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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 D

How does the housing market continue to perpetuate racial disparities today?

Dalton Conley: The housing market is a place where culture meets economics - where values about what people want and where they want to live actually influence prices. Whites control the market by virtue of pure numbers, being the largest group. So when whites want to live somewhere, prices go up, and when whites don't want to live somewhere, prices go down.

If you compare housing in Black and white neighborhoods that's otherwise exactly equal - the quality of the housing is the same, the income level of the residents is the same, education system is the same, almost everything is the same - you'll find that the white housing will be worth more precisely because it's white. Because whites are the biggest group in the marketplace, their preferences count the most in terms of supply and demand. So wherever whites want to live, housing values will be high.

The flip side is that if whites don't want to live somewhere, the value of houses in that neighborhood will be less. Think about it: if you have a group that makes up 12-14% of the population like African Americans do - or even 25% of the population if you take the entire non-white population of the United States - they can't compare with the demand created by the other 75-80% of the population, so houses in neighborhoods where whites don't want to live will be depressed by virtue of supply and demand.

The evidence shows that even if a house is in exactly the same condition - it's been kept up at the same rate, the neighborhood is almost exactly the same, but it's Black racially - it's going to be worth less money than a similar situated white neighborhood.

At one time we had explicit legal racial covenants and/or redlining policies on the part of banks. Today we don't need those anymore, because once we've segregated the market, it becomes in whites' interest to perpetuate the divisions. Whites get a boost in their property values by maintaining a segregation of the marketplace, maintaining their position as the dominant group in the housing market. So once you sort of have the initial push of racial covenants or redlining or any other policy that segregated the housing market, it becomes a self-fulfilling prophecy after that.

And in fact, there's a vicious cycle here. Because when a neighborhood, a previously white neighborhood starts to integrate, even if individual whites don't have personal or psychological animosity or racial hatred, they still have an economic incentive to leave. Because they recognize that others might make the same calculation and leave first.

And therefore, if there's a rash of selling by whites, which are the biggest group in the marketplace, prices will go down, by virtue of the laws of supply and demand. So you get a vicious circle where whites calculate that other whites are going to sell when the neighborhood integrates. Therefore, they want to sell first to avoid losses, and they actually make it happen - they make white flight happen and drive down property values when the neighborhood becomes more integrated.

It's obviously disadvantageous to African Americans who want to accumulate equity in integrated or in predominantly Black neighborhoods. But people don't talk about how it's advantageous to whites.

What is the difference between income and assets?

Melvin Oliver: We all want the things that can provide us with better life chances. We want to have an opportunity for education. We want to have good housing. We want to have good medical care. We want to make sure that the next generation is going to be better off than the previous generation.

Those kinds of life chances depend on a certain combination of income and wealth. Many people think of income as being the basic thing for all of those life chances. But in reality, income usually goes into your pocket and out of your pocket. It provides for your basic standard of living.

But wealth - your savings, investments or inheritances from the previous generation - those are the resources that you use to really establish your opportunities in life. Getting an education for your kids, purchasing a home, handling catastrophic illness, and leaving a legacy for future generations. Wealth is really what provides for the life chances that you want your children to have. Income alone doesn't do it.

Look at the example of purchasing a home. The average home in America costs about $150,000. Twenty percent down payment is $30,000. You don't get that $30,000 from income. You usually get it from wealth - your savings, your investment. And a lot of the research we've done points out that many first-time home buyers get that down payments from their parents. Parents typically use their wealth to help their children generate wealth in their lifetime.

One of the theories about assets says, income feeds your stomachs, but assets change your head. That is, you really do act differently when you have a cushion of assets so that you can strategize around important opportunities in life. When you are living from paycheck to paycheck you just think about how you're making the next day or the next week or the next month happen. But when you have a set of resources that allow you to think about your future in a positive way, you can strategize about the future, create and take advantage of opportunity. Otherwise you stay in the present. And I think the key to a fast-paced economy is taking advantage of new opportunities as they come along. And that doesn't happen when you just depend on income. You have to have a wealth or an asset base that allows you to take advantage of that future.

The average American has most of their wealth in the equity in their home. That's why I think homeownership is so important in this society. I think of homeownership as the first step to wealth accumulation, because with homeownership and equity you have so many options afterwards. Leaving your home to your next generation is a huge legacy you can leave. Using the equity in your home to help your children achieve an education is a big advantage. You can use it to take advantage of important opportunities.

Questions for READING D:

  1. How does race influence the market value of homes? Think about your idea of a "good" versus a "bad" neighborhood. How does the housing market perpetuate a racial wealth gap?
  2. How do whites control the housing market? What happens to a community when whites leave?

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