Abstract
Rapid home price appreciation has built considerable wealth for homeowners, but it has made homeownership less attainable for first-time homebuyers. This concern is especially acute for Black households because the Black-white homeownership gap is as large today as it was before the passage of the Fair Housing Act.
To narrow this gap, fair housing advocates are increasingly calling for the use of special purpose credit programs (SPCPs), which allow lenders to offer credit on favorable terms to borrowers of a protected class who have suffered economic disadvantages. SPCPs reach these borrowers by offering special purpose credit either directly to them (people based) or in places where many of them live (place based).
Because of the continued prevalence of neighborhood racial segregation in many US cities, place-based SPCPs could reduce the racial homeownership gap. But there’s a challenge to this solution: no place is homogenous, so place-based programs that seek to increase Black homeownership will inevitably benefit some borrowers who are not Black and leave out some Black borrowers who are struggling to become homeowners.
The Community Reinvestment Act (CRA) provides useful context. Born out of the civil rights movement, the CRA aims to redress the effects of redlining by encouraging banks to lend in low- and moderate-income (LMI) neighborhoods. Despite these goals, Black borrowers in LMI neighborhoods receive a disproportionately small share of home loans.
Similarly, several proposed programs would direct assistance toward historically redlined neighborhoods. But Black people are only the third-largest racial group—behind white and Latinx people—in redlined areas, and those Black residents make up only 8 percent of the total Black population in the US.
Because of considerable variation in these neighborhoods’ demographics, some formerly redlined areas with mostly Black residents may be strong candidates for place-based SPCPs. But nationwide data suggest that targeting all previously redlined neighborhoods may not have the disproportionate impact on Black homeownership that proponents hope, especially in cities where Black households are geographically diffuse.
People-based SPCPs may be a more effective way to close the Black-white homeownership gap because they enable lenders to direct a program exclusively toward Black borrowers.