Slides

The American Enterprise Institute’s Housing Center released its revised working report: “The Impact of Race and Socio-Economic Status on the Value of Homes by Neighborhood: A Critique of the Brookings Institution’s ‘The Devaluation of Assets in Black Neighborhoods.’” The call reports on the Housing Center’s analysis of and improvements to the widely-cited Brookings study by Perry et al. “The Devaluation of Assets in Black Neighborhoods” (2018).

Key takeaways:

• Perry et al.’s “The Devaluation of Assets in Black Neighborhoods” has garnered much attention. The study aims to quantify the financial cost of racial discrimination. It finds a value difference of 23 percent between neighborhoods that are less than 1 percent Black and majority Black neighborhoods or $156 billion in cumulative losses, which the authors attribute in its entirety to racial bias.
• We point out shortcomings in Perry et al.’s methodology and conclude that it is a serious overstatement to attribute a 23 percent gap in valuations solely to racial bias.
• We are not aiming to provide an alternative point estimate, but rather to show that the current approach has serious shortcomings.
• Our work finds that what Perry et al. characterize as race-based differences in home values are actually, in large part, SES-based differences.
  • Lower SES certainly reflects a legacy of past racism and lingering racial bias, leaving Blacks at a large income (and wealth) disadvantage relative to most Whites.
  • However, if largely SES based, the primary remedy would be policies that work to address the income and wealth gap.
• Our work finds that while much work remains to be done, the focus should be on increasing financial security, creating generational wealth, and shrinking the SES gap through sustainable home ownership. This is largely a buying power issue, not a valuation one. To do otherwise risks repeating the mistakes of the past.
• We also point out that while the country has been making progress in racial integration, stratification along income and SES has been increasing.
• We propose several policy solutions to address this increasing stratification.