HUD: A racial divide exists between FHA homeownership and rental assistance programs

Researchers at the U.S. Department of Housing and Urban Development (HUD) have published a new report identifying the locations of people seeking Federal Housing Administration (FHA) rental and homeownership assistance programs. They found that homeownership program beneficiaries generally live in more affluent, racially homogenous neighborhoods than those seeking rental assistance.

HUD researchers have dedicated much time and effort studying the Housing Choice Voucher (HCV) program. They published the most recent location report to determine if households receiving HCVs are located in “higher opportunity” neighborhoods, which HUD defines as census tracts with lower rates of poverty.

“The latest report, which examined program data from 2010 to 2020, found no meaningful change in neighborhood poverty for program participants,” the report explained. “Studies examining the intersection of race and income in the HCV program, however, indicate that Black and Hispanic voucher holders tend to live in neighborhoods with higher poverty rates than do white voucher holders.”

A voucher location report published in 2003 said that white recipients of HCVs were “more likely to live outside of central cities than Black or Hispanic voucher recipients, indicating that the race and ethnicity of program participants may be determining factors for where they live.”

The locations of households that have received FHA-backed mortgages have been studied far less, HUD explained. But one analysis from the 2008 mortgage crisis found that “loans in majority-Black ZIP Codes were more likely to be FHA loans, suggesting that FHA played an outsized role in post-crisis homeownership in majority-Black neighborhoods,” the paper explained.

The 2008 study, however, did not account for information on the borrower’s race and only examined data in metropolitan areas. This was “a decision that undoubtedly influenced the results,” the researchers said.

Among the paper’s other key findings, HUD found that roughly 35% of occupied housing units are rentals while 65% are owner-occupied.

“Owner-occupied households are more likely to be located in census tracts that are whiter and have lower poverty rates,” the study said. “If federal homeownership assistance programs follow national trends, we would expect FHA loans to be associated with whiter and lower-poverty census tracts.”

The paper framed its findings by comparing the context for federally assisted homeowners and renters around three key neighborhood variables — poverty; resident race and ethnicity; and location in an urban, suburban or rural county.

The report also points out a need to examine the potential role that federal housing assistance programs could play in the racial homeownership gap.

“Because of the historical role of agencies such as FHA and [the Home Owners’ Loan Corporation (HOLC)] in perpetuating segregation and promoting investment in white communities, investigating whether investment from federal housing assistance programs continues to flow to majority-white communities is important,” the paper said.

“We find that census tracts with higher shares of white residents also have higher shares of homeowners receiving FHA-backed mortgages. Notably, nearly half (45%) of FHA-backed mortgages are issued to homeowners in census tracts where 75 percent or more of the residents are white.”

Census-tract demographics and poverty have a relationship with “the prevalence of FHA-insured mortgages and [tenant-based housing choice voucher (TBV)]-supported households,” the paper said.

“Whether white residents make up most of the census tract population has less of an impact on where households receiving TBV rental assistance are located; however, nearly half of renters supported by TBVs live in high-poverty census tracts (defined as census tracts with a poverty rate of at least 20%).”

This drives the need for accompanying industries to examine the broader, long-term impacts of their actions on exacerbating racial disparities in homeownership and rental assistance programs, the researchers said.

“Without intervention, the private mortgage and rental markets could perpetuate a status quo that widens racial and economic disparities,” the paper concluded. “Federal rental and homeownership assistance programs provide housing market interventions that can increase housing stability, promote home equity gains, and build intergenerational wealth.

“Present-day disparities in access to quality, stable, and affordable housing punctuate the need to continue to advance racial and economic equity through federal housing policy.”