RACIAL DIFFERENCES IN HOMEOWNERSHIP and HOUSING WEALTH, 1970-1986

Abstract

RACIAL DIFFERENCES IN HOMEOWNERSHIP AND HOUSING WEALTH, 1970-1986 Black couples are found to own a disproportionately low share of aggregate housing wealth in the United States because they are less likely than whites to be homeowners and because black-owned houses have lower market values than white-owned houses. Probability of ownership and house value equations (corrected for selectivity bias) are estimated with national data for 1970, 1980, and 1986. Trends in racial differences in homeownership and house value are identified and reasons for their existence are investigated. I. INTRODUCTION The wage gap between blacks and whites has been the subject of many labor market studies during the last two decades. These studies spawned similar analyses of racial differences in other markets such as housing. Concern over the black-white differential in economic well-being continues today, with recent attention focusing on the wealth gap between blacks and whites. Andrew Brimmer [1988] points out that blacks owned only 3.0 percent of accumulated wealth in the United States in 1984, even though blacks received 7.6 percent of total money income that year and they comprised 11 percent of all households.(1) The equity accumulated in homes constituted the most important form of wealth held by blacks, but even so the black share of home equity was only 4.4 percent of the total. The value of black-owned housing will be disproportionately low if (a) blacks are not as likely as whites to own homes and (b) blacks' houses are relatively less valuable than whites' houses. In this paper we investigate both of these possibilities with national data on black and white households covering the period 1970-86.(2) Existing research has concentrated primarily on racial differences in the probability of homeownership, with an eye toward determining the extent of discrimination.(3) At least two prominent Congressmen (Joseph Kennedy of Massachusetts and Henry Gonzalez of Texas) have charged that government regulators routinely allow discrimination in home mortgage lending. Because most studies have relied on data from the 1960s and early 1970s, often covering only certain metropolitan areas, no reliable estimates of the national trend in black homeownership and housing market discrimination during more recent years exist. The question of how much housing blacks consume relative to whites, given the decision to own, has received only scant attention in the literature, yet both decisions influence wealth distribution. Our study compares the racial differentials in these two dimensions of the housing choice--ownership and value. A basic hypothesis of the paper is that house value differentials by race will be larger than homeownership differentials by race, since the factors that determine house prices are more numerous and probably more susceptible to discriminatory influence than the conditions that influence the decision to own rather than rent. II. A MODEL OF THE HOMEOWNERSHIP CHOICE This section describes a model of the homeownership decision that can be applied to available data. The model is similar to those of previous studies in that it relates the probability of owning a home to several explanatory variables reflecting economic, demographic, and locational characteristics of the household. It differs in an important respect, however, in that it is estimated on a sample that contains only husband-and-wife households.(4) Most earlier studies that have used samples drawn from the entire population have controlled for different household types (e.g., single, female-headed, widowed) by means of dummy variables. This procedure generally constrains the impact of race on the housing choice to be equal for all household types. In addition, McDonald [1974] has pointed out that the current values of variables such as income and labor market activity are more apt to misrepresent their permanent levels for single-person or female-headed households. …