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Homeowners have lost $156 billion by living in a 'black neighborhood'

Editor's Note: (Andre Perry is a David M. Rubenstein Fellow at the Brookings Institution Metropolitan Policy Program. The opinions expressed in this article are his own. )

Homeownership lies at the heart of the American Dream, representing success, opportunity and wealth. And it should. But new data helps confirm that racism is taking money out of black homeowners' collective pockets to a painful sum of $156 billion, keeping those who are striving for the American dream from actually reaping its benefits.

Compared to investing in the stock market and other ways to grow a nest egg, homeownership is still the most consistent and accessible way to build wealth over time. And while homeownership rates vary considerably between whites and people of color, it's typically the largest asset among all people who hold it, regardless of race. That's why these new data merit action in order to alleviate this long-gestating societal blight.

We've known for some time that racism limited blacks' housing options in ways that lowered the value of homes. De jure and de facto segregation — racially restrictive housing covenants that prohibited blacks from buying in certain areas throughout the 20th century — and racially biased redlining from the 1930s beyond the passage of the Fair Housing Act of 1968 — which deemed majority-black neighborhoods too risky for mortgage lenders — isolated blacks in areas that realized lower levels of investment than their white counterparts. Our new data shows that in the average US metropolitan area, homes in neighborhoods where the share of the population is at least 50% black are valued at roughly half the price as homes in neighborhoods with little to no black residents.

Even for those who acknowledge our racist history, the 50% price difference isn't about racial bias; it's about accepting the effects of the past at face value. It's assumed lower housing quality, underfunded schools and crime — all consequences of racism and poverty — set a deserving price point. Our study tested those assumptions.

We examined homes of similar quality in congruent neighborhoods — with the exception of the racial demographics — to make an apples-to-apples comparison between places where the share of the black population is 50% or higher and those where there are little to no black residents. What we found astounds. Differences in home and neighborhood quality do not fully explain the price difference. Homes of similar quality in neighborhoods with similar amenities are worth 23% less in majority-black neighborhoods, compared to those with very few or no black residents. After accounting for factors such as housing quality, neighborhood quality, education and crime, owner-occupied homes in black neighborhoods are undervalued by $48,000 per home on average, amounting to a whopping $156 billion that homeowners would have received if their homes were priced at market rates.

To put it plainly, racial bias is taking away money that could be put toward college tuition or a small business. Devaluation means municipalities with a significant percentage of African Americans lose tax revenue that could be put toward government services and infrastructure. Racism robs money that residents and government officials use to uplift their social status. Bigotry imposes a "black tax" on residents of majority-black neighborhoods that white neighborhoods simply don't face.

Take Rochester, New York for example. With a black population of 11.5%, this metro area sees a -65% difference between the actual price of a home in a black neighborhood and the adjusted rate for equivalent housing in one of the metro area's white neighborhoods, amounting to a $53,000 loss per home. In the Durham-Chapel Hill, North Carolina metro area, which has a black population of 26.8%, there is a -12.5% difference, resulting in $26,000 in losses per home. And in the home of the largest majority-black city in the nation — the 22.4% black Detroit, Michigan metro area — there is a -37% difference, resulting in $28,000 in average losses per home.

These stark price differences due to devaluation sound the alarm that it's past time to put away the cultural pathology theories in naming reasons for troubled black neighborhoods. Researchers, politicians and pastors alike boil down the decline of black neighborhoods on cultural factors like black women's marital practices, sagging pants and absent fathers.

By ditching hyperbole and examining data, we found that metropolitan areas with greater devaluation in black neighborhoods produce less upward mobility for the black children who grow up in those communities. Conversely, black children born into low-income families achieve higher incomes as adults if they grew up in metro areas where homes saw more value. Our research differentiates itself from other analyses by rightfully putting onus on a function of racism — devaluation — rather than the effects of racism, which ultimately includes blaming the victim.

Instead of victim blaming, we can address the racism that has infected the house buying market that's comprised of mortgage professionals — lenders, real estate agents and appraisers — whose judgments on valuation can have outsized (negative) impacts.

There are exceptions where homes in black neighborhoods are worth more: Madison, Wisconsin, realizes 17% added value, and black neighborhoods in the Worcester, Massachusetts-Connecticut metro area sees a whopping 26% gain. Our interactive data portal makes it easy to compare one area to another.

Nevertheless, we must address racism, which is tangible, measurable and costly, if blacks are ever going to benefit from the American dream. Blacks clearly didn't bias the market to disadvantage ourselves, and we should not shoulder the blame of that reality. Clearly, we still need better policies to give homes in black neighborhoods their proper value. But we must also recognize that there is nothing wrong with black people that ending racism can't solve if we really want communities to improve.

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