Financial Constraints and the Racial Housing Gap

50 Pages Posted: 23 Nov 2021 Last revised: 15 Dec 2021

See all articles by Arpit Gupta

Arpit Gupta

NYU Stern School of Business

Christopher Hansman

Imperial College Business School

Pierre Mabille

INSEAD - Finance

Date Written: November 22, 2021


Financial constraints can lead to persistent disparities in wealth across demographic groups and geographies. We document large differences in housing leverage by race, mirroring well established differences in pre-existing wealth and family assistance via bequests. Financial constraints—particularly leverage constraints—lead minority borrowers to specific mortgage channels, especially Federal Housing Administration (FHA) loans. Use of these channels in turn limits access to high opportunity areas. We use a structural model to highlight the persistent impact of these initial conditions for asset purchases on spatial misallocation and long-term wealth accumulation for minority borrowers. Our model highlights tensions in policies to address racial gaps in wealth, leverage and homeownership. Highly effective policies for addressing the racial wealth gap—e.g. direct transfers—have relatively little impact on the homeownership gap. Most households adjust their leverage or location choice but not the decision to buy. Many policies that explicitly target housing shrink the wealth gap at the top of the distribution with little effect at or below the median. Our results highlight important inequalities in use of the housing ladder as a means of wealth accumulation, and difficult tradeoffs and tensions in policies intended to address these disparities.

Suggested Citation

Gupta, Arpit and Hansman, Christopher and Mabille, Pierre, Financial Constraints and the Racial Housing Gap (November 22, 2021). INSEAD Working Paper No. 2021/72/FIN, Available at SSRN: or

Arpit Gupta (Contact Author)

NYU Stern School of Business ( email )

Suite 9-160
New York, NY
United States


Christopher Hansman

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom


Pierre Mabille

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex


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