By Thomas Houston, Geoffrey Martin and Khadeen Grant
In 2021, only 42% of D.C. residents were homeowners. Per the Black Homeownership Strike Force, 34% were Black compared to 49% of White homeowners in the District. As the nation’s capital and second-most educated City, we should all be alarmed by this gap. The District needs to work to address this glaring disparity for more working-class Black families to remain here.
If access to homeownership continues to slip out of reach for Black residents, the City will continue to lose many middle-income earners to neighboring cities, affecting diversity and tax base. There are multiple benefits that these families should not have to forgo to remain here. Aside from being the fastest and foremost way to build wealth, we also know that owning a home benefits well-being. When most homes in a community are occupied by their owners, we see increased neighborhood pride, cleaner streets, and more prosocial neighborly behaviors like lower crime rates.
In 2022, the City created a Housing Strike Force to address these disparities along with the rapid rise in the cost of housing. This Strike Force was challenged to advance solutions for long-time Black residents to build wealth through homeownership and recommend ways the City should deploy the proposed “$10 million Black Homeownership Fund by 2030”.
As an organization focused on racial equity and human-centered design, these outcomes are important to us. Among their first recommendations, the Strike Force announced that the City’s homebuyer assistance program would increase maximum downpayment and closing cost assistance to qualified first-time homebuyers from $80,000 to $202,000. Exploring this expansion, we pondered the question, “How can more D.C. residents become homeowners, and particularly, how can the City increase homeownership rates for Black residents?’
Here are three practical ways we propose to respond:
A. Create a mechanism for tax-free savings for home purchase and maintenance for low to moderate-income earners.
It is believed that first time homebuyers have many programs and incentives that should lessen the economic burden of purchasing a home. One of them is the Roth IRA. As it stands, this program is the only saving tool accessible nationally that allows low to moderate-income earners to use tax-free investment earnings for their first home purchase. Of the one quarter of DC renters who are already cost-burdened, it is hard to imagine that they can save for a home using a Roth IRA.
Another District incentive program, The DC Reduced Recordation Tax Rate for First-Time Homebuyers, lowers the five-year property tax rates for eligible first-time homebuyers. Even if D.C. residents have heard about this program pre-purchase, accessing homeownership is daunting, especially for people of color. The high sales prices and low inventory fosters too much competition for Black residents to purchase one of the 8.4% of homes affordable to them.
The pressures identified above are only some of the reasons Black homeownership rates in the District continue to decline. A tax-free Citywide savings mechanism -facilitated through employers or self-managed- that allows low to moderate-income earners to save for homeownership will help to close the homeownership gap. The District can model one of seven similar tools being used nationwide. In Pennsylvania, home buyers can save up to $50,000 over ten years, completely tax-free. We recommend that The District starts by exploring the existing models, including the six others that States that have adopted tax-advantaged savings accounts, including Virginia and Mississippi, showing that this could work in Democratic and Republican-led jurisdictions.
B. Create a mechanism allowing Housing Vouchers as a means for Homeownership
Most people do not know that existing laws allow low-income housing vouchers to be used to cover mortgage payments in municipalities across the country. D.C. is one of them. In D.C. the number of voucher holders that exercise this right is anecdotally below 5%. What happens if we raise that number to 10%? What about 20% or 30%?
For a moment, let’s suspend the questions about the constraint of mortgage approval, the ability to cover emergencies, or any perceptions about the residents’ ability to adapt to homeownership. What could be the impact?
We believe that more families will become involved in local government. There likely would be more small businesses created. More families would experience travel, which creates better health outcomes. You could see better performance in neighborhood schools. More rental units would open up, which could help stabilize some of the rising rents. Parents may have shorter travel times to work, opening up more family time. Neighborhoods with more homeowners typically have less reported violence and instances of homelessness.
With collaborative efforts, we believe we can all solve the constraints of being approved for the mortgage. That leads to the outcomes mentioned above, and that makes this solution worth testing.
C. Expanding Down Payment Assistance
Down Payment assistance helps low, moderate, and middle-income families access homeownership opportunities. Research has consistently found that a lack of access for funds for a downpayment is among the most important factors limiting households from becoming homeowners. DPA programs are critical for homeownership and need to be expanded.
One option for expansion is for localities, especially those with higher barriers for entry via price point, to utilize a down payment assistance tax through the sale or recordation of deeds at the time of purchase. This can be a graduated tax that increases with the cost of a home above and beyond a certain threshold.
With rent and other expenses increasingly taking a larger share of future homeowner’s incomes, we must expand these programs to make homeownership possible. Increasing access to and expanding the coverage for down payment assistance, is the most significant barrier to homeownership will increase the number of people who can purchase a home.
Homeownership remains a challenge for Black residents in D.C. for many reasons, some of which we address above. The solutions we propose here may be complex, but they are possible. We believe that implementing these solutions will immediately impact Black residents’ ability to move into homeownership.
We ask that our peers and the City take notice and act quickly.
