Black people in the U.S. pay more for homeownership than any other group, a disparity that has contributed to nearly half of the $130,000 retirement savings gap between Blacks and Whites, according to a new study from Massachusetts Institute of Technology (MIT).
Blacks pay more for mortgage interest, mortgage insurance, and property taxes than any other group, according to the study. Overall, Blacks pay annual mortgage interest of $743, mortgage insurance of $550, and property taxes of about $390. In total, it amounts to $67,320 in lost retirement savings for Black homeowners when invested over 30 years.
These inequities make it impossible for Black households to build housing wealth at the same rate as White households. Furthermore, the black-white income gap of $25, 8004 is exacerbated by this “black tax” on homeownership.
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The study noted that if these extra costs paid by Black homeowners are eliminated, the $130,000 black-white gap in liquid savings at retirements would drop by half. The study traced these inequalities to the long history of slavery, segregation, and race discrimination.
The study said past discriminatory policies and practices have resulted in Black people typically having fewer savings available to put toward a down payment. Homeownership has long since been regarded as a powerful wealth-building tool.
According to one study, only 43 percent of African Americans—and 46 percent of Latinos—report living in homes of their own, compared to nearly 73 percent of Whites. It further points out that homeownership attainment in the U.S. remains deeply stratified by race and ethnicity.
“These patterns of stratification reflect enduring challenges that nonwhite households encounter in their pursuit of ownership. The gap is only partially explained by accounting for individual characteristics, including education levels, occupational status, and income, that differ systematically across racial and ethnic groups,” it said.
The MIT study said a lack of opportunity to refinance a home contributes partially to higher interest rates for Black homeowners. It estimates that the lack of refinancing opportunities results in Black homeowners paying approximately another $475 per year more than White homeowners, which results in a loss of retirement savings of nearly $20,000.
In addition, because mortgage payment rates are based on perceived risk factors like credit score and loan size, Black homeowners are likely to end up paying higher insurance premiums.
“Nearly a quarter of the disparity in homeownership costs for Black homeowners is due to local property tax assessments,” the MIT study concluded. “A fair homeownership system must reform these inequitable federal, state, and local policies.”
