President Joe Biden has consistently stressed the need to address the racial inequity that plagues America. Nowhere is this inequity more pronounced than the wealth gap. The typical Black family has one-eighth of the net worth of white households. Latinos have less than a fifth.
Yet most of the $640 billion housing plan Biden has proposed will do nothing to help close the wealth gap. That’s because his housing plan is focused on rental housing and rent vouchers.
To Biden’s credit, his plan did include a $15,000 tax credit for first-time home buyers. The administration has suggested this credit could be usable at the time of purchase, but it’s not clear how that would work. But there is a simpler way to increase access to home ownership: a home-ownership voucher. Home-ownership’s importance to wealth building is well understood. A 2015 report released by Brandeis University’s Institute for Assets & Social Policy shows the home-ownership gap is the most significant driver of the racial wealth gap and more significant than unequal incomes and access to higher education. The Black-white home-ownership gap is worse today than it was in 1968, the year the Fair Housing Act was passed.
The only significant federal program that specifically helps lower-income households purchase their first home is the FHA mortgage insurance program, with a current annual budget of about $3 billion. We spend 13 times that amount – $39 billion a year – on rent vouchers.
But rent vouchers, though an important social safety net, can get expensive; the average beneficiary uses them for six years. And the average monthly subsidy is $768, which adds up to about $55,000. Yet rent vouchers accomplish nothing for people who want to own their own housing and avoid having a landlord and annual rent increases.
Home-ownership vouchers could have a major impact. A one-time national investment of $39 billion could provide a $15,000 voucher to 2.6 million new home buyers – a population large enough to increase the Black home-ownership rate from 42% to around 60%.
While $15,000 may not be enough to help a homebuyer in expensive housing markets on the coasts, it would work in most parts of the country where housing costs are lower. And this amount could be adjusted for higher-priced markets, just as rent vouchers are.
My nonprofit organization, Homewise, has operated a local version of this idea in New Mexico for years and has helped thousands of new buyers with down payment assistance, from modestly priced Albuquerque to higher-cost Santa Fe.
Some caution is warranted here. As shown during the mortgage lending crisis, making home loans available without regard to the borrower’s ability to make the payments can cause real damage. But when homebuyer assistance is provided together with education and coaching that help buyers reduce consumer debt, improve their credit and build a savings habit, these buyers can be successful over the long term. For example, the over-30-day delinquency rate of homeowners assisted by Homewise is less than 2.5% – much lower than homebuyers who did not benefit from the same kind of support.
A home-ownership voucher is no magic bullet. But if used right, it can lower the barriers that prevent many rent-paying Americans from buying a home. Only then will we begin to level the playing field for all.