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Federal government takes first step in addressing home value inequalities — much remains to be done

Many consider homeownership a symbol of the “American Dream” — one of the building blocks to grow your wealth.

It doesn’t work the same way for everyone, though. 

Research has shown that, for decades, homes in predominantly Black neighborhoods have been appraised at lower values than those in majority-white neighborhoods, even when comparing similar houses in neighborhoods with similar socioeconomic status. That means homes don’t build wealth for many Black owners to the extent they do for white owners.

“The value of our home touches on so many policies,” said Andre Perry, a senior fellow at the Brookings Institution who studies property appraisal bias. “It touches everything from the ways schools are financed to the personal wealth that people accrue. It touches municipal services. It’s an important lever in so many other areas of our lives besides homeownership.”

Perry’s research found that in Black communities, homes are underpriced by about 23%, resulting in an estimated $156 billion in lost equity in those communities.

The Biden administration created an interagency task force last year to evaluate the cause and consequences of this appraisal bias, measure the extent of the issue and propose steps to address it. In March, the task force released a Property Appraisal and Valuation Equity action plan.

That report laid out 21 recommendations, including making appraisal data more transparent and available to researchers, empowering consumers to better understand and report appraisal bias, diversifying the appraisal workforce and expanding regulatory examination of mortgage lenders to look for appraisal bias.

Perry said the PAVE action plan, which points to his research on multiple occasions, is a good first step in addressing what he calls “the architecture of inequality” in the housing market. And sociologist Junia Howell, whose studies on property appraisal disparities with fellow researcher Elizabeth Korver-Glenn were also cited in the PAVE report, said it’s a big deal to have the federal government acknowledge its role in appraisal bias and dedicate resources to study and address the issue. 

But the researchers say there’s an underlying issue everyone needs to grapple with: 

“All value is socially constructed,” Perry said.

Howell said that was her main criticism of the PAVE plan.

“There’s a deep assumption that there is some kind of real value and that people of color are missing out,” Howell said.

But the reality is that no true, fair housing market exists. How we value homes and neighborhoods is entirely subjective, dependent on biases embedded in society and in the housing systems we’ve built.

If we start with the assumption that a fair housing market exists and the problem is that some people can’t access it, that allows the federal government to focus on individual solutions, rather than reckoning with bigger questions and issues, Howell said.

That’s a lot of what the PAVE plan did, she said.

For instance: The action plan called for diversifying the appraisal industry, which is overwhelmingly white and male. While both Perry and Howell support that effort, they say it can do only so much without other systemic fixes. 

“If you have a diverse appraisal workforce and they use the same practices, you still may get similar results,” Perry said. 

Appraisers use a comparison approach, where they use prices of comparable homes in comparable neighborhoods to determine the value of the home they’re appraising. 

As part of Howell’s research, she followed appraisers on the job. She found they would always pull comparable sales from neighborhoods that were racially similar to the homeowners’ area, even when typical incomes in the neighborhoods were sharply different. She said appraisers exercised their discretion more often for white homeowners than Black homeowners in ways that increased values, such as when deciding whether to include or exclude a higher-priced previous sale.

Comparing sales to determine value, no matter how carefully it’s done, is fraught because of the country’s long history of redlining and other discriminatory housing practices. 

“If you compare homes to others in a neighborhood that’s been discriminated against, you effectively recycle discrimination over and over again,” Perry said.

Perry is working with Brookings and Ashoka’s Economic Architecture Project to seek out new innovative approaches to solve housing devaluation. 

Howell said she advocates for a completely new system, though she thinks there are plenty of things the federal government can do to standardize the current one while it figures out a better way. Officials could change appraiser forms — what the profession uses to determine value — or require comparisons to similar houses from neighborhoods with different racial demographics. They could also create standards for adding and subtracting value for features, like decks, where current practice is inconsistent. 

But at the same time, both researchers said, something needs to be done to help the consumers whose wealth has been negatively impacted by inequities in appraisals. 

“It’s just not enough to say, ‘Hey, you’ve been discriminated against,’” Perry said. “Can we restore the value that’s been lost?”

Howell said she supports reparations in the form of giving property to people and reassigning values that are low as a result of discrimination. But she said other, more politically palatable options include zero-interest mortgages or progressive mortgages, where people with less income or wealth would have lower interest rates. 

The PAVE task force had about eight months to put together the report, Howell noted, so she understands why much of the plan involves promises to investigate issues and potential solutions, rather than proposing agency actions and legislation that would represent concrete steps forward. But she emphasized that many of the ideas she and others have proposed are already within the power of an administration to see through.

“We have to deal with the fact that we’ve allowed certain communities to accumulate more wealth than others,” she said. “But even if we can’t get there, there are ways in our current mechanisms within [the Department of Housing and Urban Development], within the Federal Reserve, within the secondary housing market to begin reversing these decades of very explicit inequality and the growing racial wealth gap.”

This article first appeared on Center for Public Integrity.

Reprinted by permission of The Center for Public Integrity.

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Appraisers use a comparison approach, where they use prices of comparable homes in comparable neighborhoods to determine the value of the home they’re appraising.