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The Starter Home Dream Is Over. For Millions, It Was Always a Fantasy.

For decades, starter homes helped white families build wealth. Now, thanks to real estate discrimination, a global pandemic and a crumbling economy, the American Dream is even more out of reach for everyone else

After World War II, a generation of veterans returned home into the jowls of an affordable-housing crisis. William Levitt, son of real-estate developer Abraham Levitt, began plotting the development of Levittown, a community of 17,000 low-price “starter” homes on 7.3 square miles of land. There, for as little as $8,000, young Americans could afford a piece of the American dream. The creation of the Long Island suburb gained Levitt the cover of TIME magazine in 1950 with the tagline “For sale: a new way of life.”

Dubbed the “best house in the U.S.,” Levitt’s starter homes were built on an assembly line for a generation of first-time home buyers and their newly minted families — giving birth to America’s homeownership fantasy. For the middle class, the starter home meant a place to call your own and a physical incarnation of building wealth for generations to come.

But the American Dream has long been exclusive to white families, and Levittown is a perfect example. After the war, non-white veterans were outlawed from the suburb. The racism was explicit: According to the New York Times, Clause 25 of the standard lease agreement signed by the first residents of Levittown stated in capital letters and bold type that the house could not “be used or occupied by any person other than members of the Caucasian race.”

Today, there is no Clause 25 to stop people of color from owning their own home, because there doesn’t need to be. In 2017, amid a booming economy, Black homeownership fell to 43 percent, virtually erasing all of the gains made since the passage of the Fair Housing Act in 1968. And according to the Urban Institute, the current 30-percentage-point gap between Black and white homeownership is larger than it was in 1968, when housing discrimination was legal.

Jung Hyun Choi, a research associate at the Urban Institute who studies urban inequality and disadvantaged populations in the housing market, tells me that the rate of homeownership among Black Americans with four-year college degrees is lower than that of “white Americans without a high school diploma.” Even among a generation well known for low levels of homeownership, young Black people are especially underrepresented.

In other words, today, the starter home is relegated to mostly young white people who have six-figure incomes and pristine credit scores, like newly engaged Nick, 32, and Sofia, 31, who don’t have any student loans or credit card debt. Nick is an executive at a major hospital in L.A., and Sofia designs greeting cards; together, they make well over $200,000 a year. Their price range for a home is anywhere from $800,000 to $1 million. Still, Sofia admits, they’ll require help from their parents to purchase their starter home.

Nick and Sofia are what Jeff Tucker, an analyst on the Economic Research Team at Zillow, refers to as the current demographic of first-time millennial homebuyers. One stat that Tucker was able to glean from Zillow’s big annual survey last year was that among first-time buyers, 43 percent used money from friends or family. But again, at any given income level — e.g., if you took just a median white household earning of $60,000 versus a Black family earning the same amount — on average, that white household has much greater access to extended family wealth.

“In most cases, it’s sort of a gift to finance some of their down payment,” says Tucker. “It’s not just driven by income, but also by family wealth. There are a lot of people, including minorities, who could afford the monthly payment on a mortgage for a similar home to the one they’re renting, and in many cases, they would actually have a significantly lower monthly payment as a homeowner.” Yet they can’t, because they don’t have that extra cash from family to help them get over the down-payment hump. To that end, Tucker says, Black and Hispanic home ownership among the same age group mentioned above is 50 percent lower than that of white home ownership.

Among first-time buyers, 43 percent used money from friends or family. But on average, white households have much greater access to extended family wealth. Photo by Avi Waxman/Unsplash

And so, being able to buy a starter home isn’t just fulfilling some small token of the ever-elusive American Dream; it’s a ripple effect. “We tracked whether you have greater financial housing wealth at the time of retirement if you buy your home before age 35, and we found a significant correlation between when you buy your first home and how much money you have near retirement,” says Choi. “Since jobs have become less stable, tapping into housing wealth is a more important source of stability for millennials.” In that sense, every year that a person delays owning a home, they’re jeopardizing their financial future.

For millennials belonging to an ethnic minority, however, the hurdles only begin with the down payment. There’s also a lack of access to mortgages for homes in the lowest 20th percentile. “If the loan balance isn’t big enough, a lot of mortgage lenders sort of just won’t bother issuing loans because it’s not really profitable for the amount of fixed work that goes into it,” Tucker explains. “Oddly enough, it’s easier to get a bigger loan than a smaller loan in America.”

But it’s not just the size of the loan that prevents people of color from making gains in homeownership. A study from earlier this year from Northwestern University found that racial disparities in the mortgage market suggest that discrimination in loan denial has not declined much over the last 30 to 40 years. “For example, in about 10 percent of audits in which a white and an African-American auditor were sent to apply for the same unit after 2005, the white auditor was recommended more units than the African-American auditor,” Lincoln Quillian, lead author of the study, told Northwestern Now. “These trends hold in both the large HUD [Housing and Urban Development]-sponsored housing audits, which others have examined with similar findings to us, and in smaller correspondence studies.”

Along those lines, Choi found that even when accounting for factors such as marital status, income distribution, FICO scores, age, median household income and city segregation, 17 percent of the gap between Black homeownership and white ownership can’t be explained.

Kristina Murray, 29, is Black and recently purchased her first home. The therapist and clinical social worker is from L.A., and her parents currently rent apartments in the city. “I would have loved to live in L.A. and be back home, but the housing market was just outrageous,” she tells me. Instead, she moved to Cincinnati for her starter home.

Even though she had a Black realtor — so that she “could feel more secure” — Murray tells me she was nervous throughout the process. “Just hearing horror stories about people of color getting a higher mortgage rate but having the same qualifications,” she says. “I’ll be honest, when I got my rate, I was like, ‘Is this okay? Is this good? Are you trying to trick me? What is happening?’”

Despite the fact that Murray had the down payment plus all the closing fees, her lender still wanted to see an “extra cushion.” “I had a little, but they wanted to see more,” she says. “So my dad was able to loan me $1,000, just to put in my account. Then I gave it back to him.” It was a weird situation, she explains, mainly because even though the closing costs came out to $5,000, her lender wanted to see $15,000 in her account.

Now, of course, all of this has been thrown further askew by the pandemic. According to a report in Newsweek, seven in 10 young Americans tapped into their savings to pay for food while nearly 50 percent used their savings to cover the cost of utilities. In other words: Forget about a starter home.

“We did an analysis of who’s most vulnerable to COVID-19 shock in terms of employment,” Choi tells me. As you can imagine, the jobs that have been hit the hardest — largely in the restaurant and hospitality industries — have a higher concentration of  younger adults. “Hispanics and Blacks are also more likely to be working in industries that are hit hard by COVID,” says Choi. “And they’re more likely to be renters.”

Many of these people, even prior to the pandemic, could barely afford most homes on the market. In 2017, a Marketplace report noted that while first responders in New York were paid a median wage of $74,000, and therefore could afford about 32 percent of the area homes listed, restaurant workers — most of whom are younger and predominantly Latinx and Black — could afford just 3 percent of them. And it’s not just big coastal cities where these workers are struggling to afford homes. Only 2.72 percent of restaurant workers in St. Paul could afford homes listed with their median wage of $22,398.

If becoming a homeowner sets in motion a cross-generational Rube Goldberg machine of accumulating wealth, then not becoming one all but ensures that those who came into this world with little to no wealth leave it just the same. According to a report in Forbes, the result of the inequality in homeownership and home equity gains is that the median net worth for Black Americans has declined over the last decade. As such, Choi says that as long as home equity remains one of the most significant wealth-building tools, racial inequality in homeownership will all but make sure the wealth gap between wealthy white people and everyone else persists for generations to come.

For her part, Murray is attempting to do everything she can to close that gap. “I’m really big on creating generational wealth and having multiple streams of income,” she tells me. “I’ve seen people who are able to have a legacy passed to them, and I’ve seen people like me who at this stage in their life aren’t going to inherit assets from family.” In that sense, she looks at her duplex as a stepping stone. “I’m excited that I’ve already broken the gap and have assets and property that can be helpful to future generations,” she continues.

As for Levittown, today it’s still considered a “starter home” community. For $400,000, you can own a 1,200-square-foot house with a white picket fence and all the accoutrements that come with the suburban dream. But even though it’s nearly 70 years removed from its inception, only 1.4 percent of the 52,000 people who live there are Black.

And if that’s any indication of the sort of progress this country is so superficially committed to, Black homeowners like Murray will continue to be little more than the exception to the rule.