Fantasy Homeownership

Mechele Dickerson
Mechele Dickerson is the Arthur L. Moller Chair in Bankruptcy Law and Practice and a nationally recognized consumer debt and bankruptcy scholar.

Professor Mechele Dickerson’s book on homeownership points to unfavorable facts in the housing industry

In her latest book, Professor Mechele Dickerson analyzes a pillar of the American Dream: homeownership. Published this summer by Cambridge University Press, “Homeownership and America’s Financial Underclass: Flawed Premises, Broken Promises, New Prescriptions” outlines misconceptions of homeownership and the modern realities of the residential housing industry — especially for blacks, Latinos and the lower class. Dickerson’s argument: no matter if you rent or own, when it comes to housing, it’s anything but affordable and fair. But as the book title suggests and in the Q-and-A that follows, the author provides the reader with solutions to ponder.

What is the Happy Homeownership Narrative you mention repeatedly in the book, and what’s the reality your research points to?
The Happy Homeownership Narrative is the “and we all lived happily ever after” story that most Americans hear in their heads when they think of being a homeowner. In the Narrative, all renters can afford to buy homes, all homeowners receive tax benefits, all homes always appreciate in value, you own your home forever and homeowner stability is an absolute good. The Narrative is no longer true for many Americans, and was never true for most blacks and Latinos. It’s not true because renters need savings and stable income to buy a home with a low-cost loan, and then to repay the mortgage loan (and pay for routine maintenance) over 15 to 30 years. Wages have been stagnant for most workers for about 30 years, the job market is unsteady and the U.S. workforce has become much more mobile. Workers cannot safely assume they will have steady employment or be in the same city for 15 to 30 years, and it’s impossible to know if you will need to move quickly to take a job in another city.

What is the biggest homeownership myth your book debunks?
The biggest myth is probably that homeownership provides the same positive economic benefits to every person who owns a home. That’s just not true, as wealthier homeowners receive significantly more financial and non-financial benefits than all other homeowners. Homeownership is not a one-size-fits-all concept. High-income homeowners receive tax benefits that are not useful to lower-income homeowners (who rarely itemize their deductions), and only wealthy neighbors have the political clout to protect their neighborhoods by fighting for new schools, better parks, etc. Another non-financial benefit of being a homeowner is the ability to band with other homeowners to protect the home values in your neighborhood by, for example, making sure non-desirable but socially beneficial property uses (like homeless shelters, half-way houses) aren’t placed in your neighborhood. Wealthier homeowners band and lobby much more effectively than lower-income homeowners.

Your book offers a lot of historical context including booms and crashes in the U.S. housing market. What was the best decade to be a homeowner?
The “best” decade to buy a home depends a lot on the buyer’s demographics, and whether the buyer could buy a high-appreciating home with a low-cost mortgage product. Assuming you could qualify for a low-cost, government-subsidized, 15- to 30-year fixed interest rate loan, the best decade was probably the early 1960s. During that time, suburban neighborhoods were expanding, home prices were soaring, employment options were good for most workers (even those who lacked college degrees) and workers generally were still receiving wage increases. Of course, that wasn’t necessarily the “best” decade if you were a black homeowner. Lenders and realtors routinely discriminated against black renters during that period and blacks were shut out of many higher-wage jobs that provided stable income that could be used to qualify for a lower-cost loan (whether or not the bank actually approved it).

What was the most difficult chapter/section to write?
The hardest sections to write were the ones that debunked the myths associated with homeownership. Although I read about economic news (some of it quite dreary) almost every day, it was painful for me to see how many Americans are struggling. And it was shocking to see how few Americans have benefited from the current economic recovery. For example, while the top 20 percent of U.S. households have had income growth since the last recession, income for the bottom 20 percent declined. In addition, writing these sections was painful for me because I learned just how many workers want to work full-time, but instead are “under-employed” because they can only find part-time jobs. Finally, until I started writing this book, I really had not focused on the fact that it is now virtually impossible to live what most people view as the “American Dream” if you do not have a college degree.

How does race influence homeownership? Why does the housing industry need more black and Latino homeowners?
Data recently released by the U.S. Department of Education sums up why race matters to the U.S. housing market. In 1997, white students accounted for almost two-thirds of all public school students in the U.S. This fall, whites will be less than half of public school students. This isn’t because whites are sending their kids to private school (though it’s true that private schools overall are disproportionately white). The public school numbers are declining because whites have slower birth rates than non-whites, especially Latinos and Asians. From 2000 to 2012, more than 90 percent of the overall population growth in the U.S. came from minority groups, and white babies are now less than 50 percent of all babies born in the U.S. If we don’t find a way to improve the economic conditions of blacks — and especially Latinos — the housing market will never recover because most of the people who will be in the demographic age group that should be buying homes will be a race other than white.

Will mortgage innovation come to our rescue again?
I have no doubt that lenders will be asked to “innovate” mortgage products to increase housing sales. The toxic products that caused the housing market to collapse will come back in disguise, though. It’s actually started to happen already because subprime loans are now being marketed as “nonprime.” Also, Reuters recently reported that old “liar loans” (where borrowers didn’t have to document their income or assets) are being repackaged as “alternative documentation loans” or “alternative-income verification loans.”

What’s different about Austin when it comes to housing and homeownership?
Austin’s problems are fairly typical of the problems I discuss in the book. Austin neighborhoods are largely segregated by race, which is true for neighborhoods across the country. Whites move back into black and Latino neighborhoods (like East Austin) only when those neighborhoods are gentrifying. As is the case in East Austin, when black or Latino neighborhoods re-segregate, higher property taxes almost always follow the newer, richer white neighbors into the neighborhood. This higher cost of living in the newly gentrified area then drives out the lower-income black/Latino homeowners. Austin is fortunate to have a strong economy, and we did not suffer as much as other areas did during the recession. The growth in Austin’s economy has been largely because city leaders have done a good job of recruiting high-tech companies here. But, as recent news reports disclose, high-tech companies (like Google, Yahoo, Facebook, Apple, etc.) are overwhelming male and white. Given this, it is not surprising that the workers Austin attracts most are not black or Latino. If our population growth is non-white, our neighborhoods will become non-white as well.