The Impact of Historical Systemic Bias and Home Ownership Rates

on Black and White Household Wealth Disparity in America

A Position Paper by David Preece
Associate Professor, Brigham Young University-Hawaii
August 2020
_____________________________________________________________________________________
Introduction
The socioeconomic disparities that characterize the contemporary African-American life experience can
clearly trace their origins to slavery, but damaging and subtle remnants of systemic racism remained in
more recent American history which directly affect today’s wide gap in household wealth between Black
and White families. A key factor in family wealth and intergenerational asset transfer is home ownership,
and the long-standing disparity in Black and White home ownership is rooted in institutional bias that has
contributed heavily to the racial wealth gap. The impact of this net wealth disparity not only presents a
current economic security challenge for Black American families, but its legacy is manifest in a variety of
social problems within many predominantly Black neighborhoods. By referencing existing research data
and historical facts, this position paper affirms that past and present institutional bias in public policy and
parallel discrimination in key industries are the primary influencers of racial disparity in household wealth
and the resulting social effects on Black communities.
Hypotheses
H1: "The greatest factor in today's broad and widening gap in household wealth between White families
and Black families is the long history of systemic bias against Black Americans in government policies
and private industry practices."
H2: “Extended home ownership is the largest factor in the development of household wealth and the
multi-generational transfer of financial assets, and thus the lower home ownership rate among Blacks is a
key contributor to household wealth disparity.”
Definitions and Data
Institutional discrimination, also called systemic bias, is very different than prejudice on an individual
level. A person may exhibit racial bias in their specific dealings with others, and research indicates these
racist inclinations are still far too common in America. Nearly 70% of Blacks report they experience
discrimination from “time to time” or “regularly”.1 A
_______________________________________________
2011 study after the election of President Obama found
that “symbolic racism” may be on the rise, with Systemic bias is intentional or unintentional prejudice, bigotry,
or unfairness directed by health, educational, government,
examples of highly successful Blacks leading to White judicial, legal, religious, political, financial, media, business,
beliefs that discrimination is a bygone and persisting cultural or other institutions towards individuals of an
inequities can only be explained by personal weaknesses oppressed or marginalized group.
_______________________________________________
of Blacks.2
While such forms of personal discrimination are not the
focus of this paper, if enough individuals within an
organization display such bias, the institution itself may
be considered discriminatory—despite stated policies,
practices or training to the contrary. This is why
responsible organizations, both private and public,
regularly monitor their affairs and outcomes to ensure
bias of any kind is minimized.
As the adjacent definition suggests, systemic bias is
_______________________________________________
present when an organization’s policies or practices
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unfairly affect a group of people, most often those who are already disadvantaged due to race, gender,
financial status, faith or other factors. This type of inequity can harshly limit the opportunities for
economic, social or personal advancement as guaranteed by the United States Constitution.
Wealth disparity is a major issue in the equity of American socioeconomics and the racial gap has steadily
widened in the post-WWII era. In 2016, the net wealth of the average White household was $149,703
(adjusted for inflation), a factor of 11.5 times more than the $13,024 average for Black households.3
Disturbingly, the median wealth of Black families whose head graduated from college is less than the
median wealth of White households whose head dropped out of high school.4

It is important to distinguish between income and wealth since those terms are sometimes mistakenly
interchanged. The Census Bureau defines income as the total annual resources available to families,
including earnings, dividends, and benefits from government or employers. Wealth is more narrowly
defined as the value of a household’s property and financial assets, minus the value of its debts.5
_______________________________________________
Naturally, a family’s income has some impact on its
total wealth, as any cash on hand is part of the wealth Household wealth is not just about income, though Blacks
make only 60% of White wages. The greatest source of
formula. Annual household earnings are also a key
intergenerational wealth transfer is home ownership.
credit worthiness factor and therefore have a significant _______________________________________________
influence on loan approval to buy a home. The average
Black household income was 55% of White average
income in 1967. That ratio in 2014 was 60% which
shows some relative marginal improvement, but this
large disparity remains a factor in access to capital and
the lower rates of Black wealth and home ownership.6
If verifiable annual income is too low to qualify for a
mortgage, then one cannot buy a home.
The root of the racial wealth gap is a corresponding
disparity in home ownership across recent decades.
Home equity is the main component of household _______________________________________________
wealth.7 In 1970, two years after the Fair Housing Act
was signed into law, only 42% of Black Americans owned a home compared to 66% of Whites. While
Black the home ownership rate is approximately the same today, the gap versus Whites has increased
from 24 to 30 percentage points.8 
If a Black family has been historically limited by low income and institutional bias in buying a home to
develop equity-based wealth, the financial challenges of each succeeding generation may amplify and the
wealth gap widens compared to a White household with no such restrictions.
The Socioeconomic Legacy of Slavery
The severe individual economic limitations of slavery and the post-Emancipation era are well-
documented and indisputable. With very few regional exceptions, slaves could not legally own any assets,
let alone a home. Even freedmen could not take advantage of post-Civil War homesteading opportunities
until passage of the Fourteenth Amendment in 1868 which recognized them as citizens.8 After
Emancipation, many Blacks worked in a sharecropping system that was not much better than slavery.9
Vagrancy laws in the South that required holding a job allowed states to force free Blacks into labor, or to
sell them back into slavery.10 The promise of “40 acres and a mule” for former slaves never materialized.
Widespread Jim Crow laws established strict segregation and institutionalized discrimination until their
dismantling began with the 1954 Brown v. Board of Education Supreme Court decision. Nevertheless, the
stain of racial bias had deeply seeped into American culture. The awful legacy of slavery deprived
generations of Black families the opportunity to pursue life, liberty, happiness—and economic wealth.

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Systemic Bias in Housing
In the 1930s, the New Deal's Home Owners' Loan Corporation instituted a “redlining” policy with color-
coded maps that used racial criteria to classify lending and insurance risks. Affluent White communities
received green lines while Black and poor White neighborhoods were often circumscribed by red lines
denoting their undesirability. Banks and insurers soon adopted the HOLC maps to guide lending and
underwriting decisions, and the Federal Housing Administration later adopted redlining to assess
locations for federally insured new housing developments. These policies were abolished by law in 1968,
but they had essentially institutionalized discriminatory mortgage and development lending behaviors by
private financial organizations that did not fully disappear with the passage of the Fair Housing Act.11
Fighting in WWII against Hitler’s white supremacist notion of a “master race” had some softening impact
on American racial attitudes, but this did not translate into meaningful improvement of Black
socioeconomic conditions. Discrimination in job hiring and compensation was common practice. Black
students were segregated into crowded, sub-standard schools. Black families were not welcome in the
fast-growing suburban neighborhoods. Thousands of Black veterans were targeted for mistreatment and
violence following WWII and some were even lynched.12
One little-known outcome of Jim Crow was a proliferation of “racial covenants” in home deeds that did
not allow sales to African-Americans and other minorities. As described by the National Association of
REALTORS, “First appearing in the early part of the 20th century, these so-called deed restrictions
legally prevented people of certain races from buying, renting, or living in individual homes in White
communities well before the practice of redlining officially marked those areas as off-limits to minority
buyers.”13
The GI Bill of 1944 established a range of benefits for WWII veterans including college tuition and low-
interest home mortgages. The Veteran’s Administration did not actually provide home loans—that was
left to private banks. Southern members of Congress were successful in giving states the responsibility for
GI Bill administration, enabling White-run banks to practice discriminatory lending that excluded Black
veterans. In 1947, only two of the more than 3,200 VA-guaranteed home loans in 13 Mississippi
cities went to Black borrowers. In New York and the northern New Jersey suburbs, fewer than 100 of the
67,000 mortgages insured by the GI bill supported home purchases by non-Whites.14
These racist housing restrictions only exacerbated the mobility challenges for Blacks attempting to follow
the relocation of many manufacturing facilities from urban centers to industrial sites outside the cities.
Between 1970 and 1996, the city of Chicago lost more than 300,000 manufacturing jobs as companies
shuttered their urban factories, it and now has one-quarter the manufacturing employment it enjoyed in
the 1950s.15 Millions of Blacks with a slave family legacy moved to the industrial North to take well-paid
factory jobs. When those plants and their jobs began moving outside the urban core where most Blacks
lived, many of these workers found it too difficult to find housing in the segregated suburbs and most jobs
were filled by White suburbanites who could invest in homes.
The combined effect of these biased policies and practices is succinctly characterized by Donnell
Williams, president of the National Association of Real Estate Brokers: “The homeownership gap
between Blacks and Whites is larger today than it was in 1934 when the Federal Housing Administration
was established”16
Other Wealth Influencers
This paper maintains that home ownership and its singular effect on the multi-generational transfer of
financial assets are at the root of racial wealth disparity, but are there other factors involved? Of course,
and the combination of influences vary by individual situation. Conventional explanations of the Black
household wealth gap may include a lack of frugality, lower income and education, poor asset
management, little entrepreneurship, single motherhood, and even cultural laziness.

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Space limits do not allow for a full discussion of each topic. However, research shows that after
accounting for household income, Blacks have a slightly higher savings rate than Whites, and there is no
significant racial difference in historical investment asset appreciation.4 Business ownership plays a role
in building and transferring wealth, and while Black entrepreneurship is increasing, the rate of Black
business ownership still lags Whites, with inequitable capital access and capital cost being a major
reason—another example of bias within the banking system.17

Assertions that household characteristics like educational attainment and marital status have been major
contributors to the historical data of accumulated, transferred wealth are dispelled in the research. When
those factors are controlled in the analysis, there is still a large household wealth disparity between Blacks
and Whites. Indeed, even given substantial gains by Black households in educational achievement and
income over the past 30 years, the wealth differential has widened.18

Wealth is a paramount indicator of social well-being. Wealthier families are far better positioned to
finance elite educations; access capital to start a business; finance medical procedures; reside in higher-
amenity neighborhoods with less crime; exert political influence; purchase better legal counsel; leave a
bequest; or withstand financial hardship resulting from any number of emergencies.4, 19 Studies have even
demonstrated the negative health effects of living in low-income neighborhoods. When compared to
lifelong residence in high-income neighborhoods for both Black and White women, babies born in poor
areas have a higher risk for low birth weight and its accompanying health issues.20

Some have questioned why recent immigrants of color to America seem to have fared better economically
than resident Blacks. One obvious factor in the case of Black immigrants is they were not subjected to the
multi-generational biases and limitations of slavery, Jim Crow and historical institutional racism
discussed above. Relative wealth development by immigrants is often accounted for in research by “self-
selection.” They are better-educated with a necessity to succeed supported by higher levels of income and
a network that provides access to human, social and financial capital. While many immigrants—
especially illegal immigrants—do arrive in the United States with few financial assets, legal immigrant
entrepreneurs typically have access to personal and family savings and depend less on (potentially biased)
commercial lending to launch businesses.17

A recent study sheds a different light on the topic of immigrant wealth development. These researchers
identified greater geographic mobility as the key: To a larger degree than native citizens long-settled in
communities, immigrants tend to locate where there is more economic opportunity and take jobs below
their true skill level. Princeton researcher Leah Platt Boustan explains, “We don’t even have to reach for
these cultural explanations. [Mobility is a choice] that immigrants are making that [is] different from the
US-born and that could be a feature of immigrant success.”21

Home Ownership and Wealth

Withers and Reid of the University of Washington state that homeownership remains the primary form of
wealth in the United States, and that approximately 30% of all household wealth is invested in owner-
occupied housing.22 The Pew Research Institute reinforces this point, affirming that the equity developed
through home ownership is the chief contributor to household wealth.7 Given the lower home ownership
rate of Blacks, it follows there would be a corresponding disparity in household wealth, and as presented
above, the wealth gap disparity is actually 11.5x for Whites.

Federal data shows the home ownership rate in 2018 for Whites was 74% and 44% for Blacks.
Extrapolating this into financial impact, in 2015 the average net worth of a homeowner was $195,400,
compared to just $5,400 for a renter (Federal Reserve), and wealth from equity in a home constitutes 51%
of total wealth of the average White household, but 71% for Black households.23

Even when Blacks do own a home, the comparable market value and net equity are negatively affected by
the legacy of now-illegal redlining. A recent study by Redfin found that the typical home in a redlined
4
 
neighborhood gained $212,023 or 52% less than one in a “greenlined” neighborhood over the past 40
years. Today, Black homeowners are five times as likely to live in a formerly redlined neighborhood than
a greenlined one.23

This clear relationship between lower wealth and not owning a home is only exaggerated with each
succeeding generation that does not inherit home equity-based assets from its progenitors. For Black
Americans, the origins of this tragic phenomenon go all the way back to slavery and Jim Crow, and some
systemic obstacles even persisted into modern times.

Regulatory Remedies
With the 1968 passage of the Fair Housing Act, racially discriminatory policies and practices that limited
Black access to home ownership were outlawed. This regulatory proscription was further strengthened
with the Community Reinvestment Act of 1977 that motivates depository institutions to better meet the
credit needs of low- and moderate-income neighborhoods with greater access to mortgages and other
financial tools. Federal examiners monitor banking institutions and assign an evaluative performance
score that is publicly published. The CRA Modernization Act of 2009 expanded the type and number of
financial institutions with an “affirmative obligation” to invest more in formerly redlined communities.
Did these acts of government result in real changes? In the decade between 1989 and 1999, banks directed
over $5 trillion in loans and investments to low-wealth neighborhoods. Community development
organizations and other groups that had struggled to find grants, loans, and investments for their projects
experienced an exponential growth during that time in their ability to provide affordable housing,
economic development, and community development loans.24
However, the CRA is not without critics, especially as it relates to what is perceived by many financial
institutions as onerous compliance and reporting procedures. Indeed, the author’s interview with a
Midwest bank president revealed frustration that a federal CRA auditor lauds efforts to lend in low-
income areas, while a Federal Deposit Insurance Corporation bank examiner criticizes the presence of
these “risky” loans in the lender’s portfolio. The law also did not cover the presence of bank branches in
poor neighborhoods. Since 1989, there has been a systematic closing of bank branches in these
communities, and high-cost mortgage firms or predatory lenders filled this vacuum.25
While these regulatory actions appear to have generated some positive impact on urban minority
neighborhoods, the wide gap in Black and White home ownership has not changed significantly over the
past four decades. This stagnance has been a major contributor to the continuing racial wealth gap.
Is Systemic Bias Still with Us?
While America has made important progress on the front of individual and institutional racism, it is clear
that significant obstacles remain for Blacks in their equitable pursuit of socioeconomic advancement and
the “American Dream.” 
When reporting on the 2012 marketing practices in the
housing sector, the Department of Housing and Urban
Development found that racial discrimination persists. As
the adjacent chart shows, Black auditors from HUD posing
as buyers were told about and shown approximately 17%
fewer housing options when seeking a home purchase.26
Interestingly, when seeking housing for rental, the “Told
About” and “Shown” gaps are 11.4% and 4.2%,
respectively.

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When this data is considered on an individual basis, a significant number of real estate agents or other
buyer representatives are clearly exhibiting personal bias against Black clients. In the aggregate, however,
the collective behavior of these agents amounts to systemic bias in the home selling sector.
Systemic bias in mortgage lending also remains an obstacle to Black home ownership aspirations.
Research from Northwestern University shows that Black applicants are 60% more likely to be denied
home loans than White applicants, even when controlling for income, gender and indicators of credit
worthiness such as debt, down payments, and credit scores.27 Other studies demonstrate that minorities
also pay higher interest on loans, further diluting their ability to build home equity. This data is a strong
indicator of institutional bias in mortgage lending.
Further evidence of current discrimination in the financial services industry comes from a 2020 study28 by
researchers from Rutgers University, Brigham Young University and Utah State University about the
distribution of federal relief funds from the Paycheck Protection Program of the coronavirus pandemic-
driven CARES Act. As the study reminds, “COVID-19 has had a disproportionate negative effect on
Black communities. Not only is the death rate for Black people 2.3 times higher than the rate for White
people, the number of Black businesses lost between February to April 2020 is almost twice that of the
national business loss rate.”
These PPP researchers directed matched-pair White/Black auditors to Washington, DC lenders to apply
by telephone for support for their small business. Profiles were controlled with racially identifiable names
and each tester was required to pass a voice panel test to determine that their perceived race could be
determined over the phone. To add research strength, the income, assets and credit score profiles of Black
auditors were actually inflated. The results? In 43% of the tests, the White auditor received more
favorable support in pre-application activities. Black male testers were more often offered home equity
line of credit products instead of/in conjunction with small business loan products. In 44% of the cases,
lenders not only discouraged the Black testers from applying for a loan, but simultaneously encouraged
similarly-situated White testers to apply for one or more loan products.
The answer to the question posed in this section’s title is a demonstrable “yes.”
Conclusions
This subject of this paper, “The Impact of Historical Systemic Bias and Home Ownership Rates on Black
and White Household Wealth Disparity in America,” presupposes two hypotheses for review and
affirmation:
H1: "The greatest factor in today's broad and widening gap in household wealth between White families and
Black families is the long history of systemic bias against Black Americans in government policies and private
industry practices."

H2: “Extended home ownership is the largest factor in the development of household wealth and the multi-
generational transfer of financial assets, and thus the lower home ownership rate among Blacks is a key
contributor to household wealth disparity.”

The historical accounts of the systemic racism of slavery and the Jim Crow period were a starting point
for this discussion. The residual effects of this legacy on the opportunity for Black Americans to obtain
full socioeconomic equity cannot be minimized.
Further, the demonstrated racial bias in government policy and private practice in the housing and
financial sectors during the 1930s-1960s period had the effect of severely limiting Black access to the
post-WWII economic boom enjoyed by most White families. Industrial evolutions that moved jobs to the
White suburbs where Blacks were not welcomed accelerated the decline of urban neighborhoods. Despite
modern regulatory remedies, institutional discrimination is still a factor in limiting the fair access of
Blacks to housing and home loans.

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Lower average Black incomes and their higher costs of credit certainly contribute to the wealth gap.
Nonetheless, the singular influence of home ownership on the accumulation and multi-generational
transfer of financial assets has been confirmed by the information presented in this paper. When
controlling for other factors such as education or marital status, the equity built through home ownership
is the chief contributor to the development of personal wealth. Due to the large and growing disparity in
Black home ownership (30 percentage points), it is no surprise there is a corresponding and widening
gap—currently 11.5x—in Black and White household wealth.
Based on this thorough analysis, this paper confidently affirms both Hypothesis 1 and Hypothesis 2.
As the African-American poet Langston Hughes penned, "A dream deferred is a dream denied." That
sentiment appears to still apply for Blacks pursuing American Dream of owning a home and building
family wealth.
_____________________________________________________________________________________
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