Special purpose credit programs (SPCPs)—which allow banks to offer credit on favorable terms to borrowers who have suffered economic disadvantage and share common characteristics (e.g., race or income)—could provide the kind of homeownership boost to Black communities today that the New Deal provided to white people in the 20th century.

We have previously shown how the effects of generations of systemic racism and economic exploitation make credit less accessible and more expensive to Black borrowers. These conditions drive the 30 percentage-point homeownership gap between Black and white households, and they contribute to the higher costs and smaller returns Black homeowners experience.

SPCPs for Black homebuyers could alleviate some of the effects of historical unequal treatment in mortgage lending, improve access to credit in Black communities, and narrow the racial homeownership gap. But targeting programs to specific people can be difficult for lenders to implement, because they require significant outreach and engagement work and verification of eligible borrowers.

To avoid some of these challenges, lenders could implement place-based SPCPs, which target distinct geographic areas rather than specific people. Whether place-based SPCPs are more effective than people-based approaches will depend on the homeownership challenges unique to the location.

Place-based approaches to addressing racial homeownership gaps are gaining traction and acceptance. The Consumer Financial Protection Bureau proposed lenders use Home Owners’ Loan Corporation redlining maps to establish SPCPs, and the Federal Housing Finance Agency recently revised its affordable housing goals to expand lending in communities of color. JPMorgan Chase also announced that it will increase its housing grant program to serve predominantly Black neighborhoods.

By targeting areas based on racial composition, SPCPs could effectively address the racial homeownership gap in some areas of the country. Our analysis of 2015–19 American Community Survey data finds that Black households living in moderate-income (earning between 80 and 120 percent of the area median income, or AMI) Black neighborhoods have a homeownership rate of 57 percent, similar to the homeownership rate of white households living in low-income (earning below 80 percent of the AMI) white neighborhoods. The Black homeownership rate in low-income Black neighborhoods was 35 percent, significantly lower than white households in low-income white neighborhoods (57 percent).

Read the full article about tackling the racial homeownership gap by Jung Hyun Choi, Liam Reynolds, Vanessa Perry at Urban Institute.