Wealth, Housing, & Education, Part 1

Housing and Wealth Gaps: The Chicken Preceded the Egg

By Meagan Crowe and Max Altman//May 19, 2022

This blog is based on information in SEF’s recent report, “Economic Vitality and Education in the South: The South’s Pre-Pandemic Position.”

The American Dream is often represented as a rags-to riches story of young people who come from humble means and, through hard work and determination, reach economic and social heights unknown to their forebears. Unfortunately, research suggests that this is rarely how the system works; instead, family income is one of the most reliable predictors of children’s future educational and career outcomes. Children who grow up in low-income households are more likely to live in underresourced neighborhoods and attend underfunded schools with less experienced teachers. They are less likely to graduate from high school or to attend college.

Many of these young people work very, very hard, but a range of systemic factors outside control prevent that hard work from turning into the sort of success we often imagine will naturally follow (the authors of this blog know many, many people who work incredibly hard every day, sometimes multiple jobs at a time, without achieving this legendary outcome, and we suspect that our readers do as well). The strong relationship between family income and student outcomes is why the U.S. tracks family income on national assessments of student performance; why we consider the household incomes of student populations when making federal school funding determinations; and why we use family income as an eligibility requirement for certain food and health assistance programs.

Much like household income, wealth – the sum of all of an individual’s or family’s assets minus all debts that is often conveyed household net worth – also impacts educational opportunities and student outcomes at every point along the P-20 pipeline. Wealthier families are more likely to access high-quality early childhood education programs that improve children’s future academic performance. Wealth allows families to afford extra academic supports for their children, such as tutoring; as well as enrichment opportunities like extracurriculars and summer camp. Children from wealthier families are more likely to graduate high school, to enroll in and complete postsecondary credentials, and to attend higher cost programs and institutions that lead to higher paying occupations.

In 2019, the average White family had nearly eight times more wealth than the average Black family and five times more wealth than the average Hispanic family. This racial wealth gap is even wider for families with children. A 2016 study found that Black households with children had just one penny for every dollar that non-Hispanic White households with children had. While racial wealth gaps often reflect racial income gaps, in most cases they are more exaggerated and have grown more rapidly, especially among lower-income households.

The racial implications of the wealth gap go far beyond access to educational opportunity. Unlike income, wealth also provides an important safety net that insulates families from financial shocks like job losses or unexpected medical expenses. For those with little or no wealth, an unexpected expense can be enough to force a family to be evicted from their home, to be unable to pay monthly bills, or to struggle to provide enough healthy foods for their children. A lack of wealth not only can affect how children perform in the classroom, but can also lead to homelessness, higher infant mortality rates, poor health outcomes, and even premature death.

Wealth can be passed from one generation to the next, such as when parents help their children pay for college or put a down payment on a house. These intergenerational transfers provide important advantages that can give children born to wealthier parents a significant head start in their lives. Wealth can be invested in assets that tend to grow in value over time, creating additional wealth for families who have them—another benefit unavailable to those with little or no net worth.

So what constitutes wealth? One of the primary ways that families build and pass on wealth is through homeownership. In 2019, homeowners had a median net worth of $255,000 compared with just $6,500 for renters, giving the median homeowner nearly 40 times the wealth of the median renter. The racial homeownership gap is one of the main sources of today’s racial wealth gap—it is almost completely responsible for the fact that, while Black people are paid on average 60 percent of what White people are paid, they hold just 5 percent the amount of wealth.

In December 2020, 44 percent of Black people owned their homes, compared with 75 percent of White people. Moreover, homes owned by Black people were generally less expensive and situated in less wealthy communities with fewer resources. Black families’ homes and homes in Black neighborhoods are also consistently undervalued compared to otherwise similar homes with White owners in White neighborhoods.

These economic gaps, in homeownership and wealth accumulation, are not due to choices made by Black families. They are also not accidental. Historic discrimination in the housing market has been supported by federal policy and deep-seated racism within the real estate industry,  and has resulted in segregated neighborhoods, depressed economic mobility, and nearly insurmountable opportunity gaps for generations of Black young people.

For example, during the Depression in the 1930’s, the federal government began instituting policies and regulations to provide homes to low- and middle-income families. These policies were specifically designed to benefit White families while funneling Black people into urban housing projects.

  • The American New Deal made way for the practice of redlining, which according to Brookings is “the practice of outlining areas with sizable Black populations in red ink on maps as a warning to mortgage lenders, effectively isolating Black people in areas that would suffer lower levels of investment than their white counterparts.”
  • The Federal Housing Administration (FHA) Underwriting Manual provided guidance that “incompatible racial groups should not be permitted to live in the same communities,” and recommended that highways be used as a means of separating Black and White people.
  • The assistance to World War II veterans associated with the 1944 GI Bill, including tuition grants, low-interest mortgages, and small business loans, was largely denied to Black veterans, who received a disproportionate number of dishonorable and blue (neither honorable nor dishonorable) discharges compared with White service members.
  • Veterans Assistance housing loans, primarily administered by White banks, informed by local appraisers, city officials, loan officers, and real estate agents were also systematically denied to Black people.

From the 1940’s and into the 1960’s, Black people were prevented from purchasing in White neighborhoods. Even following the Fair Housing Act of 1968 that ended legal discrimination against people buying, renting, or seeking any kind of housing assistance, informal means of segregation still exist. Steering, through which real estate agents direct families towards different communities based on race and other discriminatory factors, is just one example of modern-day racial segregation in housing. History, working in concert with modern bias and discrimination, has led to a concentration of Black and Brown people in underinvested neighborhoods, forcing generations to attend underresourced schools and depressing the opportunities available to Black people while reinforcing the opportunities available to White people.

While this portion of history—policies like redlining and racist banking practices—is becoming more well known to contemporary audiences after years of limited awareness among the public, many details are still often not clear and earlier historical influences like New Deal policies that contributed to economic disparities for Black and Brown people remain less explored. The next blog in this series will cover this history in more depth, while our third blog will discuss in greater detail how homeownership, and housing in general, affect children’s outcomes in schools and beyond.


AUTHORS’ NOTE: The term “Hispanic” is used throughout this post because that is the term used in the data cited.


Meagan Crowe is SEF’s Senior Research & Policy Analyst and the author of the “Economic Vitality and Education in the South” report and Max Altman is SEF’s Director of Research & Policy.