There are a lot of reasons that home prices tend to be lower in black neighborhoods than in white ones. Decades of racist policies put in place by governments and private companies — segregation, redlining, deed restrictions, exclusionary zoning, the deliberate hollowing out of urban cores — have had the net effect of eroding the quality of life in many majority-black neighborhoods nationwide.
As the authors of a new Brookings Institution-Gallup study note, Zillow data shows that the median listing price of a home in a majority-black neighborhood in a major metro area is around $184,000, while the median listing in a neighborhood where blacks make up less than 1 percent of the population stands at over $341,000.
But the authors — Andre M. Perry and David Harshbarger of Brookings and Jonathan Rothwell of Gallup — weren’t satisfied with that simple comparison based solely on neighborhood demographics. It’s too easy to explain that difference away with other factors, such as the structural characteristics of the buildings and access to good schools, good jobs and good stores.
They wanted to isolate the effects of racism alone — to peel off all the other explanatory variables until they could “detect how much racism depletes wealth from black homeowners,” as they put it. In the end, they were left with one number: $48,000.
That’s the amount the average home in a majority-black neighborhood is undervalued, relative to an identical home in an identical all-white neighborhood once you properly adjust for all the other structural and neighborhood characteristics that could plausibly affect that number. That’s the “cost of racial bias,” as the authors put it, “amounting to $156 billion in cumulative losses” accruing to black homeowners.
Owner-occupied homes constitute the majority of black wealth in the United States, according to an analysis of the federal Survey of Consumer Finances by economist Edward N. Wolff. Home equity accounts for 54 percent of all the wealth owned by black households in the United States. That makes devaluation of black-owned homes particularly devastating for black families and contributes to the huge disparities between black and white wealth: In 2016, the median American white family had a net worth of $140,000, while the median black family had a net worth of $3,400.
“Black homeowners realize lower wealth accumulation, which makes it more difficult to start and invest in businesses and afford college tuition,” the authors write. “By controlling for commonly held causes of price differences including education, lower home quality, and crime, this paper suggests that bias is likely to be a large part of the unexplained devaluation of black neighborhoods.”
The paper teases out important downstream consequences of black home devaluation. Metro areas with more devaluation tend to be more racially segregated. Children growing up in those areas are also less likely to make it out of poverty: “If properties in black neighborhoods were priced equally as those in white neighborhoods, black children coming of age in the 1990s and 2000s would have had much more wealth to draw upon to pay for things like private schooling, tutoring, travel, and educational experiences, as well as higher education and greater access to higher scoring schools in the suburbs,” the authors write.
The study also finds that black home devaluation is a much bigger problem in some cities than others. Nationwide, for instance, that $48,000 devaluation works out to a square-foot pricing discount of about 23 percent, relative to similar homes in similar white neighborhoods. But in Rochester, N.Y., the city with the highest levels of devaluation, the typical home in a majority-black neighborhood is worth 65 percent less than a similar home in a similar white neighborhood.
By contrast, in a small number of cities, black homeowners actually enjoy a price premium relative to homes in majority-white neighborhoods. In Boston, for instance, that premium works out to a gain of about 23 percent.
“If we can detect how much racism depletes wealth from black homeowners, we can begin to address bigotry principally by giving black homeowners and policymakers a target price for redress,” the authors write. “Laws have changed, but the value of assets — buildings, schools, leadership, and land itself — are inextricably linked to the perceptions of black people. And those negative perceptions persist.”