The racial homeownership gap in the Twin Cities is the highest in the nation and has only widened over the past two decades, especially in neighborhoods where investors have snapped up hundreds of single-family homes now used as rentals.

That practice, according to a new report by the Urban Institute, is eliminating options for would-be buyers in some of the most economically challenged and racially diverse neighborhoods in the metro area at a time when house listings are at historic lows.

"Unless there are policies intended at trying to get people of color and low- and moderate- income people into homeownership, investors will continue to buy property," said Yonah Freemark, senior research associate at the Urban Institute, a Washington D.C.-based liberal-leaning nonprofit that partnered with several Twin Cities researchers and funders. "Tracking that trend while making sure that renters are treated well has got to be a priority."

The Black homeownership rate in Hennepin and Ramsey counties fell 10 percentage points between 2000 and 2018, while the homeownership rates for whites remained relatively constant, according to the researchers' analysis of property records and census data.

A little more than a fifth of Black households own their homes, compared with nearly three-quarters of all white households. The Latino homeownership rate of about 35% also remained constant during that period. (The researchers didn't measure Asian and Native American homeownership because of inadequate data.)

Those findings come amid a deepening focus on the connection between homeownership and racial economic inequalities in the Twin Cities metro area, where there's already a persistent — and dire— shortage of houses that are affordable to lower-income buyers. In less than a decade the median sale price of a house in the Twin Cities has more than doubled, and in recent months double-digit price gains have far outpaced income growth.

"There's just a housing shortage, period," said Kiarra Zackery, equity and inclusion manager for the city of Golden Valley. "We can't talk about having equitable access, period, because we're not in a place where we have housing for everybody who needs it."

The researchers said the decline in homeownership, especially in some of the most racially diverse and economically challenged neighborhoods, meant that more Black families became renters and fewer were able to build wealth through homeownership in part because there are simply fewer options for those lower-income buyers. There was an especially large decrease in Black homeownership in mostly white suburbs outside the core cities.

Many of the houses that were once affordable to those buyers have been siphoned off by large, out-of-town investors who now own 48,000 single-family rentals in Hennepin and Ramsey counties. That's twice as many as in 2005, with no clear options for replacing them.

"Housing has been treated as a commodity," said Marcus Owens, executive director of the St. Louis Park-based African American Leadership Forum. "It's been such a huge part of the infrastructure of our society that when you don't have equity in homeownership you're not going to get equity in many of the other aspects of life — health, employment, entrepreneurship, safety, education."

Tracking those single-family rentals and measuring their impact on the region has been a high priority for many neighborhood advocates, but doing so has been difficult. Those homes are often held by limited liability corporations and partnerships with names that don't match the name of the private-equity firms and others that actually own the properties.

Such rentals are concentrated in neighborhoods where the foreclosure crisis was worst. That includes parts of north Minneapolis, which saw a more than 10% increase in corporate-owned single-family rentals over the past 15 years, and in the Como neighborhood and other parts of central St. Paul, which saw a 5 to 10% increase in the number of such homes.

The bulk of the homes was acquired by those companies in the late 2000s, shortly after the Great Recession when tens of thousands of homes went into foreclosure and were bought, sometimes in large chunks, from lenders at a fraction of what borrowers owed on them. The properties are managed by those companies, sometimes remotely, from corporate offices.

When many were acquired, it was a new and untested business model. But hedge funds and real estate investors pooled tens of millions of dollars to acquire those properties. At the time, it was unclear how long those companies would own those properties, and there were concerns that large blocks of homes would be resold after property values rebounded.

That hasn't happened. Just last week, the Blackstone Group said that it paid $6 billion for Home Partners of America, a company that owns more than 17,000 single-family houses across the country. One of the largest single-family rental (SFR) operators in the Twin Cities is Invitation Homes, which is controlled by the Blackstone Group and owns more than 500 houses in Hennepin and Ramsey counties through various entities.

Blackstone is buying the portfolio at a time when house prices are at record highs and house listings are near record lows. Last week, median home prices across the country broke $350,000 for the first time.

The Urban Institute report, which was funded by the Twin Cities-based McKnight Foundation, found that many SFRs are concentrated in economically disadvantaged neighborhoods where one in 10 single-family homes is now a rental, limiting options for buyers in those communities.

Researchers used 2018 census data and county property records in Hennepin and Ramsey counties, which represent about half of the metro area's population. They also partnered with several local organizations including the Alliance, the Family Housing Fund, the Center for Economic Inclusion and the University of Minnesota's Center for Urban and Regional Affairs, which has done extensive research on such topics.

Urban Institute research assistant Eleanor Noble said the value of single-family rentals owned by corporate investors is $1 billion more now than in 2005.

"That to me is a huge lost opportunity for the potential to mitigate at least some of the Black and white homeownership racial gaps we're seeing in the Twin Cities," she said. "There needs to be some rapid public-policy intervention."

Noble said understanding the extent of the racial homeownership gap is a critical step toward influencing public policy that will help create more opportunities for first-time minority buyers such as Lilricka Barber, who recently put her house hunt on hold after nearly eight frustrating months of trying to buy her first house.

"I don't have enough words to describe what I was dealing with," said Barber, who has been renting a townhouse for herself and her 11-year-old son in Burnsville.

After three years of improving her credit score and saving money for a down payment, she was pre-approved to buy a $260,000 house. But after looking at upwards of 75 houses and getting outbid by up to $50,000 by other buyers, she needed to take a break.

"I'm tired and fatigued," said Barber, who works full time and is also pursuing a bachelor's degree she hopes will help her land a job that pays more.

As someone who was raised by a single mom who never owned a home, Barber wants better for herself and her children, including a daughter who recently moved to Hawaii to attend graduate school.

"I am determined to own a home," she said. "And it's definitely something I want for my children, to be able to pass something down to them."