By Austin Cummings, Research Associate
Put simply, the market penalizes integration: The higher the percentage of Blacks in the neighborhood, the less the home is worth, even when researchers control for age, social class, household structure, and geography.
Dorothy A. Brown, “Homeownership in Black and White: The Role of Tax Policy in Increasing Housing Inequity”
… [A] home is one of the only assets in which the race of the owner affects the rate of return…
William Darity, Jr., et al., “What We Get Wrong About Closing the Racial Wealth Gap”
The public policy myopia concerning [the] racial wealth gap has helped to normalize the idea that individuals or individual families should be responsible for accumulating the necessary wealth to compete and thrive in U.S. society. It means…endless policy promulgations for increasing homeownership among African Americans so that they overcome the wealth gap, but the real issue here is how the insistence on homeownership as the solution to economic or racial inequality leaves African Americans behind. The value of Black people’s homes will never catch up with their white peers. To do so would require such powerful interventions into the U.S housing market that the market would cease to be recognizable…
Keeanga-Yamahtta Taylor, “Race For Profit: How Banks and the Real Estate Industry Undermined Black Homeownership”
Taken together, the authors quoted above point to a variety of factors that continue to solidify the racial wealth gap. These factors include: penalizing racial integration, racial discrimination in the housing market, myopic and stifled policy imaginaries, and the persistence of institutionalized racism. As Taylor notes, many politicians, policy experts, researchers, and community development practitioners have viewed creating homeownership opportunities for African Americans as the primary means to addressing the racial wealth gap, creating financial security, and housing stability. Even though there is broad agreement amongst anti-racist scholars, practitioners, and advocates that addressing the racial wealth gap requires addressing barriers in accessing homeownership opportunities of ethno-racial minorities, there are competing explanations for how the racial wealth gap persists and continues to grow — despite explicit policy efforts to address this gap (Flippen, 2004; Immergluck et al. 2019; McCargo, 2019). Some advocates promote increasing access to low-interest loans and a slew of other programs to increase Black wealth and address the racial wealth gap.
Others, however, argue and illustrate that the racial wealth gap is not simply about increasing homeownership for African Americans. For example, white homeowners have a net worth of roughly $140,000 more than their Black counterparts (Darity et al, 2018) and homeowners living in minority-majority neighborhoods experience up to an estimated $48,000 decrease in home value, compared to if they owned a home in white-majority neighborhood (Perry et al., 2018). Moreover, others point to the ways African Americans have been included into homeownership opportunities through predatory means (Taylor, 2019). Specifically, they highlight the tens of billions of dollars of Black wealth that were destroyed during 2007-2008 through a myriad of predatory lending practices. From this perspective, addressing the racial wealth gap not only involves increasing homeownership opportunities, but also intentional efforts to integrate neighborhoods and other ambitious reparations programs.
Building on this line of analysis, this blog post hopes to interject in the budding discussion on the home appreciation gap through analyzing access to home improvement loans throughout Cuyahoga County. The history of racial discrimination in accessing loans and predatory lending have played a significant role in shaping financial outcomes between white and Black individuals. However, little attention has been paid to the role accessing home improvement loans plays in shaping the ability for Black households to increase their individual wealth, build equity in their home, improve the overall market value of properties surrounding their home, and improve their quality of life through investing in their home.
Through this analysis we hope to address the follow questions:
- Who applied for home improvement loans in 2021?
- Are there disparities in application outcomes between white and minority borrowers?
The analysis illustrates that there are significant differences in accessing home improvement loans in Cuyahoga County between white and Black applicants. Race and income level appear to be shaping home improvement loan denial and origination rates throughout Cuyahoga County, illustrating that opening up opportunities to homeownership is simply not enough to address the racial wealth gap, increase neighborhood stability, or address the harmful and ever-present impacts of redlining in Cuyahoga County.
A Note on Data and Analysis
The following analysis utilizes Home Mortgage Disclosure Act (HMDA) dataset for 2021. The dataset was accessed from NEOCANDO. The HMDA data included home improvement loan applications, the number of home improvement loan applications denied, the number of home improvement loans originated, geographic identification of where the applicant applied for a loan from (including census tract identification, municipality, neighborhood for the City of Cleveland, and Cuyahoga County Region).
The Persistent Impact of Redlining
Segregated living patterns in Cuyahoga County were, in part, created and maintained by discriminatory mortgage lending practices institutionalized through the Home Owner’s Loan Corporation (HOLC) and Federal Housing Administration (FHA), starting in the 1930s. These practices internalized the belief that nonwhite neighborhoods are not worthy of credit, and bolstered discriminatory lending practices until the passage of the 1968 Fair Housing Act (Rothstein, 2017). The history and practice of redlining has and continues to significantly shape life outcomes, access to wealth, exposure to environmental harms, and access to socio-economic opportunity. Previous research through the Fair Housing Center for Rights & Research has illustrated how ethno-racial disparities in accessing home mortgages have persisted (Ford, 2023; Lepley and Mangiarelli, 2018).
Home Improvement Loans
Home improvement loans are personal loans used for home repairs, renovations, and/or restoration projects. Some may use these loans to remodel a kitchen or bathroom, replace an HVAC system, or make necessary home repairs. Home improvement loans typically range from $3,000 – $100,000, have fixed rates, flexible payment schedules, and some are advertised with no collateral. Repayment often ranges from 12-84 months and these loans often don’t have an origination fee.
This analysis focuses on racial and geographic disparities in origination and denial rates for home improvement loans because of the impact that accessing lines of credit to make renovations can have in increasing equity in homes, creating greater housing security, and addressing housing quality issues in an area with a gaining housing stock. This analysis is also shaped by the amount of housing renovation activity that occurred during the pandemic and will possibly happen as housing dynamics fluctuate. Lastly, there is very little academic and policy literature that explicitly addresses racial and geographic disparities in home improvement loan access. (Reed et al., 1978; Ryker, Pol, Guy 1984).
Disparities in Denial and Origination Rates Across Cuyahoga County
There were a total of 6,003 applications for home improvement loans throughout Cuyahoga County in 2021. Approximately 65% of home improvement loan applicants were white, while approximately 24% were Black. As Table 1 illustrates, white and Black applicants experienced different outcomes when they applied for home improvement loans. Specifically, Black applications were denied 62% of the time, while white applications were denied only 32.33% of the time.
Overall, this means:
- White applicants were over 2.1 times more likely than Black applicants to have a home improvement loan originated in Cuyahoga County.
- Black applicants were over 1.9 times more likely than white applicants to have home improvement loans denied in Cuyahoga County.
Lower income applicants generally experienced the highest denial rates, while middle and upper income applicants had greater origination rates than the average (See Figure 3).
Table 1: Trends in Denial and Origination Rates across White and Black Applicants
| Action | White | Black | Total |
| Origination | 2041 | 237 | 2667 |
| Denial | 1274 | 621 | 2335 |
| Other | 625 | 146 | 971 |
| Origination Rate | 51.80% | 23.61% | 44.43% |
| Denial Rate | 32.33% | 61.85% | 39.23% |
| Percent of Applications | 65.60% | 16.72% | 6003 |
| Total Applicants | 3940 | 1004 | 6003 |
Figure 3: Trends in Denial and Origination Rates across Income Level
Comparing outcomes for home improvement loan applicants across race and income level illustrates that Black and white applicants are experiencing very different outcomes across income level (see Figure 4). Within each income level, white origination rates are higher than Black origination rates, while Black denial rates are higher than whites across all income categories. Black applicants across all income levels have home improvement loans originated below the mean origination rate for the entire county, and are always denied above the average denial rate across the entire county. On the other hand, white applicants experience higher origination rates and lower denial rates as they accumulate more income.
Figure 4: Origination and Denial Rate Comparison – Race and Income in Cuyahoga County
Next, Figure 4 demonstrates that Upper Income Black applicants (<120% Cuyahoga County median income) and Higher Upper Income Black applicants (<200% Cuyahoga County median income) are approved for home improvement loans at a lower rate than Moderate and Middle Income white applicants. Moreover, Upper Income Black and Higher Upper Income Black applicants are denied at a higher rate than Moderate and Middle Income white applicants. Lastly, Low Income white applicants have a 72% denial rate and a 27% origination rate for home improvement loans, while Higher Upper Income Black applicants have a denial rate of 66% and an origination rate of 67%. The difference between their rates is marginal compared to the average difference between origination and denial rates between white and Black residents noted above.
Reasons for Denial:
The HMDA data allows us to investigate why applicants were denied loans. Figure 5 provides an overview of the reasons lenders and loan providers used to justify their decision. Credit history is the most cited reason for denying a home improvement loan applications. Interestingly, debt-to-income ratio and employment history are cited reasons for denying white applicants for home improvement loans more often than for Black applicants.
Figure 5: Reasons for Denying Access
As a previous blog post noted, there are significant disparities in credit scores across white and Black communities in Cuyahoga County. These disparities are not only shaping access to home purchase loans, but also appear to shape the landscape of accessing home improvement loans. Accessing home improvement loans can play an important role in accumulating equity in an individual’s home, improving the resale value of a home, and making necessary modifications to improve the quality of life of living in one’s home. Addressing the wealth gap requires thinking beyond getting people into homes and addressing a myriad of issues that shape being able to improve the equity and quality of one’s home.
Sources:
Brown (2012). Homeownership in Black and White: The Role of Tax Policy in Increasing Housing Inequity. The University of Memphis Law Review. URL https://www.memphis.edu/law/documents/brown_final.pdf.
Darity, W., D. Hamilton, M. Paul, A. Aja, A. Price, A. Moore and C. Chiopris (2018) What we get wrong about closing the racial wealth gap. Samuel DuBois Cook Center on Social Equity, Durham, NC [WWW document]. URL https://socialequity.duke.edu/ sites/socialequity.duke.edu/files/site-images/FINAL COMPLETE REPORT_.pdf.
Ford, Frank (2023, February 16). Cuyahoga County Housing Trends: Race and Geography (still) Matter [Presentation]. Greater Cleveland Reinvestment Coalition Forum.
Flippen, C. (2004) Unequal returns to housing investments? A study of real housing appreciation among Black, White, and Hispanic households. Social Forces 82.4, 1523–51.
Immergluck, D., S. Earl and A. Powell (2019) Black homebuying after the crisis: appreciation and segregation patterns in fifteen large metropolitan areas. City & Community 18.3, 983–1002.
McCargo, A. (2019) A five-point strategy for reducing the Black homeownership gap. Urban Institute, Washington, DC [WWW document]. URL https://www. urban.org/urban-wire/five-point-strategy-reducingblack-homeownership-gap.
Perry, A., J. Rothwell, and D. Harshbarger (2018) The devaluation of assets in Black neighborhoods: the case of residential property. Brookings Institution, Washington, DC. [WWW document]. URL https://www. brookings.edu/research/devaluation-of-assets-inblack-neighborhoods/.
Rothstein, R. (2017) The color of law: a forgotten history of how our government segregated America. Liveright, New York, NY.
Taylor, K. (2019) Race for profit: how banks and the real estate industry undermined Black homeownership. University of North Carolina Press, Chapel Hill, NC.
Walker K, Herman M (2023). tidycensus: Load US Census Boundary and Attribute Data as ‘tidyverse’ and ‘sf’-Ready Data Frames. R package version 1.3.