Explaining the Black-White Homeownership Gap: The Role of Own Wealth, Parental Externalities and Locational Preferences

Abstract

African Americans in the United States are considerably less likely to own their homes compared to Whites. Differences in household income and other socio-economic and demographic characteristics can only partially explain this gap and previous studies suggest that the 'unexplained' gap has increased over time. In this paper we use the Panel Study of Income Dynamics (PSID) intergenerational data, which provides information on household wealth, parental characteristics and macro-location choice. We find that African-American households are 6.5 percent less likely to own if only traditional explanatory variables are controlled for. However, the black-white homeownership gap disappears if differences in own and parental wealth and in the preferred macro-location type are accounted for.

Keywords: Homeownership, housing tenure choice, location choice, wealth effects, intergenerational effects

JEL Classification: D81, J62, J71, R21, R31