by the American Housing Survey and adopted by the authors of the study. We recognize that the term “Latinx” is more inclusive of the way this group may self-identify. How Housing Matters strives to avoid language that is exclusive and will always attempt to explain the editorial rationale behind the labeling of certain groups.

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