Buying a home is often framed as a quintessential part of the American dream.
But data shows that the dream doesn’t manifest itself equally for everyone in Cincinnati. About 24 percent of black households in the city owned a home in 2017, for example. Meanwhile, roughly 50 percent of white households in Cincinnati lived in a home they owned that year, according to an aggregate of five years of American Community Survey results from the U.S. Census Bureau.
So why do so many fewer black residents in Cincinnati and elsewhere across the country own their own homes? The reasons for the disparity are complex — though some are linked to decades of past discrimination.
“I'm struggling mightily with the home-buying process,” says Brandon Davis, who has been house hunting since 2015. Davis, who is black, grew up and raised his now-teenaged children in predominantly black Madisonville.
Davis first set his sights on purchasing a house just down the street from the home he is renting, a couple turns off Whetsel Avenue. The small, one-story abode with faded white wood panels and purple-blue trim was vacant and for sale for $22,000.
Davis applied for a loan, figuring he would buy the house and do the necessary repairs with the help of a friend who was a seasoned contractor.
Working for a nonprofit that helps former prison inmates transition to life on the outside, Davis has a stable, midrange income — he easily qualified for a car loan for roughly the same amount as the house soon after. But home loans are more stringent and he was turned down, likely due to its small sum and the condition of the property.
Feeling ties to the neighborhood, he looked elsewhere in Madisonville.
Plenty of folks are buying in the neighborhood and the number of mortgages issued have increased, going from 72 in 2014 to 134 in 2017. But most home loans aren’t going to black residents.
Despite the fact that the neighborhood is 59 percent black, only 30 of 433 mortgages worth $52.8 million issued between 2014 and 2017 in the full Census tracts that make up the neighborhood went to black home buyers, according to data from the federal government related to the Home Mortgage Disclosure Act.
That pattern has repeated itself in a number of neighborhoods in Cincinnati.
As prices have risen, Davis has had little luck buying in Madisonville and has since expanded his search to more expensive houses that need less work in other neighborhoods, including Avondale, South Cumminsville and East Westwood.
He has watched houses he’d like to buy go off the market before he could view them and has seen listings go from “for sale” to “pending” within hours of calling about them.
Much of that may just be the difficulty of buying in a hot market, he says. But some of it feels like something else to him.
For a number of reasons, the difficulties of home buying are often compounded for people of color.
A pervasive wealth gap and paucity of financial services in low-income and many black communities contributes to the home ownership chasm, experts say. Plus, a lack of loans under $50,000 often block prospective home buyers from buying property in lower-income neighborhoods, as Davis has experienced.
And getting a home isn’t the end of the struggle. Sometimes, less-ideal means of securing homeownership via nontraditional sales like land contracts translate into difficulties down the road.
Studies show that properties in predominantly black areas in Cincinnati don’t gain equity at the same rate properties in other neighborhoods do — if they gain any at all — leaving black homeowners with less wealth accumulated over time and less ability to move into more desirable neighborhoods.
“Starting with racism, starting with an economic deficit for moderate-income people and then oversight (by the federal government) that does not take equity into consideration, all of those things are challenges for homeownership,” says Rick Williams, president and CEO of the Home Ownership Center of Greater Cincinnati, a nonprofit that provides guidance for prospective home buyers. “It can make the American dream of homeownership fake for minorities and moderate-income people, because what is supposed to come with it after the closing doesn’t.”
Williams is quick to point out that not all African Americans are also low-income, but says that a number of difficulties with the home-buying process can follow higher-income black home buyers as well.
There are places like the Home Ownership Center where potential home buyers can find help, as well as city programs that offer down payment assistance and other aid. There are also nonprofits like Housing Opportunities Made Equal Cincinnati (HOME), which advocates for changes that could boost equity for minority and low-income home buyers in the long term.
Despite those efforts, though, many black residents of Cincinnati still face a tough time buying a home — a dynamic borne out by the statistics showing the gaps between minority and white homeownership rates.
Gaps in Lending and Borrowing
There are a number of reasons why these disparities exist.
Unless a potential homeowner has tens or hundreds of thousands of dollars to spend outright, they will likely need a home loan to purchase a house. But home lending has a long, fraught history in the U.S.
In the 1930s, the Federal Housing Administration drew up maps categorizing neighborhoods made up of minority residents as “high risk” for lending — a practice called "redlining" that set socioeconomic patterns of segregation in many cities for decades to come. If a neighborhood was redlined, the federal government often wouldn’t insure private loans made there.
That drove widespread disinvestment in many predominantly low-income and minority neighborhoods. For decades, families couldn't get loans to buy homes, and couldn't finance renovations on homes they already owned, playing a part, along with white flight, in the physical and economic decline of many inner-city communities.
“Generally speaking, we always go back to redlining,” says HOME CEO Jeniece Jones. “That’s our jumping off point — did communities develop as integrated neighborhoods that allowed African-Americans to build wealth? Mostly they didn’t due to overt discrimination.”
Compounding the racial lending gap, and later the wealth gap, the federal government underwrote many millions of dollars in low-interest home loans to returning GIs following World War II — almost all to white home buyers and almost all in the suburbs far from where black residents were concentrated.
Discriminatory loan practices were common up until the 1970s, when Congress passed a bevy of housing discrimination protections.
Some say the practices didn't fade away when Congress passed fair lending laws, however. As recently as three years ago, the federal government alleged some banks' lending practices still contributed to racial disparities in Cincinnati.
In 2016, two area banks owned by the same family — Union Savings Bank and Guardian Savings Bank — settled a lawsuit brought by the federal government over charges that their practices violated the 1974 Fair Housing and Equal Credit Opportunity Act.
Federal attorneys pointed out that Union bank opened 26 branches in majority white neighborhoods but hadn’t opened any in black neighborhoods and had received only about 2 percent of its mortgage applications from majority black neighborhoods. The banks strongly denied allegations of wrongdoing, but under a settlement, agreed to invest $9 million in minority neighborhoods in Greater Cincinnati.
Partly as an effort to mitigate the effects of redlining, the federal government has for decades tried to incentivize lending in low-income and minority communities via a law called the Community Reinvestment Act. But that has its own complications. The CRA requires banks to invest in low-income, minority neighborhoods. Many of the loans available through the law, like FHA loans, allow buyers to put down smaller down payments. That’s good in the short term, Williams says, but can have long-term limitations.
“The products that you will be funneled into are the ones that require low down payments,” he says. “That’s beneficial at the moment of closing. But after that your equity is limited.”
The Wealth Gap
Even with laws promoting fair lending, disparities persist.
Data collected by the federal government in accordance with the 1975 Home Mortgage Disclosure Act shows home loans sold in the Greater Cincinnati Metropolitan Area. But it presents only a partial picture.
Despite making up more than 15 percent of the region’s population, black home buyers received only about 3 percent of the region’s conventional home loans in 2017, HMDA data reveals. But they also applied for many fewer loans.
When it comes to government-backed mortgage programs such as Federal Housing Administration and Department of Veterans Affairs loans, black residents did better, but still didn’t apply for or receive mortgages in proportion to their share of the population, as whites did.
But that data isn’t the total story— it doesn't control for things like credit scores and other key variables that determine when someone might seek a mortgage and whether they will be successful in obtaining one.
Those variables, in turn, have a lot to do with wealth.
Nationally, black households in recent years had an average net worth of $9,211 and Hispanic households had a net worth of $12,458. White households, meanwhile, had an average net worth of $132,483.
That’s important because some research suggests that parental wealth is strongly correlated with an individual’s likelihood of buying a home.
A forthcoming study by University of Cincinnati Lindner College of Business professors Mike Eriksen and Shaun Bond, for example, suggests that parental wealth may be among the largest factors explaining the gap between white and non-white individuals in the ability to purchase and keep a home. Their research shows that having a parent with at least $75,000 in non-retirement financial wealth increases the likelihood of a person moving from renter to owner.
“Despite finding a strong explanatory role of parental attributes in describing the wealth racial gap in home ownership rates, it would be incorrect to conclude that racial identity, or even discrimination, does not matter as much as we originally thought,” their study concludes. “…Disparities in how minorities currently are or have been treated in the past could directly result in the observed differences in wealth, and lead to even further divergence in home ownership rates in the future without intervention.”
Obstacles to Building Credit
One of the reasons banks have given for the paucity of loans to minorities in cities across America and why minorities proportionally seem to apply for fewer of those loans in the first place involves data we don’t get to see — credit scores, debt in proportion to income and other financial information for applicants.
Even with that explanation, some that credit rating systems can disadvantage people of color.
One of the reasons for that, HOME’s Jones says, is because many people of color are often locked out of traditional credit-building opportunities.
Nationally, 17 percent of African-Americans are completely “unbanked,” or not using any form of banking, the Federal Deposit Insurance Corporation found in a 2017 study. That compares to a rate of about 6.5 percent overall and 3 percent for whites. Most of those who are unbanked told the FDIC it was because they did not have sufficient funds for a bank account, though about a third also said it was because they did not trust banks.
Many in moderate-income and minority communities turn to alternative financial services like the check cashing industry, Jones says. Those services charge very high interest rates, and customers are penalized on their credit reports for missing payments but don’t see benefits to their credit for making payments on time.
“We see a lot of people of color who use alternative financial services that don’t really roll up into a credit score,” she says. “If you look at who is unbanked and why, are there brick-and-mortar banks and representation in these communities? Has it created a vacuum for some of those alternative financial services to move in?”
Oftentimes, that is the case.
That vacuum has hazards beyond institutions like payday lending, says Legal Aid Society of Southwest Ohio attorney Steve Sharpe, from subprime loans to alternative home buying methods like land contracts.
Sharpe has been working on the latter issue for several years. The sale of those contracts picked up in the years after the Great Recession, when investment entities scooped up distressed properties for cheap. Some then turned around and sold them on contracts for five times the price while requiring that the buyer pay rent and upkeep costs while withholding ownership and the title to the house.
That, Sharpe says, is the worst of both worlds. The resident often can’t get loans to fix up and maintain their house and can’t borrow on its equity, but they’re still responsible for all the costs of owning it.
Eventually, the contracts often prove untenable, and the residents lose their home.
“The problem is, you’re in this netherworld where you will have the obligation to repair a property, but you don’t have the title and the access to city programs,” Sharpe says. “Sometimes, it’s challenging to even get a contractor to work on your property when you don’t have a title. It’s a legal limbo.”
The dearth of options or knowledge about options can lead prospective home buyers in low-income and minority communities to take on bad deals, the Home Ownership Center’s Williams says.
“Because we’re talking about a part of our community that is used to being told ‘no,’ they welcome a ‘yes,’ ” he says. “Without the foundation of education for what they should expect, they go for the ‘yes’ without knowing it’s not the best ‘yes’ they can get.”
That danger doesn’t end if a person does find credit at a traditional bank — even a great one — he says.
“That ‘yes’ could be at any part of the process,” Williams says of less-than-ideal options many black prospective home buyers face. “It could be the realtor that says, ‘You should look at these neighborhoods,’ when you don’t have to look at just those neighborhoods. It could be that you don’t get the luxury of buying a house close to your job, because your job changes too regularly. Unlike a lot of others buying homes, you might have a job, not a career. You’re buying homes on bus lines because your transportation options are limited. All of those things kick into the decision making, so you get relegated to certain geographic places.”
And getting relegated, so to speak, has its costs in neighborhoods with high levels of long-established black homeowners like Mount Auburn, Bond Hill, Avondale and others.
A study released earlier this year by the Brookings Institution found that homes in the Cincinnati Metropolitan Area's predominantly black neighborhoods appraise for roughly $10,000 less than comparable homes in majority white neighborhoods. That means less equity for homeowners, which means they may stay in place longer instead of trading up to a better house in a choicer — often whiter — neighborhood.
"According to our analysis, differences in home and neighborhood quality do not fully explain the devaluation of homes in black neighborhoods," the study's authors wrote, before concluding, “laws have changed, but the value of assets…are inextricably linked to the perceptions of black people. And those negative perceptions persist."
All of those factors come into play in neighborhoods where Davis has been looking for a home, sharply limiting the number of minority homeowners in those places.
As interest has surged in Davis’ first choice of Madisonville, so have home prices. That’s caused him to look elsewhere, something he’s been reluctant to do, especially when homes go off the market days or even hours after he finds them.
“It's asking a lot to vet a neighborhood, see how the commute to work works, ask high school kids to change schools and make a 10 to 30 year decision within a day or two,” he says.
Like Madisonville, other places he has looked have a lack of black residents applying for and receiving home mortgages — though in some cases, hardly anyone is applying for them at all.
Neighborhood to Neighborhood
East Westwood, a predominantly-black neighborhood of about 2,400 people where Davis also saw a home that struck his interest, had just eight mortgages sold between 2014 and 2017 worth a total of $511,000.
The four Census tracts that make up Avondale, meanwhile, saw 67 conventional or FHA mortgages written between 2014 and 2017. In a neighborhood of 12,000 people that is 90 percent black, 26 of those loans went to black homebuyers. The neighborhood’s median household income of $18,000 a year is dwarfed by the median income of those receiving the loans — more than $60,000 a year, federal data shows.
Other neighborhoods, of course, see many more loans, and a select few, like Bond Hill, see mostly black home buyers. In 2017, the diverse neighborhood saw 51 mortgage loans worth $6.3 million. Thirty-two of those loans went to black borrowers.
But the bulk of the mortgage action in Cincinnati is taking place for white borrowers.
Across town in Mount Washington, which is roughly the size of Avondale with about 11,700 people — 88 percent of them white — there were 124 mortgage loans written in 2017. Almost all of those loans went to white borrowers.
The pattern repeats itself across Cincinnati. Predominantly white Hyde Park, home to about 900 more people than Avondale with a median household income of $74,000 a year, received almost 11 times the number of mortgage loans — 293 — than Avondale did in 2017. Only three of the recipients of those mortgages were black.
In some ways, it’s not a surprise. A borrower needs income or wealth to borrow, and a found that nine of the city’s 10 lowest-income neighborhoods were predominantly black, while nine of its 10 highest-income neighborhoods were white.
In a few of those low-income neighborhoods, new development has exploded. And when it does, it can leave low-income minority residents behind.
Over-the-Rhine, a predominantly black neighborhood that has seen a loss of black residents and an influx of white residents in recent years, saw 405 mortgages between 2013 and 2017, federal data shows. Of those, only 12 went to black home buyers. In 2017, the median income of borrowers seeking loans in the neighborhood was $147,000 — up from $80,000 in 2013 in a neighborhood with a median household income of about $15,000 as of the 2010 Census.
Walnut Hills saw a similar trend — just 20 black borrowers were among the receivers of the neighborhood’s 214 mortgages worth $39.3 million sold between 2013 and 2017.
The economic disparities and gaps in mortgages between whites and minorities are tightly intertwined. The stacked economic disparities facing many people of color in Cincinnati can have huge impacts on efforts toward homeownership, which, ironically, is one of the major ways individuals and families build wealth in the American economy.
However grim the picture seems, Williams, Jones and others urge looking beyond the problems and toward solutions.
For Williams, that’s about educating home buyers — especially those who are people of color — about their options, their rights, and how they should be treated. That way, if they feel something isn’t right with a lender, a realtor, an inspector or some other part of the process, they know they can go somewhere else.
Jones points to alternatives in the lending and credit systems, like the Credit Builders Alliance, a group that works with local nonprofits to help rebuild credit in underserved communities.
She also says that investments by some area banks in low- and moderate-income communities show promise.
Greater Cincinnati’s largest bank, Fifth-Third, was dinged by the Federal Reserve under the CRA in 2013, getting a “needs improvement” rating which regulators chalked up to violations of the fair housing and lending laws. The bank’s rating moved to “outstanding” last year, mostly on the strength of a commitment to spread $30 billion in investment among low- and moderate-income communities throughout its branches in 10 states.
Community investment by banks is great, says Jones. But the proof will be in the pudding.
“There appears to be some real thoughtfulness around agreements that some of the larger banks have entered into,” she says. “These investments need more light shone onto them. There (is) some regional discussion about investments, but we need it block by block. That’s what I’m looking for. I need to be able to get in the car and go over and say, ‘This is happening here.’ ”
Jones and Legal Aid’s Sharpe also point to opportunities for smaller-value loans — the kind Davis wanted in order to buy that fixer-upper in Madisonville years ago — as potential ways to help boost and maintain homeownership for people of color. Generally, lenders aren’t much interested in home loans under $50,000, Sharpe says.
“If you’re in a community where home values aren’t through the roof, you don’t really need a high-value loan,” Jones says. “Those low-dollar loans are really something there needs to be more of. There are lots of families that can benefit from that.”
There are also hyper-local efforts run by community development corporations like Price Hill Will, which has a homesteading program that has helped some low- and moderate-income residents in the neighborhood transition to sustainable homeownership. And in Lower Price Hill, the Community Learning Center at Oyler School has partnered with Habitat for Humanity to help families of Oyler students own their own homes. But those efforts will need much more support — and iterations in other neighborhoods — to address the larger disparities.
Williams cautions that the home ownership gap is part of a larger systemic set of problems, however, and can’t be considered in a vacuum apart from concerns about transportation, food access, wage disparities and other issues.
“I think it is important not to isolate homeownership as something that, if it is fixed, then the American dream of homeownership can work for African-Americans,” he says. “Home ownership is a part of economic inclusion. Economic inclusion as a whole has to be fixed for homeownership to work. When it isn’t fixed, home ownership can become a problem and a burden, because it can’t support someone who does not have economic accesses.”
Edit: an earlier version of this story incorrectly stated that 5.5 percent of adults in the U.S. are unbanked. The correct figure is 6.5 percent.