In a recent op-ed for CNN, Rep. Rashida Tlaib (D‑MI) suggests a plan for improving the financial inclusion of minority households. She believes that reversing the Trump administration’s recent regulatory initiatives on credit discrimination and mortgage reporting legislation would improve matters.
While Rep. Tlaib is right to point out the disproportionate numbers of blacks among those lacking access to financial services, their financial exclusion goes back, not years or months, but decades. Moreover, her recommendations would mainly double down on existing regulations that seem to perpetuate rather than mitigate financial exclusion.
Rep. Tlaib begins with the striking finding that, ostensibly, the black homeownership rate in the second quarter of 2019 was lower than at any time since 1970. At 40.6 percent, it came in six percentage points below the Hispanic homeownership rate and almost a third below that of whites. Tlaib worries that, because black Americans are so much less likely than other racial groups to own their home, they will have a harder time achieving economic stability.
While homeownership is indeed a popular form of wealth accumulation, the share of Americans who own their homes is hardly a straightforward measure of financial security. For example, the homeownership rate among all households hit an all-time high of 69.1 percent at the start of 2005, a time of exceptionally high home prices and extremely loose credit standards. The financial crisis that followed, with foreclosures hitting up to 10 million families, belied the assumption that the new homeowners had achieved financial security.
Black Americans’ low homeownership rate is the product of many causes, notably decades of institutional discrimination that made it difficult or impossible for blacks to gain access to the same job opportunities and schooling as whites. Discrimination caused black households to have persistently lower incomes and greater professional and personal instability, frustrating their attempts to earn and save. Explicit government policies also limited black Americans’ access to credit by designating predominantly black neighborhoods as “hazardous” to prospective lenders. Because banks since the 1930s have sold most of their mortgages to government and government-sponsored entities, an official recommendation against lending in certain areas had the power of a veto.
Rep. Tlaib is right to focus attention on the troubling legacy of redlining, but blaming a recent and marginal reduction in regulation for blacks’ low homeownership rate is highly suspect. For one thing, the most recent quarterly rate of 40.6 percent is only slightly below the 41 to 43 percent range recorded for most quarters since the beginning of 2012. The estimate’s margin of error, at 0.9 percent, is also high. Thus, the record low reported for the last quarter could be a statistical fluke or a short-lived dip. Giving one quarterly result great significance is probably unwise at this stage.