Racial and Ethnic Disparities in Homeownership

34 Pages Posted: 19 Aug 2018 Last revised: 22 Aug 2018

See all articles by Susan M. Wachter

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ; University of Pennsylvania - Finance Department

Isaac F. Megbolugbe

Johns Hopkins University - W.P. Corey Business School

Date Written: January 1, 1992

Abstract

There are persistent differences in homeownership rates across racial and ethnic groups. Homeownership rates for whites are over 20 percentage points higher than for blacks or Hispanics. This paper uses a model of the housing tenure decision to gain a better understanding of these racial and ethnic differentials in homeownership and employs a decomposition technique that has been applied to labor market discrimination to report the results of the empirical testing of two hypotheses; (1) race (ethnicity) influences the probability of ownership through differences in household endowments (income, education, age, gender, and family type) and market endowments (price and location); and (2) race (ethnicity) directly influences the probability of ownership through racial or ethnic discrimination and other factors that may be correlated with race or ethnicity. We find endowment effects important in explaining the persistent racial and ethnic disparities in homeownership. In brief, logit analysis of 1989 American Housing Survey (AHS) national sample data reveals that 81 percent (78 percent) of the differences between the predicted probability of ownership between black and white households (Hispanic/non-Hispanic) are due to differences in group endowments. Direct effects explain 19 percent of the black-white differentials and 22 percent of the Hispanic/non-Hispanic differentials. Because the direct effects are modeled as residual differences, it must be realized that the residual components could also be capturing the influence of important omitted or harder to measure variables internal to the market process and correlated with race or ethnicity. These include wealth, household location, employment history, credit history, and cultural predisposition toward homeownership.

Keywords: Homeownership, Race, Ethnicity

Suggested Citation

Wachter, Susan M. and Megbolugbe, Isaac F., Racial and Ethnic Disparities in Homeownership (January 1, 1992). Housing Policy Debate, Vol. 3, No. 2, 1992. Available at SSRN: https://ssrn.com/abstract=3226934 or http://dx.doi.org/10.2139/ssrn.3226934

Susan M. Wachter (Contact Author)

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

Isaac F. Megbolugbe

Johns Hopkins University - W.P. Corey Business School ( email )

Baltimore, MD 21218
United States

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