Disturbing new research from Zillow shows how Americans without access to credit are blocked out of homeownership, especially in Black neighborhoods.
Lack of access to credit keeps many renters stuck in the same routine and paying more than they would if they purchased a home. Zillow notes that in many parts of the country, monthly mortgage payments are less expensive than rent.
But credit insecure areas tend to have higher populations of color, especially Black households. The lack of access can be directly tied to racist banking practices that permeated the 20th century.
Redlining is an illegal practice where lenders avoid providing credit services to individuals living in communities of color because of the race, color, or national origin of the residents in those communities.
“Lack of credit access keeps people in a cycle of paying more in rent than they would pay each month for a mortgage on that same home,” said Nicole Bachaud, senior economist at Zillow. “Communities of color, particularly Black families, see this play out, keeping a path to economic stability and wealth generation locked.”
For example, in New Orleans, where more than half the population is Black, a median renter would spend 77.5% of their income on rent, while a median homeowner would spend only 28.6% on their monthly payment.
Closing the homeownership gap requires a boost in banking and credit access in these underrepresented areas. But that’s easier said than done. For one, though outlawed, redlining is still an issue in practice. Banks are still accused of discriminating against borrowers of color across the country.
Just last year, LA-based City National Bank paid the highest settlement in the CFPB’s history for discouraging Black and Hispanic people from obtaining mortgage loans.
Both federal and state agencies are addressing the problem. The CFPB recently highlighted state community reinvestment laws that are paving the way to homeownership in communities of color.
Simpler solutions are already underway, as well. On-time rent payments can help establish credit for those without traditional, safe ways to build their scores. In 2021, Freddie Mac offered incentives to multifamily property owners who reported rent payments to the credit bureaus, establishing credit for the first time for 27,000 renters.
Zillow’s interactive maps are available here.
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