Making homeownership affordable needs bigger effort in Minnesota

Minnesota has consistently ranked among the top-five homeownership states in the United States, yet it also holds the dubious distinction as a state with one of the greatest racial homeownership gaps in the nation.

In 1980, the Minnesota homeownership disparity between whites and homeowners of color was 30.8 percentage points. In 2019, that disparity was more than 33 percentage points. (76.9% for whites and 43.6% for community of color households).

It should surprise no one that we as a state have not made progress on reducing the racial homeownership gap. The median community of color household income was 70.3% of the median white household in 2019, little improved from 20 years ago. Meanwhile, median home values have spiked, increasing more than 32% from 2014-2018 alone.

On average, over the past nine years, only 4.2% of the Minnesota Housing Finance Agency annual funding has been awarded to affordable homeownership. That limited amount invested into affordable homeownership generates just around 100 new affordable homeownership opportunities a year. Given the disparity of incomes by race and significant increases in home values, it's difficult to understand how the state is going to reduce the racial homeownership gap without investing more in affordable homeownership production and affordability for lower income households.

It's time to take action. Minnesotans have done a great job of studying reporting, and making goals to address racial disparities but have not moved on the racial disparities that exist in homeownership.

We need to invest more in affordable homeownership today. A group of such organizations, Homeownership Minnesota (HOM), continues to make the case for dedicated affordable homeownership funding. HOM members currently serve households of color, on average, at rates six times the community of color homeownership rates of the communities they serve and have the capacity to serve more if the funding were made available.

In 2005, Fannie Mae, the Federal Reserve Bank of Minneapolis and the Minnesota Housing Finance Agency bluntly told then-Gov. Tim Pawlenty in a report that "Homeownership disparities based on race and ethnicity are troubling and unacceptable. Given projected increases in population growth in emerging market households, the homeownership gap could continue to increase unless concerted efforts are made to encourage emerging market homeownership opportunities."

In 2013, in a report completed on behalf of the Minnesota Homeownership Center revealed that the racial homeownership gap had actually grown to 39.3% in 2012. To reduce disparities, that report recommended supportive homeownership, increasing home buyer education and awareness of assistance programs, and educating consumers on fair housing.

In 2017, the Minnesota Housing Finance Agency reported the racial homeownership gap was nearly 37% in 2015, and subsequent reports showed the gaps continued to increase. Meanwhile, the agency cited a Harvard study that found, "each year of homeownership between 1999 and 2009 increased the wealth of African American households by $8,474 on average."

Currently, the state supports the production of approximately 2,000 affordable rental units and fewer than 100 ownership units per year. Increasing funding for ownership production makes good economic sense and is urgently needed.

According to Minnesota Housing research, 28,500 households in the state are income-qualified for homeownership and are now occupying rental units affordable to households earning less than 30% of the area median income. At the same time more than 60% of households in this income group are severely cost burdened. We need to move households through the continuum to free up some of our state's most affordable units.

Focusing on these 28,500 income-qualified households is a two for one, and very likely a three for one when we have the opportunity to truly decrease the racial ownership gap in Minnesota. Deepening the state's investment in ownership housing not only has positive impacts along the continuum, it is an efficient use of the state's financial resources.