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The Growth of the Suburbs - and the Racial Wealth Gap
Developed by David M. Seiter

ACTIVITY 5: Deepening Understandings of Race and Family
Wealth Accumulation: Six Jigsaw Readings

READING B

How does family wealth affect life outcomes?

Dalton Conley: The single largest item in most people's nest egg is the family home. That has enormous consequences for the next generation. It means, for example, that if you own your home and have significant equity, you're in a high-property tax district, and you're going to a good, well-funded public school.

It means that when it's time to go to college, if you don't have money in the bank, you can always take a second mortgage and draw off the equity in your home to finance your kids' college education. It means that you're in a neighborhood, most likely in the suburbs, where jobs are on the increase, and not in the inner city where jobs are on the decrease.

It means that you're in a neighborhood where your neighbors control information and access to jobs. So you're getting the cultural aspects by virtue of living in a high property value area and you can get your kids better job connections. It means that if you want to finance your kids' job search after school, you'll have equity to support them for a while.

These are just a few of the ways that having wealth, or owning a home, has enormous consequences for the next generation, not to mention one's own old age.

What does housing have to do with family wealth?

Dalton Conley: Where one's family lives in America is not just a matter of taste and preference. It has important consequences for the perpetuation of advantage or disadvantage across generations for a lot of reasons. First, you have the issue of housing and wealth. The majority of Americans hold most of their wealth in the form of home equity. So, that is their nest egg. It is their savings bank. They are living in their savings bank.

Increasingly, there are lawsuits in various states against this way of financing, where school funding is based on local property taxes. But still, it's the dominant form. We pay for our schools locally based on property taxes. So, in high value neighborhoods, which are predominantly white, you are getting well-funded schools. And in low-value neighborhoods, which tend to be predominantly minority, you are getting inadequately funded schools.

The constraints that minorities face in the housing market doesn't just affect quality of life issues, you know, and the selection of homes and styles that people can live in. It really has enormous consequences for economic stability and upward mobility and the life chances of the next generation.

Because minorities have faced limited housing options in the past, now they are usually confined to areas that have worse environment conditions, have poor school funding, have increased risk of violent crime, have worse tax bases. Plus their homes have less equity value, so even if they want to move, they are less able to afford to. Therefore the whole economic structure of the next generation can be really readily viewed in the limited housing selections of the previous generation.

How does home ownership help you accumulate even more wealth?

Dalton Conley: There is this tendency for white Americans to see the structure of their aid in the form of tax credits and not as aid, or government assistance, or welfare. But they see other forms of assistance, like reduced rents or welfare benefits, as a direct handout from Big Brother.

Owning your home, first of all, gets you a big mortgage deduction. That means you pay less income tax than you would be paying if you were renting and making similar monthly payments. Second, it probably places you in a community that has higher property values than one where you were just renting. Owner-occupied communities tend to be valued more, and that means that the property tax base is higher. That means that local services, everything from garbage services on up to the public school system, most importantly, are going to be better off in that community. So, without even having to spend your equity in your home, you are getting benefits from it.

Third, there is the ability to borrow off that equity. You can finance starting up a business by taking a second mortgage. You can pay for your kids to go to college through a second mortgage. You can finance your retirement by selling your home. Since homes have increased so much in value over the course of the latter half of the 20th century, people can finance their retirements through the sale of their home and the capital gains they get from it. The home has been a central part of savings for most American families in the latter half of the 20th century. White Americans that is.

Questions for READING B:

  1. How does family wealth, even more than income, influence life chances?
  2. Why is home ownership so central to family wealth accumulation? What opportunities does it help to open up?

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