Homeownership serves as the primary asset in which most Americans build and store their wealth. The federal tax code also incentivizes homeownership by providing tax savings associated with mortgage interest deductions. Furthermore, there are other positive attributes that owning a home, particularly in a certain neighborhood, may offer, such as access to a good public school district and other neighborhood amenities such as convenient shops and access to parks. Finally, the purchase of a home and regular on-time payments of a mortgage lead to higher FICO credit scores than for families who regularly make on-time payments for rent.
Yet the percentage of households owning a home differs radically by race and ethnicity in Boston. Most whites—79 percent—are homeowners, whereas most nonwhites are not.
The Boston MSA, which is home to 4.6 million residents and accounts for almost one third of New England’s population, has experienced noteworthy demographic changes over the past decade or so. The non-Hispanic white population declined 3 percent from 2000 to 2012. During the same period, the number of Asian and Hispanic residents in the Boston MSA increased 58 percent and the number of non-Hispanic blacks increased 33 percent.
In the coming decades, a significant rise in the share of nonwhite populations is projected nationwide. Population growth in the Boston MSA is already driven by the nonwhite population increase. Thus, the financial well-being of communities of color is central to ensuring the inclusive long-term growth and prosperity of the Boston MSA.
In this article, we’re unpacking 5 facts from The Color of Wealth in Boston, a report that analyzes racial wealth inequality in the Boston MSA and discusses its implications.
The typical white household in Boston is more likely than nonwhite households to own every type of liquid asset. For example, close to half of Puerto Ricans and a quarter of U.S. blacks are unbanked (that is, they do not have bank accounts) compared with only 7 percent of whites. For every dollar, the typical white household has in liquid assets (excluding cash), U.S. blacks have 2 cents, Caribbean blacks 14 cents, and Puerto Ricans and Dominicans less than 1 cent.
Whites and nonwhites also exhibit key differences in less-liquid assets that are primarily associated with homeownership, basic transportation, and retirement or health savings. While most white households (56 percent) own retirement accounts, only one-fifth of U.S and Caribbean blacks have them. Only 8 percent of Dominicans and 16 percent of Puerto Ricans have such accounts. Most whites—79 percent—own a home, whereas only one-third of U.S. blacks, less than one-fifth of Dominicans and Puerto Ricans, and only half of Caribbean blacks are homeowners.
Although members of communities of color are less likely to own homes, among homeowners they are more likely to have mortgage debt. Nonwhite households are more likely than whites to have student loans and medical debt.
Thus, nonwhites are likely to experience far more short-term financial disruptions due to their lack of liquid buffer assets. They are also more likely to experience much poorer longer-term housing and retirement outcomes as a consequence of their lack of homeownership, housing equity, and retirement savings. The result is that the net worth of whites as compared with nonwhites is staggeringly divergent.
Nonwhite households have only a fraction of the net worth attributed to white households. While white households have a median wealth of $247,500, Dominicans and U.S. blacks have a median wealth of close to zero. Of all nonwhite groups for which estimates could be made, Caribbean black households have the highest median wealth with $12,000, which is only 5 percent of the wealth attributed to white households in the Boston MSA.
Unless net worth outcomes in communities of color improve, the aggregate magnitude of the wealth disparity will increase. This is a first-order public policy problem requiring immediate attention. Policies aimed at bridging the wealth gap should also consider the wide diversity among nonwhite populations and be targeted or adapted accordingly. Policy solutions are complex and need to use a multifaceted approach that includes input from practitioners who are familiar with the unique needs and challenges different communities of color face.