Our mission at Divvy is to make homeownership accessible to everyone, but in order to do so, we need to understand the historical practices that have led to mass housing injustice. At Divvy, we’re committed to taking a hard look at the housing industry to understand the role systemic racism has played, the state of the industry today, and how we can be part of the solution.
That’s why we’re publishing a series of three blog posts titled “Understanding and Dismantling Systemic Racism in Housing.” In this series, we’re looking at the history of racism in the housing industry over the last 150 years and examining the various ways inequality has been cemented within the laws and practices of the industry. We’re also discussing how these structures of oppression can be removed to make the housing industry more equitable now and in the future.
If you missed the first two posts in this series, we encourage you to go back and read them. In Part 1, we examined the roots of racism in housing, from the Reconstruction era to the present day. In Part 2, we looked at the role systemic racism played in the subprime mortgage crisis, the factors that led up to it, and the many consequences for families and communities.
In Part 3, we’ll discuss how systemic racism can be dismantled through proactive government policies, making the real estate industry more diverse, and innovative new ways to make homeownership accessible to everyone.
Part 3: How We Can Make Housing More Equitable
Having examined the history of systemic racism in housing, we want to turn to the present and future.
We’ll examine several areas where progress can be made—including government policies, private sector innovation, and diversity within the real estate industry:
- Using the Law to Make Housing More Equitable: Throughout U.S. history, the law has not always been on the side of equality. However, in 2020 we have many opportunities to change local, state, and federal laws to fight systemic racism.
- How Innovation is Expanding Access to Homeownership: It’s not enough to enact new policies. The private sector must play a crucial role in expanding access to homeownership. Innovative new companies are already making this happen.
- Make the Real Estate Industry More Diverse: In order to make the housing industry more equitable, we must make it more diverse. People of all backgrounds should have a path to become real estate professionals, whether as agents, inspectors, appraisers, or brokers.
- Make Renting More Equitable and Stable: Renters face many challenges and, as in the home buying process, the rental process has been marred by systemic racism. We need policies to specifically address these shortcomings.
1. Using the Law to Make Housing More Equitable
Throughout U.S. history, the law has not always been on the side of equality. However, in 2020 we have many opportunities to change local, state, and federal laws to fight systemic racism.
We don’t believe one policy can be the solution on its own. But we believe thoughtful public policy efforts can have a big impact. What’s required is a holistic approach that addresses many different factors with many distinct policies at both the local and federal level.
Here are some of the policies we believe could help make housing more equitable throughout the U.S.:
Better enforce government policy:
The proposals below are geared toward achieving better enforcement of the laws already on the books:
- Investigate and Test for Discrimination: The Fair Housing Act of 1968 made it illegal to discriminate in the sale or rental of housing on the basis of race, color, national origin, religion, sex, familial status, or disability. While these protections are extremely necessary, they are not always enforced consistently. Part of the problem is discrimination can be too easy to hide. The solution is to have more “fair housing testers” throughout the country who pose as prospective home buyers (or renters) and document their experience. By comparing the experience of testers seeking housing from the same home seller—or landlord—the government can find instances of discrimination and correct them more easily. In fact, a compelling investigative report published in 2019 by the Chicago Lawyers’ Committee for Civil Rights used testers to find instances of discrimination and found that 43% of the tests found discrimination based upon race or source of income.
- Challenge Zoning Laws: In some cases, exclusionary zoning laws have a “racially disparate” impact on housing opportunities. While courts typically allow people to sue local municipalities over these laws—through an interpretation of the Fair Housing Act—it isn’t always easy for someone to bring forward a lawsuit like this. Funds should be allocated by the federal government to support people who have been discriminated against because of these types of laws. This would give communities more power and would also deter municipalities from engaging in discriminatory practices. This idea was first proposed by the Century Foundation, an independent think tank dedicated to pursuing economic, racial, and gender equity in the United States.
Change government policy for the better:
In some cases, we need to actually enact new laws to achieve the goal of equality in housing. These proposals are intended to change the law to better achieve those outcomes:
- Create Opportunity Neighborhoods: Too many households, particularly Black and Latino families, have been excluded from taking advantage of amenities more affluent families take for granted—like well-funded schools, parks, and access to public transportation. Today, about 14 million people live in neighborhoods with concentrated poverty. These families need access to the type of resources and opportunities that are associated with high-income areas. That’s where “opportunity neighborhoods” come in. Community leaders will work with residents to invest new funds into economically-disadvantaged neighborhoods, creating areas of greater opportunity. The money comes from both non-profit philanthropic organizations and local governments and the goal is to increase key indicators like jobs, wages, and education choices. A short-term investment can start a positive feedback loop that leads to long-term improvements. This idea comes from a report by the U.S. Partnership on Mobility from Poverty and the Urban Institute.
- Build More Multi-Family Housing: Black and Latino families are disproportionately excluded from access to homeownership, but it’s a national problem affecting all races. The cost of renting a home or apartment is closely tied to a family’s ability to purchase their own home. Unfortunately, both rent and home prices have increased significantly in recent years. In fact, the cost of renting in America has increased by 36% over the last ten years, while home prices have increased by 48% on average in the same timeframe—meanwhile, wages have largely stayed the same. One of the major factors behind both of these numbers is the low inventory of available homes for sale or for rent. This has been exacerbated by the fact that many municipalities prohibit building multi-family housing (apartment complexes, duplexes, etc.) in wide swaths of their jurisdiction. This is often referred to as “exclusionary zoning” and it closes off housing options for many residents—including Black and Latino families. The solution is to offer incentives to communities that change their laws to allow for more dense housing to be built. Data for Progress, a non-profit think tank, explains how this can be done in a report titled “Homes for All: The Progressive 2020 Agenda for Housing.”
- A New Homestead Act: In order to put more people into homes, the government should invest in families and communities at the same time by giving grants to people from underrepresented groups for the purchase and repair of unused or abandoned properties throughout the country. The money would be provided through a revolving credit fund administered at the national level. The fund would primarily be targeted to people who had lived in the community for several years already, thereby ensuring those who benefit would be locals. By placing more investment into areas that have previously been hit by foreclosures and/or economic downturns, the government can spark growth and private sector investment in these areas while giving its residents a chance at homeownership. This plan was initially proposed by Mehersa Baradaran of The Great Democracy Initiative.
2. How Innovation is Expanding Access to Homeownership
It’s not enough to enact new policies. The private sector must play a crucial role in expanding access to homeownership. Innovative new companies are already making this happen.
Through technological advancements, financial innovation, and new business models, a number of startups are beginning to reshape the housing industry. Many of these companies have a mission to expand access to more people, particularly those who’ve historically been excluded from homeownership.
Divvy Homes has created a new way to become a homeowner. Instead of getting a mortgage to purchase a home today, people can move into a home of their choice and rent it while saving up for the down payment.
Divvy believes too many people are excluded from homeownership, either because they can’t qualify for a mortgage or because they can’t keep pace with rising prices. Owning a home has brought security, stability, and joy to millions of families, and has been one of the most powerful wealth-building tools for ordinary people. It is imperative the opportunity to own a home is not reserved for a select few.
There are a few key factors that make Divvy’s program a good solution for those who otherwise could not purchase a home. With Divvy you can:
- Build your savings. Part of your monthly payment to Divvy includes home savings—so you can build up your down payment little by little while you rent the home. You can buy the home from Divvy whenever you’re ready or walk away and cash out your savings.
- Keep your flexibility. Divvy gives you the benefits of homeownership without a 30-year commitment. Our program keeps things flexible for your changing life.
- Come as you are. Your finances are unique—that can make mortgage approval tricky. Divvy fights for everyone to get a shot at homeownership.
Because Divvy will own the home while you’re saving up to buy it, we make sure what we buy is a solid investment and in good shape for the long haul. We take care of the inspection, closing costs, property taxes, and homeowners insurance. Our customers can buy the home at any time during the three-year lease. There are pre-set prices at which you can purchase the home after 18 months or 3 years.
Divvy is committed to making homeownership accessible to everyone. We also see it as part of our mission to fight systemic racism in the housing industry.
3. Make the Real Estate Industry More Diverse:
In order to make the housing industry more equitable, we must make it more diverse. People of all backgrounds should have a path to become real estate professionals, whether as agents, inspectors, appraisers, or brokers.
While people of all races and ethnicities make up the current real estate industry, there’s still progress to be made in opening up these careers to anyone who wants to pursue them. Many barriers to entry exist for these jobs. For example, in order to become a real estate agent, you must complete 135 hours of required education and pass the final exam with a score of at least 70%. Then, you need to pass a state licensing exam and find an experienced agent to sponsor you. Finally, you have to apply for a state license and pay the licensing fee, which can cost several hundred dollars.
An aspiring real estate agent from an underrepresented group may be less likely to have the personal connections, money, and other resources that would help them navigate this process more easily. While there are some existing programs available to them, these programs tend to be smaller and constrained to certain cities or states. The Illinois Minority Real Estate Scholarship Program is open to qualified racial minority residents of Illinois pursuing courses of study that will prepare them for careers relating to real estate. However, such programs are not enough to serve all those who need them.
According to RIS Media, members of the California Association of REALTORS are 71% white, 11% Hispanic, 9% Asian, and 3% African American. As California is one of the most diverse states in the nation, these numbers are disappointing. Meanwhile, Fannie Mae reports that 87% of home appraisers nationwide are white.
Even for those who beat the odds and become practicing real estate agents, they continually battle prejudice in their daily work. Tammy Jones, chief executive officer of Basis Investment Group, told The Real Deal: “Your pedigree is always questioned.” Even as she became more and more successful, the experience of being questioned didn’t go away. “I have actually felt this way for my entire career. The only thing that I could do was outwork people,” she said.
A recent article in the New York Times detailed the discrepancies in appraisals of Black-owned homes in the U.S. A 2018 report from researchers at Gallup and the Brookings Institution found that “a home in a majority Black neighborhood is likely to be valued for 23% less than a near-identical home in a majority-white neighborhood.” It also estimated that these devaluations equal $156 billion in cumulative losses for Black homeowners.
More initiatives are needed to support and sustain people from underrepresented groups who make the decision to enter the real estate field. These could include federal diversity scholarships for those pursuing real estate careers, mentoring programs established by leaders in each field, and more resources dedicated to education.
4. Make Renting More Equitable and Stable:
Renters face many challenges and, as in the home buying process, the rental process has been marred by systemic racism. We need policies to specifically address these shortcomings.
Many of the concepts and solutions discussed above are geared toward helping more American families become homeowners or have the opportunity to purchase a home.
Making housing more equitable is not just about homeownership. Some people will not be able to buy a home in the short- or medium-term. There should be efforts to help long-term renters, particularly Black and Latino families, achieve financial stability.
The policy suggestions below are taken from a Brookings Institution report titled “Renting the American Dream” that outlines a vision for more equity and stability for people who rent.
- Income Support for Renters: One of the most difficult challenges for renters is dealing with income fluctuation. We need more policies to support and protect renters of all races and ethnicities. This will make it more likely for people to be able to achieve financial stability and eventually become homeowners if they would like to. This could be done by providing expanded housing vouchers for low-income families to be used to pay rent when times are tough, in order to avoid eviction.
- Incentivize Savings for Renters: For people who won’t buy a home any time soon, what’s their mechanism for building wealth? Giving people more tools—such as incentivized savings plans—can be an alternative to home equity as a means of growing a family’s wealth over years and decades. This could look like a federal contribution-matching program and include professional asset management provided with no fees or low fees (subsidized).
- Ensure Sufficient Availability of Rental Units: Local governments should change zoning laws that prevent the construction of affordable housing projects. Through both incentives and mandates, a percentage of new housing units should be allocated for affordable housing. An example of this type of policy can be found in Minneapolis, where they’ve instituted a new plan that makes multifamily buildings legal in all residential areas throughout the metro area. By reducing restrictions on multifamily dwellings, cities can expand the supply of affordable housing.
It’s not enough to make homeownership accessible to more families. We also have to find ways to make housing more equitable for renters. People who have no immediate plans to buy a home need to be able to count on stable housing as well.
5. Conclusion
While the past has shown us many examples of inequality and systemic racism in the housing industry, the future doesn’t have to look like that. We’re optimistic that through government policies, efforts to make the real estate professions more diverse, and private sector innovation, we can tackle systemic racism and make housing more equitable for all.
We’ve outlined a few ways we think this can happen, including:
- Using the law to make housing more equitable
- Relying on private sector innovation to expand access
- Taking proactive steps to make the real estate industry more diverse
- Enacting new policies to make renting more equitable
Divvy is committed to being a part of the solution. We’ve spent the last four years building a company that gives people a new way to own a home. We plan to continue this work and ensure all options discussed above are part of the conversation.
With that, we’ll wrap up our series on Understanding and Dismantling Systemic Racism in Housing. If you missed Part 1 or Part 2 of this series, we encourage you to read them.