New research details effect of ‘Black tax’ on African American homeownership

Black Americans are paying more than white Americans to own a home, making it harder for Black households to accumulate housing wealth at the same rate as their white counterparts, according to new research from MIT.

In a study published earlier this month, MIT researchers found that Black Americans pay $743 more annually than white Americans when it comes to mortgage interest payments, $550 more per year in mortgage insurance premiums and $390 more each year in property taxes — totaling more than $13,000 over the life of the loan.

The study — authored by Ed Golding, executive director of the MIT Golub Center; Michelle Aronowitz, former deputy general counsel for enforcement and fair housing at the Department of Housing and Urban Development; and Jung Hyun Choi, a researcher with the Housing Finance Policy Center at the Urban Institute — found that the inequities totaled to $67,320 in lost retirement savings for Black homeowners. 

Citing income data from the National Association of Real Estate Brokers (NAREB), the country’s oldest minority trade association, the study said it found an income gap of $25,800 between Black and white Americans to be “exacerbated by this ‘Black tax’ on homeownership.”

The elimination of those additional costs, the study said, would cut in half the roughly $130,000 gap in liquid retirement savings between white and Black families.

The study also found that African Americans paid higher interest rates due to a lack of refinance opportunities, a problem researchers said results in Black homeowners paying “approximately another $475 per year more than white homeowners, which results in a loss of retirement savings of nearly $20,000.”

Golding told The Hill that, for a variety of reasons, Black families don’t refinance or can’t refinance as easily or as quickly as white families.

“So, when the [Federal Reserve] lowers rates, people refinance to lower their mortgage rate. But more Black families are stuck at the old higher rates and our data shows that,” he said, while noting that African American families have a higher unemployment rate, meaning “they’re more likely to be in that group that can’t refinance.”

While the study notes that the inequities can be “traced to the long history of slavery, segregation, and race discrimination,” it also points to “current policy choices that maintain the disparities” and suggests reforms.

Some of the policy recommendations include forming a “government supported insurance program that makes mortgage payments in the event of unemployment or disability” and including “tax credits for first time homeowners, which could be used as a down payment to reduce the effect of risk-based pricing and the need for mortgage insurance.”

The MIT study builds on previous research from the real estate website Redfin in June that found the homeownership rate for Black families stood at less than 45 percent nationwide, compared to the 73 percent rate for white families.

And an analysis published over the summer — authored by economists Troup Howard, an assistant professor of finance at the University of Utah, and Carlos Avenancio-León, assistant professor of finance at Indiana University — found that Black and Hispanic residents bore a 10-13 percent “higher property tax burden than white residents” in the nation.

When discussing the homeownership gap in an interview this week, Antoine Thompson, executive director of NAREB, which works to promote democracy in housing, said the impact of racist practices in the country that have shut Black Americans out of housing, dating back to slavery, is still being felt today.

Thompson said the suggestion made in the MIT study to pool risk among borrowers in lieu of risk-based pricing was “a great idea,” and one that has been discussed before.

He also pointed to the Great Recession as to why some Black Americans could be reluctant to get a refinance.

For many Black Americans who lost their homes, Thompson said, “their first loan was good, but then someone went after them and encouraged them to refinance and then they no longer had a 30-year fixed-rate mortgage … and once they hit a cliff they couldn’t recover.”

The MIT study pointed to capital standards that it noted have “the effect of placing the burden of staving off a repeat of the 2008 Great Recession on black homeowners, even though black homeowners were primarily the victims of the crisis, not its cause.”

Thompson said that going forward, the widening or narrowing of the racial homeownership gap will depend largely on “how we come out of COVID in terms of making sure that more African Americans get a forbearance that need it.”

Another key factor, he said, is employment and whether the country will be able to “break this trend of African Americans going back to work slower” than white Americans, citing data that shows white workers have been making job gains at faster rates than Black workers during the pandemic.