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President Biden has consistently stressed the need to address the racial inequity that plagues America. Nowhere is this inequity more pronounced than the wealth gap. The typical Black family has one-eighth of the net worth of white households. Latinos have less than a fifth.
Yet most of the $640-billion housing plan Biden proposed during the campaign will do nothing to help close that gap — because he’s following the same well-worn path of so many well-intentioned housing advocates. His housing plan is focused on rental housing, including the construction of more subsidized apartments and tripling the availability of rent vouchers, which pay landlords a portion of the monthly rent so tenants pay less.
Instead, Biden and his people should focus more on helping people buy a home — a less costly approach than one might think and in many ways less expensive than most rental programs.
To Biden’s credit, his plan did include a homeownership component: a $15,000 tax credit for first-time home buyers. The administration has suggested that this credit could be advanced so it would be usable at the time of purchase, but there are no details, and it’s not clear how that would work.
There is a simpler way to increase access to homeownership: a homeownership voucher.
Homeownership’s importance to wealth building is well understood. For the majority of Americans, their wealth is held in their homes. A 2015 report released by Brandeis University’s Institute for Assets & Social Policy shows that the homeownership gap is the most significant driver of the racial wealth gap and more significant than unequal incomes and access to higher education. The Black-white homeownership gap is worse today than it was in 1968, the year the Fair Housing Act was passed, yet America spends little to help increase homeownership among those who have been left behind.
The only significant federal program that specifically helps lower-income households purchase their first home is the FHA mortgage insurance program, with a current annual budget of about $3 billion. We spend 13 times that amount — $39 billion a year — on rent vouchers.
But rent vouchers, though an important social safety net, can get expensive; the average beneficiary uses it for six years and the average monthly subsidy is $768, which adds up to about $55,000. Yet rent vouchers accomplish nothing for people who want to own their own housing and avoid having a landlord and annual rent increases.
Homeownership vouchers could have a major impact. A one-time national investment of $39 billion (the same amount spent annually on rent vouchers) could provide a $15,000 voucher to 2.6 million new home buyers — a population large enough to increase the Black homeownership rate from 42 percent to around 60 percent, substantially narrowing the Black-white homeownership gap.A homeownership voucher program would help people of color and low-income households raise a down payment sufficient to get an affordable, safe mortgage — and get a jump-start in building equity. In the long-run, it would be less expensive than paying a portion of someone’s rent, month after month, for years on end.
While $15,000 may not be enough to help a home buyer in expensive housing markets on the coasts, it would work in most parts of the country where housing costs are lower. And this amount could be adjusted for higher-priced markets, just as rent vouchers are.
Some caution is warranted here. As shown during the mortgage lending crisis, making home loans available without regard to the borrower’s ability to make the payments can cause real damage. But when homebuyer assistance is provided together with education and coaching that help buyers reduce consumer debt, improve their credit and build a savings habit, these buyers can be successful over the long term and weather the curveballs life can throw.
What is needed is a network of organizations with a track record of serving communities of color — organizations that can help individual home buyers address specific barriers to buying a home. The good news is that hundreds of these organizations exist, whether community development financial institutions, state housing finance agencies or affordable-housing nonprofit groups.
A homeownership voucher is no silver bullet. But if used right, it can lower the barriers that prevent many rent-paying Americans from buying a home and building equity in an asset. Only then will we begin to level the playing field for all.
Mike Loftin, a visiting fellow at the Urban Institute, is chief executive of the nonprofit organization Homewise.