Improving Homeownership Rates for Black, Indigenous, and People

Improving Homeownership

Rates for Black, Indigenous, and

People of Color in Washington

Recommendations from the

Homeownership Disparities Work Group

September 2022

Final Draft

Washington State Homeownership Disparities Work Group – Recommendations Report ii

Acknowledgments

This report results from a joint effort between the Washington State Homeownership

Disparities Work Group (the Work Group) and the Department of Commerce and

represents the Work Group’s recommendations for reducing homeownership

disparities in Washington. The 2021 Washington State Legislature provided funding

and tasked the Department of Commerce to convene the Work Group and report its

recommendations by August 1, 2022. More information on the project, including

meetings and materials, can be found on the Department of Commerce website.

Work Group Members and Representation

In alphabetical order

Lisa Brown, Chair, Department of Commerce

Patience Malaba, Housing Development

Consortium of Seattle-King County

Bright A. Brown, Homeowner

Crystal Mazzuca, Homeowner

Juel Burnett, Tribal Lenders

Michelle Merriweather, Urban League of

Metropolitan Seattle

Lisa Byers, OPAL Community Land Trust

Rachael Myers, Washington Low Income

Housing Alliance

Josie Cummings, Building Industry

Association of Washington

Jose Ortiz, Latino and Farmworker

Communities; Communities of Concern

Commission

Bishop Thomas Davis, Christian Community;

Communities of Concern Commission

Michone Preston, Habitat for Humanity of

Washington; Housing Trust Fund Recipients

Lisa DeBrock, Washington State Housing

Finance Commission

Krystelle Purkey, Washington State Chapter

of Community Association Institute

Tsega Desta, Ethiopian Community in Seattle;

Communities of Concern Commission

Denise Rodriguez, Washington

Homeownership Resource Center

Michael Dotson, Washington State Bankers

Association

Carl Schroeder, Association of Washington

Cities

Lisa Goldsmith, Washington Mortgage

Bankers Association

Glen Simecek, Washington Bankers

Association

Sam Green, Northwest Cooperative

Development Center

Darryl Smith, Homesight

Lona Hammer, Association of Washington

Housing Authorities

Curtis Steinhauer, Washington State

Association of Counties

Kathleen Hosfeld, Homestead Community

Land Trust

Ben Stuckart, Spokane Low Income Housing

Consortium

Jasmyn Jefferson, Washington Realtors;

National Association of Real Estate Brokers

Kristian Suson, Washington State

Commission on Asian Pacific American Affairs

Rev. Walter Kendricks, Washington State

Commission on African American Affairs

Brad Tanberg, Washington State Credit Union

Association

Erin Lopez, Washington State Department of

Financial Institutions

Heidi Termer, Washington State Human

Rights Commission

Ama Tuato’o, Tribal Housing Authorities

Washington State Homeownership Disparities Work Group – Recommendations Report iii

Stakeholders

Staff and project team members are grateful to the numerous stakeholders who

participated in focus group conversations and interviews relating to the processes and

best practices in expanding homeownership opportunities, particularly those who

shared their firsthand experiences in the home buying process.

Special Acknowledgement

Special acknowledgement and gratitude do Dr. Karen Johnson and Megan Matthews at

the Governor’s Office of Equity for their extensive support and guidance with

reviewing and finalizing this report.

Department of Commerce Staff

In alphabetical order

▪ Ann Campbell, Managing Director, Homeownership Unit

▪ Corina Grigoras, Assistant Director, Housing Division

▪ Emily Grossman, Policy and Strategy Advisor, Housing Division

▪ Nate Lichti, Managing Director, Multifamily Housing Unit

▪ Dave Pringle, Policy Advisor, Legislative and Policy Team

▪ Becca Satterlund, Homeownership Specialist, Homeownership Unit

Consultant Team

ECONorthwest

▪ Jade Aguilar, Director of Research Equity

▪ Michael Wilkerson, Director of Data Analytics

▪ Madeline Baron, Project Manager

▪ Roderick Hall, Project Manager

▪ Jamil Ditter, Research Analyst

BDS Planning & Urban Design

▪ Brian Scott, Principal

▪ Ishmael Nuñez, Director of Community & Placemaking

▪ Noel Frame, Director of Policy & Planning

▪ Jacqueline Robinette, Project Manager

▪ My-Le Tang, Project Manager

Washington State Homeownership Disparities Work Group – Recommendations Report iv

Letter from Director Brown

The real estate market has gone through tremendous change in the past few years as our state

navigated a global pandemic that further impacted supply, demand, and affordability.

Simultaneously, our state began to seriously consider and confront racial inequities—

something long overdue. As we work to amplify and center the experiences of Washington’s

communities of Black, Indigenous, and people of color (BIPOC), we create a more equitable

and just state for all our residents.

These two areas intersect within the context of homeownership. Homeownership is an

aspiration for many as a means to build wealth, stability, and community. However, due to

systemic racism coded into our laws, policies, and practices—and a severe mismatch in housing

supply and demand that has pushed home prices to record highs—more than 143,000

households who identify as BIPOC have been locked out of achieving this goal. The

homeownership rate for BIPOC households in Washington is 19 percentage points below that

of non-Hispanic white households (49% and 68%, respectively, as of 2019). And like in so many

other areas where disparities exist, Black households fare even worse than other households of

color; the homeownership rate for Black households is only 31%, less than half that of non-

Hispanic whites.

These statistics paint a picture that is appalling and unacceptable. Like many of you reading

this report, I spent the past few years reading books like Richard Rothstein’s Color of Law,

exploring how public and private policies and practices, such as racially restrictive covenants,

redlining, and blockbusting have collectively worked to deny Black, Indigenous, and other

persons of color the ability to own a home. Our state is the sum of all of us, to note Heather

McGhee, and when we fail to ensure opportunities to achieve prosperity based on one’s racial

and/or ethnic background, we fail to live up to our values as a state.

History has taught us that it took generations of systemic, racist, and discriminatory policies

and practices to get to where we are today. Understanding this, we know that systemic and

structural changes at all levels of government are the only answer. I am proud to have served

as Chair of the Homeownership Disparities Work Group, which developed this report calling for

structural change across both industry and government. We are recommending changes to the

real estate and lending industries and suggesting policy revisions and funding priorities across

all levels of government to unlock housing supply and direct affordable homeownership units

toward BIPOC communities and increase direct assistance to prospective and current BIPOC

homeowners.

Washington State Homeownership Disparities Work Group – Recommendations Report v

I have faith in the recommendations put forth by the Homeownership Disparities Work Group,

a diverse group of people with lived experience buying homes through state programs and

experts from a wide range of fields, including affordable homeownership, real estate, fair

housing, mortgage lending, housing development, and the specific needs of BIPOC

communities. Convened by the Department of Commerce, this group spent nearly a year

reviewing data, analyzing trends and practices (including within Commerce), and seeking out

best practices to remove barriers to homeownership for Washingtonians of color. Along with

my Work Group colleagues, I am committed to continuing to strive for equity and justice in the

homeownership system.

I want to thank my staff and the consultant team for managing this process effectively,

efficiently, and equitably; the Work Group members for lending their time, experience, and

expertise to this important topic; and the many public stakeholders who participated and

shared their homeownership experiences. This report lays out various recommendations that

the executive and legislative branches can use to begin to right past wrongs and chart a new

course. I look forward to working together to implement the recommendations and ensure

that Washington is a place where everyone has the opportunity to realize dreams of

homeownership.

Gratefully,

Director Lisa Brown, PhD

 
 
 
Washington State Homeownership Disparities Work Group – Recommendations Report  vi 
Table of Contents 
Executive Summary ............................................................................................................... 1 
Legislative Directive ............................................................................................................... 7 
The Homeownership Disparities Work Group ......................................................................... 8 
Definition of BIPOC .............................................................................................................. 10 
Chapter 1. The State of BIPOC Homeownership in Washington ............................................. 13 
Chapter 2. Financial Barriers to Acquiring and Sustaining Homeownership for BIPOC 
Households .......................................................................................................................... 20 
Chapter 3. Affordable Homeownership Supply Barriers ........................................................ 25 
Chapter 4. State Affordable Homeownership Programs ........................................................ 31 
Chapter 5. Fair Housing and Protected Classes in Federal and State Laws ............................. 38 
Chapter 6. Recommendations Analysis ................................................................................. 41 
Appendices .......................................................................................................................... 56 
Works Cited ......................................................................................................................... 76 
 
 
 
 

Washington State Homeownership Disparities Work Group – Recommendations Report 1

Executive Summary

In addition to being a cultural pillar, many people consider homeownership to be the

primary way to build wealth in the United States.

Access to homeownership

strengthens one’s sense of community and belonging and offers financial security and

wealth—the long-term profitability of homeownership is more favorable than many

other financial investments, even when factoring in periods of home price depreciation.

But this access has not been evenly distributed; public and private sector policies have

for generations built an interlocking web of barriers preventing many Black,

Indigenous, and people of color (BIPOC) from achieving homeownership. Racist

government policies like zoning, mortgage subsidies or

incentives, real estate practices like redlining and deed

restrictions, and outright discrimination in appraisals and

lending practices resulted in disproportional benefits in

homeownership for a privileged subset of households—

namely white and higher-income households—while

systematically excluding, segregating, and denying

opportunity to low-income households and people of color.

While these policies and practices were in effect nationwide,

Washington’s housing market has been uniquely troubled by decades of

underproduction against a backdrop of strong economic growth. By some estimates,

Washington has produced the fewest housing units relative to its household growth

than any other state in the country.

This imbalance in supply and demand has contributed to dramatic home price growth.

From 2000 to 2020, the median home price in Washington increased 157%, and from

2019 to 2020, median home prices increased 13.7% in just one year.

This housing

affordability crisis is not limited to urban areas; the COVID-19 pandemic pushed the

issue of underproduction from major cities into many rural areas that attract remote-

workers—so-called “Zoom towns” like San Juan, Chelan, and Okanogan Counties.

With home prices reaching record highs and buyers paying cash and offering

thousands of dollars over asking prices, homeownership has shifted out of reach for far

too many households, particularly BIPOC households. According to an analysis of

census American Community Survey (ACS) data, the BIPOC homeownership rate in

Washington is 49%, slightly higher than the national BIPOC homeownership rate, but

19 percentage points below that of non-Hispanic white households in Washington (with

a homeownership rate of 68%, as of 2019). And within the BIPOC community, the

homeownership rate also varies; the homeownership rate for Black and Hispanic/Latino

Washington households is only 31% and 45%, respectively. Asian American and Pacific

In this report, the term

“BIPOC” includes Black,

Indigenous, Hispanic/

Latino, Asian, and any

other minoritized group

that does not identify as

white or within other

categories (further

introduction to this term

can be found on p.3).

Washington State Homeownership Disparities Work Group – Recommendations Report 2

Islander homeownership rates are highest among BIPOC households at 60%.

Alarmingly, for some of these groups, these rates are worsening: the Black-white

homeownership gap is worse today than it was in the 1960s when racial discrimination

in housing was legal.

More than 143,000 BIPOC households

would need to become homeowners for

the BIPOC homeownership rate to equal

the non-Hispanic white homeownership

rate.

Figure 2 shows these “missing” BIPOC

homeowners in each county. The data in

each county represent the number of

BIPOC households that would need to

become homeowners for that county’s

BIPOC homeownership rate to equal that

of non-Hispanic white households.

Figure 2. “Missing” BIPOC Homeowners in Washington State, 2019

Source: U.S. Census Bureau ACS 1-year, 2019.

This report uses the Census Bureau’s 2019 American Community Survey data because it was the most recent at the

time analysis was completed. In addition, there are numerous known issues relating to the accuracy of the 2020

decennial census, particularly relating to undercounts of people who identify as Hispanic and young children and

overcounts of people who identify as Asian and people over age 50 (who are disproportionately white). These and

other challenges with the 2020 decennial census are summarized by the Pew Research Center here:

https://www.pewresearch.org/fact-tank/2022/06/08/key-facts-about-the-quality-of-the-2020-census/.

Figure 1. Washington Homeownership Rate

by Race/Ethnicity, 2019

Source: U.S. Census Bureau ACS 1-year, 2019; races are of

any ethnicity; races are based on the head of household.

59.8%

51.9%

45.4%

31.1%

Asian or Native Hawaiian

and Other Pacific Islander

American Indian and

Alaskan Native

Hispanic or Latino

Black or African American

Washington State Homeownership Disparities Work Group – Recommendations Report 3

Just as the presence of BIPOC households varies across the state, so do the disparities:

King County would need the largest number of BIPOC households to become

homeowners to reach homeownership rate parity, but its relative disparity is near the

middle (demonstrated by the percentage point gap between the non-Hispanic white

homeownership rate and the BIPOC homeownership rate). In contrast, many less

populous counties, such as Mason, San Juan, Okanogan, Whitman, and Asotin need

fewer BIPOC households to become homeowners to reach parity, but the

homeownership gap between non-Hispanic white and BIPOC households is larger.

The cumulative impacts of generations of discriminatory and racist real estate policies

and practices have had lasting negative effects on households of color and historically

marginalized communities in ways that touch nearly every aspect of their lives. Today,

households of color disproportionately experience homelessness and rental cost

burdening,

live in substandard housing or near pollutants, and have lower rates of

homeownership.

Unfortunately, many of these Washington trends are worse than

national statistics, and many have worsened over time.

iii

Recognizing the urgency and magnitude of this issue, the Washington State Legislature

funded the creation of the Homeownership Disparities Work Group. Through this 10-

month effort, thought leaders and experts in affordable homeownership, real estate, fair

housing, mortgage lending, housing development, and the specific needs of

communities of color have worked to identify recommendations that can guide the

governor, the Legislature, and other stakeholders on policy and program changes that

could help to reduce homeownership disparities.

The legislative requirement in the 2021-23 biennial operating budget (ESSB 5092, Sec

129 (100), Laws of 2021), which funded this Work Group, specifically sought to identify

barriers and offer recommendations that reduce the disparity in homeownership for

“Black, Indigenous, and people of color.” Often shortened to “BIPOC,” this fairly new

but widely used term aims to be inclusive while also highlighting the unique

circumstances of Black and Indigenous Americans. In creating this Work Group, the

Legislature recognized the homeownership disparities that exist between white and

BIPOC households and the need to create solutions for these communities.

The U.S. Department of Housing & Urban Development (HUD) considers housing to be affordable when a

household pays less than 30% of its gross income on housing costs; paying more than 30% makes the household cost

burdened. For homeownership, this threshold differs. See a glossary of terms in Appendix A. Housing Definitions.

iii

See Chapter 1. The State of BIPOC Homeownership in Washington for trends on homeownership.

Washington State Homeownership Disparities Work Group – Recommendations Report 4

If Washington were to close the homeownership gap between

white and BIPOC households, more than 143,000 additional

BIPOC households would need to become homeowners. This is a

massive challenge, given the scale of the issue, the lack of

affordable homeownership options, the inadequacy of existing

funding, and the systemic barriers that have plagued access to

housing for generations and continue to affect BIPOC

households’ financial opportunities.

Priority Recommendations

Many of the recommendations advanced in this report are intentionally bold and

encourage sweeping changes to numerous industries or current laws. The Work Group

believes that bold initiatives are needed for substantive change to occur. After assessing

data, literature, existing research, and the limitations of current state-funded

homeownership programs, the Work Group prioritized 27 recommendations with the

best chance to overcome what it sees as the two biggest barriers to BIPOC

homeownership: the lack of affordable homeownership supply and insufficient

assistance for BIPOC households who want to become homeowners. The 27 priority

recommendations are grouped by “readiness:” those that can be advanced in the next

several years through administrative action at a state agency or legislative funding

action and longer-term actions that require legislative law and policy changes, new

programs, or additional research.

The 12 ready and actionable recommendations are:

1. Increase biennial state funding for affordable homeownership programs,

including land acquisition and predevelopment costs.

2. Fund a technical assistance/capacity-building program to build the nonprofit

organizational infrastructure to develop, finance, facilitate, build, and steward all

types of affordable homeownership projects.

3. Provide technical planning assistance and resources to municipal governments to

increase affordable homeownership units.

4. Revise Housing Trust Fund and Housing Finance Commission programs to

reduce the administrative burdens on applicants.

5. Increase the amount of funding available for direct assistance to homebuyers and

homeowners.

6. Make current programs more flexible by increasing the per-household limits on

existing assistance awards.

7. Target homeownership assistance to the BIPOC community via historical ties to

culturally specific areas.

More than 143,000

additional BIPOC

households would

need to become

homeowners for

Washington to close

the homeownership

gap between white

and BIPOC households.

Washington State Homeownership Disparities Work Group – Recommendations Report 5

8. Provide incentives to home sellers to accept offers from purchasers using down

payment assistance programs.

9. Expand debt mediation and credit repair programs.

10. Ensure that awareness of homeownership programs is part of licensing and

education requirements for people in the real estate industry.

11. Fund culturally specific organizations for outreach to increase the visibility of

and access to homeownership assistance programs for BIPOC communities.

12. Explore policies to improve connections with BIPOC communities to ensure that

interest in homeownership is understood by funders.

Race-Based vs. Race-Neutral Recommendations

Many members of the Work Group would have preferred to recommend outright and

explicit intervention to support BIPOC households and improve homeownership rates

in accordance with Washington’s statutory principles of equity found in RCW

43.06D.020(3)(a)(i-iii), which include:

i. Equity requires developing, strengthening, and supporting policies and

procedures that distribute and prioritize resources to those who have been

historically and currently marginalized, including tribes;

ii. Equity requires the elimination of systemic barriers that have been deeply

entrenched in systems of inequality and oppression; and

iii. Equity achieves procedural and outcome fairness, promoting dignity, honor, and

respect for all people;

Policies and programs granting preferential treatment to people based on protected

classes (such as race) are prohibited in most circumstances.

Where they are allowed,

race-based policies require substantial evidence and narrow policy interventions.

Recognizing the limitations of the current legal system and understanding that public

opinion and state policy on reducing racial disparities have moved (and continue to

move) faster than current laws, many members of the Work Group agree that

highlighting these needs and encouraging advocacy for further change are incredibly

important. This is discussed further in Chapter 5.

The Work Group hopes that, if implemented successfully over the next few biennia,

these recommendations can increase direct assistance for prospective homeowners of

color while increasing the housing supply to stop runaway price increases that

disproportionally limit BIPOC homeownership across Washington. Ultimately, the

Work Group believes that these recommendations, if implemented strategically, can

reduce the growing homeownership gaps between white and BIPOC households.

 
Washington State Homeownership Disparities Work Group – Recommendations Report  6 
What Does This Report Do?  
This report culminates a nearly yearlong effort by the Washington State 
Homeownership Disparities Work Group to study homeownership disparities between 
BIPOC and white households across the state and make actionable recommendations to 
the governor and Washington State Legislature to reduce homeownership inequity. The 
report is organized into six chapters stepping through the data, barriers, current state 
assistance programs, federal laws, and recommendations. Two appendices provide 
more data and findings to support the recommendations. 
Other State Affordable Homeownership and Housing Efforts  
This report advances many other efforts the state has undertaken to increase affordable 
homeownership opportunities. A few specific examples include the following:  
▪  The Racial Wealth Gap is the Housing Gap, 2022, Office of Lieutenant Governor 
Denny Heck 
▪  Affordable and Supportive Housing Sales and Use Tax, 2021, Department of 
Commerce 
▪  Assessment of the housing needs of American Indians, Alaska Natives and 
Native Hawaiians in Washington, 2021, Department of Commerce 
▪  Foreclosure Fairness Program, 2021, Department of Commerce 
▪  Housing Trust Fund Cost Data Report, 2021 
▪  Washington Farmworker Housing Needs Assessment, 2021, Department of 
Commerce 
▪  Affordable Housing Cost Data Report, 2020, Department of Commerce 
▪  Affordable and Supportive Housing Tax Credit, 2020, Department of Commerce 
▪  Foreclose Fairness Report, 2020, Department of Commerce 
▪  Landlord Mitigation Program Report, 2020, Department of Commerce 
▪  Manufactured Housing Communities Workgroup Report, 2020, Department of 
Commerce 
▪  Affordable Housing Cost Data, 2019, Department of Commerce  
▪  Affordable Housing Update, 2019, Department of Commerce 
▪  Encouraging Investments in Affordable and Supportive Housing — Update on 
Implementation, 2019, Department of Commerce 
▪  Foreclosure Fairness Program, 2019, Department of Commerce 
▪  Homeless Housing Crisis Response System Strategic Plan 2019-2024, 2019, 
Department of Commerce   

Washington State Homeownership Disparities Work Group – Recommendations Report 7

Legislative Directive

In the 2021 legislative session, the Washington State Department of Commerce was

directed to create the Homeownership Disparities Work Group (ESSB 5092, Sec 129

(100), Laws of 2021). The legislative requirements are described below:

(a) $300,000 of the general fund—state appropriation for fiscal year 2022 is

provided solely for the department to convene a work group on reducing racial

disparities in Washington state homeownership rates. The goals of the work

group are to assess perspectives on housing and lending laws, policies, and

practices; facilitate discussion among interested parties; and develop budgetary,

administrative policy, and legislative recommendations.

(b) The director of the department, or the director’s designee, must chair the

work group. The department must, in consultation with the Washington state

office of equity and the governor’s office of Indian affairs, appoint a minimum of

twelve members to the work group representing groups including but not

limited to:

(i) Organizations and state entities led by and serving Black, Indigenous, and

people of color;

(ii) State or local government agencies with expertise in housing and lending

laws;

(iii) Associations representing cities and housing authorities; and

(iv) Professionals from private-sector industries including but not limited to

banks, credit unions, mortgage brokers, and housing developers.

1, 2021. The department must submit a final report to the governor and

appropriate committees of the legislature by August 1, 2022. The final report

must:

(i) Evaluate the distribution of state affordable housing funds and its impact

on the creation of homeownership units serving Black, Indigenous, and

people of color;

(ii) Evaluate the eligibility requirements, access, and use of state-funded

down payment assistance funds, and their impact on homeownership rate

disparities;

(iii) Review barriers preventing Black, Indigenous, and people of color from

accessing credit and loans through traditional banks for residential loans; and

(iv) Provide budgetary, administrative policy, and legislative

recommendations to increase ownership unit development and access to

credit.

Washington State Homeownership Disparities Work Group – Recommendations Report 8

The Homeownership Disparities Work Group

The Department of Commerce (Commerce) recruited and appointed a group of

stakeholders representing many perspectives that intersect with housing. The resulting

32-person Homeownership Disparities Work Group (Work Group) was intentionally

diverse across race, ethnicity, gender, and income. The Work Group consists of experts

in affordable homeownership, real estate, fair housing, mortgage lending, housing

development, and the specific needs of BIPOC communities. The Work Group has

representation across the state and includes two individuals with lived experience

buying homes through the Housing Trust Fund low-income homeownership program

across the state. Commerce Director Lisa Brown chairs the Work Group.

The Work Group aims to provide insight on expectations, barriers, best practices, and

recommendations to the governor and the Legislature to reduce the homeownership

gap between white and BIPOC households in Washington.

The legislative proviso directed Commerce to consult with the newly created

Washington Office of Equity and the Governor’s Office on Indian Affairs on

establishing the Work Group. Commerce was unable to meet this requirement,

however, we received invaluable feedback from the Office of Equity on the report and

the Work Group’s recommendations, which were incorporated into this final report.

Commerce will collaborate with the Office of Equity and the Governor’s Office on

Indian Affairs on next steps, including the overall implementation and public education

around the Work Group’s recommendations.

Process

Recruitment began in the summer of 2021. The Work Group met five times from

October 2021 to June 2022. These meetings were professionally facilitated and

structured to allow for a baseline understanding of the issue, robust discussions of the

barriers and recommendations, expert perspectives, and small group discussions. All

meeting materials and agendas, including recorded presentations, were posted online

on the Department of Commerce Homeownership Disparities Workgroup website.

Between the five Work Group meetings, each member met with the facilitation

consultants one-on-one to share their perspectives on the project process, meetings, and

the barriers and recommendations presented. During these conversations, Work Group

members were encouraged to candidly express their thoughts and ask questions to

ensure that group discussions addressed the most important issues. These meetings

were also used to prioritize and gauge consensus about the top issues and key

recommendations. The process was designed to achieve unanimous consent when

possible (see Figure 3).

Washington State Homeownership Disparities Work Group – Recommendations Report 9

Figure 3. Homeownership Disparities Work Group meeting process

External Stakeholder Engagement

The project consulting team also engaged with external stakeholders via interviews and

focus groups to better understand the barriers and learn about any affordable

homeownership and/or BIPOC homeownership practices working elsewhere.

The focus groups centered people with lived experiences navigating the

homeownership journey. Three focus groups were held between October 2021 and

March 2022 with current and prospective homeowners of color. They shared the

barriers they faced in accessing homeownership and discussed the programs and

services most helpful in purchasing their homes. Commerce carved out funding within

the project to compensate focus group participants for sharing their perspectives and

experiences.

October

•Introductions

•Expectations

•Baseline

Information

January

•Best practices

•Research on

Barriers

•Existing Funding

Programs

February

•Housing Trust

Fund Units

•Prioritizing

Barriers

March

•Fair Housing Act

•Draft

Recommendations

June

•Implementation

Strategies

•Final Approval

1-on-1

Report

Focus

Groups

Focus

Groups

Focus

Groups

Washington State Homeownership Disparities Work Group – Recommendations Report 10

Definition of BIPOC

The legislative requirement directed the Work Group to

specifically study barriers to homeownership for “Black,

Indigenous, and people of color.” Often shortened to “BIPOC,”

the recently created and now widely used acronym is an

attempt to be inclusive of all minoritized races and ethnicities

(all nonwhite identified people) while highlighting the unique circumstances of Black

Americans (many of whose ancestors were enslaved and brought forcibly to the United

States by European settlers), Black immigrants (particularly from the Caribbean and

Latin America, who are also likely descendants of slaves), and Indigenous Americans

(who experienced genocide, had their land taken, and were forcibly moved to

reservations).

These and ongoing racist and discriminatory actions and practices resulted in poorer

outcomes in health, education, income, and other social equity indicators for these two

groups compared to other communities of color who migrated to the United States,

though discrimination against all nonwhite groups has resulted in poorer outcomes on

a range of social equity indicators compared to white communities. Using “BIPOC” is

also an effort to decenter whiteness in language (in contrast to terms such as

“nonwhite,” which places whiteness at the center of the definition instead of

communities of color).

There are also critiques of BIPOC, including that it flattens the differences among

groups by lumping them together and is more commonly used and adopted by whites

than communities of color themselves. Asians, Latinos/Hispanics, and other Americans

of color also wonder where/if they fit into this language.

For the purposes of this project, BIPOC includes Black, Indigenous, Hispanic/Latino,

Asian, and any other minoritized group that does not identify as white or within the

other categories. When possible, the unique circumstances of each group are named to

account for their differences and unique barriers to homeownership. The Work Group

recognizes that groups are heterogenous within themselves and seeks to uncover the

similarities and differences that prove useful for recommendations. We use the term

“people of color” interchangeably with BIPOC in this report.

This study used census and other large data sets, which necessitated relying on the

racial categories available when the data was collected. While census data has changed

over time, the data used in this report largely follow these categories:

▪ White. A person having origins in any of the original peoples of Europe, the

Middle East, or North Africa. It includes people who indicate their race as

Other definitions

relating to housing and

affordability are in

Appendix A: Housing

Definitions.

Washington State Homeownership Disparities Work Group – Recommendations Report 11

"white" or report entries such as Irish, German, Italian, Lebanese, Arab,

Moroccan, or Caucasian.

▪ Black or African American. A person having origins in any of the Black racial

groups of Africa. It includes people who indicate their race as "Black or African

American" or report entries such as Kenyan, Nigerian, or Haitian.

▪ American Indian and Alaska Native. A person having origins in any of the

original peoples of North and South America (including Central America) and

who maintains tribal affiliation or community attachment. This includes people

who indicate their race as "American Indian or Alaska Native" or report entries

such as Navajo, Blackfeet, Inupiat, Yup'ik, Central American Indian groups, or

South American Indian groups.

▪ Asian. A person having origins in any of the original peoples of the Far East,

Southeast Asia, or the Indian subcontinent, including, for example, Cambodia,

China, India, Japan, Korea, Malaysia, Pakistan, Philippines, Thailand, and

Vietnam. This includes people who reported detailed Asian responses such as

"Asian Indian," "Chinese," "Filipino," "Korean," "Japanese," "Vietnamese," or

"Other Asian," or provide other detailed Asian responses.

▪ Native Hawaiian and Other Pacific Islander. A person having origins in any of

the original peoples of Hawaii, Guam, Samoa, or other Pacific Islands. It includes

people who reported their race as "Fijian," "Guamanian or Chamorro,"

"Marshallese," "Native Hawaiian," "Samoan," "Tongan," or "Other Pacific

Islander," or provide other detailed Pacific Islander responses.

▪ Two or more races. People can identify with two or more races by checking two

or more race boxes, by providing multiple responses, or by some combination of

checkboxes and other responses. For data product purposes, "Two or More

Races" refers to combinations of two or more of the following race categories:

"white," "Black or African American," "American Indian or Alaska Native,"

"Asian," "Native Hawaiian or Other Pacific Islander," or "Some Other Race."

There is an effort to create a new census category for people of Middle Eastern or North

African descent (known as “MENA”). However, there is some disagreement about

whether this should be a “race” or “ethnic” category, and it was not included in the

2020 census.

From there, ethnicity is identified as “Hispanic or Latino” and “Not Hispanic or

Latino.” For some of the charts in this study, “white, Hispanic or Latino” is simply

labeled “Hispanic.” While the Census does delineate between “Asian” and “Native

Hawaiian and Other Pacific Islander,” many other data sets combine these into a larger

“Asian” category or sometimes include Native Hawaiians in the same category as other

Native Americans as “American Indian, Alaska Natives.”

Washington State Homeownership Disparities Work Group – Recommendations Report 12

BIPOC Households in Washington

Washington is a predominantly white state. Evaluating 2019 head of householder data

on race and ethnicity from the US Census Bureau, we find that:

▪ 74.3% of households identified as non-Hispanic white

▪ 8.7% identified as Hispanic

▪ 8.7% identified as either non-Hispanic Asian or non-Hispanic Native Hawaiian

and Pacific Islander

▪ 3.7% identified as non-Hispanic Black or African American

▪ 1% identified as non-Hispanic American Indian or Alaskan Native

Among BIPOC households in Washington, Hispanic and non-Hispanic Asian or non-

Hispanic Native Hawaiian and Pacific Islanders comprise the largest share, accounting

for 17.4% of total households (combined).

Using the definition above, the BIPOC population in Washington accounts for 33.0% of

the total population, or 25.7% of households. Using the most recently available data

from the US Department of Housing and Urban Development (HUD) Comprehensive

Housing Affordability Strategy (CHAS) data set, we find that the prevalence of BIPOC

households varies dramatically across the state, ranging from 8.7% of households in

Lincoln County to 66.2% of households in Adams County, as shown in Figure 4. Aside

from King County, the counties with the highest shares of BIPOC households have

small total populations and are generally agricultural areas.

Figure 4. Prevalence of BIPOC Households Varies Across Washington

Source: U.S. Department of Housing and Urban Development (HUD) Comprehensive Housing Affordability Strategy (CHAS),

2014-2018

Washington State Homeownership Disparities Work Group – Recommendations Report 13

Chapter 1. The State of BIPOC Homeownership in

Washington

In 2019, BIPOC households in

Washington had a homeownership

rate of 49%, compared to 68% for non-

Hispanic white households, or a gap

of 19 percentage points. This gap

varies across races and ethnicities, as

shown in Figure 5. The gap is

particularly stark for households who

identify as Black or African American:

in Washington, the homeownership

rate for this population is 31.1%, well

below the 42.6% national average

homeownership rate for Black or

African Americans and less than half of the non-Hispanic white homeownership rate.

The homeownership gap by race also persists across income levels (see Figure 6). The

gap between non-Hispanic white and non-Hispanic Black or African American

households is steeper at lower income levels (35 percentage points for households

earning between 80 and 100% of their area median income [AMI] and 33 percentage

points for households earning less than 80% of AMI). But importantly, the gap persists

for BIPOC households as incomes rise: the gap between non-Hispanic Black and non-

Hispanic white households earning more than 150% of AMI is still 20 percentage points.

Figure 6. BIPOC Homeownership Rates by Income, Washington, 2019

Source: U.S. Census Bureau ACS 1-year, 2019; Note: Area Media Income varies across the state, based on the county of

residence and household size.

Figure 5. Washington Homeownership Rate by

Race/Ethnicity, 2019

Source: U.S. Census Bureau ACS 1-year, 2019; races are of any

ethnicity; races are based on the head of household.

59.8%

51.9%

45.4%

31.1%

Asian or Native Hawaiian

and Other Pacific Islander

American Indian and

Alaskan Native

Hispanic or Latino

Black or African American

Washington State Homeownership Disparities Work Group – Recommendations Report 14

Wealth and Homeownership

We know that assets and wealth are more important than income in access to

homeownership. The same income can support a $2,000 rent payment or a $2,000

mortgage payment. But typically, access to a mortgage requires initial wealth to

start (a down payment). As homeownership is the primary way most households

accumulate wealth, and some measure of wealth is necessary to become a

homeowner, this becomes a cyclical issue locking households out of both

homeownership and the opportunity to build generational wealth.

Publicly available data on household wealth and asset ownership are limited and

do not allow for examining wealth and assets by race and ethnicity at the state

level, only at the national level. We know that nationally, net worth (total

household assets less liabilities) is and has historically been vastly larger for non-

Hispanic white households compared to Hispanic and non-Hispanic Black

households. Data from the Federal Reserve demonstrate that the 2019 national

average net worth for non-Hispanic white households ($189,000) was more than

10 times that of non-Hispanic Black households ($18,200) and more than eight

times that of Hispanic households ($22,000).

A larger discussion of the financial barriers to homeownership, including a

discussion of who is likely to inherit wealth, is found in Chapter 2. Financial

Barriers to Acquiring and Sustaining Homeownership for BIPOC Households

and Appendix B. Literature Review of Barriers to BIPOC Homeownership.

Figure 7. Net Worth for Selected Races and Ethnicities, 1989-2019

Source: U.S. Federal Reserve Survey of Consumer Finances, 1989-2019

Note: Additional race and ethnic categories are not available. The “other race” group includes households

identifying as Asian, American Indian, Alaska Native, Native Hawaiian, Pacific Islander, or another race.

Washington State Homeownership Disparities Work Group – Recommendations Report 15

As these figures demonstrate, calculating the BIPOC homeownership gap obscures

differences across races and ethnicities. When the data allows, we disaggregate it to

display these differences, but small counts of some racial and ethnic minorities in rural

areas make this difficult.

The BIPOC homeownership rate varies geographically across counties (see Figure 8).

Figure 8. BIPOC Homeownership Rate by County, Washington, 2019

Source: U.S. Census Bureau ACS 1-year, 2019

Knowing that the prevalence of BIPOC households and housing markets both vary

across the state, Figure 9 shows counties with the largest disparities in BIPOC

homeownership. This map displays the percentage point differences between the share

of BIPOC households in an area and the share of homeowners who are BIPOC there.

For example, in King County, the share of BIPOC homeowners is 13.7 percentage points

lower than the share of BIPOC households. This demonstrates that BIPOC households

are disproportionately not homeowners. No county has a disproportionately large share

of BIPOC homeowners, but some get close (indicated by the lightest shade).

Washington State Homeownership Disparities Work Group – Recommendations Report 16

Figure 9. “Missing” BIPOC Homeowners in Washington, 2019

Source: U.S. Census Bureau ACS 1-year, 2019. Note: The data in each county represent the number of BIPOC households

who would need to become homeowners for that county’s BIPOC homeownership rate to equal the homeownership rate for

non-Hispanic white households.

Unfortunately, while statewide homeownership rates for white, Asian, and American

Indian or Native American households have remained steady, Black homeownership

rates have declined over time. This trend mirrors what is happening nationally, with the

Black-white homeownership gap at its highest in 50 years.

Figure 10. Change in Statewide Homeownership Rates by Race, 2000-2019

Source: U.S. Census Bureau Decennial Census (2000, 2010) and ACS 1-year (2019), data not available by ethnicity.

67.4%

67.1%

66.7%

56.2%

60.0%

59.8%

50.5%

49.8%

51.9%

37.2%

35.6%

31.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2000 2010 2019

White

Asian or Native

Hawaiian and Other

Pacific Islander

American Indian and

Alaskan Native

Black or African

American

Washington State Homeownership Disparities Work Group – Recommendations Report 17

If Washington closed the homeownership gap between white and BIPOC households,

more than 143,000 additional BIPOC households would need to become homeowners.

This is a massive challenge, given the scale of the issue, the lack of affordable

homeownership options, the inadequacy of existing funding, and the systemic barriers

that have plagued access to housing for generations and continue to affect BIPOC

households’ financial opportunities.

We apply the statewide non-Hispanic white homeownership rate to the total number of BIPOC households in the

state and subtract the current number of BIPOC homeowners. This approximates the number of “missing BIPOC

homeowners,” or the number of BIPOC households who would need to become homeowners to close the

homeownership gap.

Historical Context of Racist Housing Policies in Washington

Like all states in America, Washington has a complicated history of racism in

access to land and housing. From white colonialism in the 1800s to the present

day, communities of color have been oppressed by discrimination, racist laws

and policies, displacement, and less access to opportunities. White residents have

been prioritized in land and housing access and received financial subsidies for

homeownership. Over the past 100 years, local, state, and national policies and

practices, such as exclusionary zoning, racially restrictive covenants, redlining,

urban renewal, and displacement have created an intersecting web of barriers

that limited access to homeownership for Black, Indigenous, and other people of

color.

Zoning. While there are good reasons for zoning, such as keeping noise and

pollutants away from neighborhoods, some zoning laws were explicitly used to

segregate and discriminate against people of color. Exclusionary zoning laws

restrict the types of homes that can be built in certain areas, such as imposing

minimum lot or square footage requirements, prohibitions on multifamily

homes, or height limits, which prevent more affordable multifamily units from

being built (which have historically housed more racial minorities).

Conversely,

rezoning residential areas can effectively destroy communities, as happened to

many of Seattle’s Black and Chinese neighborhoods in its 1923 zoning laws.

Racially restrictive covenants. In addition to zoning, racially restrictive covenants

used “white-only” clauses in house deeds to prohibit people of color from

owning or occupying homes.

These restrictions resulted in segregated

residential neighborhoods throughout the state and restricted people of color

from homeownership. Racially restrictive covenants were still in effect and were

Washington State Homeownership Disparities Work Group – Recommendations Report 18

in fact bolstered when the US Congress approved the Home Owners Loan

Corporation (HOLC) in 1933 and the 1934 National Housing Act created the US

Federal Housing Administration (FHA). These two programs aimed to address

problems in housing that had, until this time, been unaffordable to most

Americans. By creating loan products that allowed for longer pay-off terms and

offering loan insurance, many more people were able to afford a home with

reasonable monthly payments. However, these policies perpetuated racially

restrictive covenants and segregation.

G.I. Bill. In 1944, the Servicemen’s Readjustment Act, better known as the G.I. Bill,

was passed to ensure additional resources to returning World War II veterans to

aid in their assimilation back into civilian life. These federal resources took many

forms, including low-interest mortgages, unemployment benefits, educational

grants and stipends, and medical care.

However, while the Act was “color-

blind” and refrained from explicitly excluding African Americans, the racist fears

of Black advancement, discriminatory practices, intimidation tactics (such as

targeted violence and lynching), and overt refusal to incorporate Black

Americans into the benefits of the G.I. Bill resulted in the exclusion of most Black

veterans from ample postwar homeownership, employment, and educational

opportunities.

While the G.I Bill ended in 1956, the racist and unequitable

distribution of the Act’s resources exacerbated the widening wealth disparity

gap between Black and white Americans. Even today, it continues to cement the

privilege of educational and generational wealth of many white Americans.

Redlining. Redlining was a government-sponsored practice where the HOLC

specified whether neighborhoods were appropriate for investment based on the

incomes and races of residents. Areas with larger communities of color were

marked in red on physical maps as “undesirable” for investment. For example,

the Central District of Seattle — a historically Black neighborhood — was

identified as hazardous on the map, and the explanation was one simple

sentence: “This is the Negro area of Seattle.”

A larger section just south of that

location, next to what is now the Chinatown-International District, was also

marked as hazardous, with the explanation that the district had “various mixed

nationalities” that “are occupied by tenants in a vast majority.”

Urban Renewal. In 1957, the Washington State Legislature adopted the Urban

Renewal Law, which allowed jurisdictions to deem places as “blighted” and then

use federal dollars to improve the blighted areas. Because of the lack of

investment in neighborhoods of color, those areas were more likely to be marked

Washington State Homeownership Disparities Work Group – Recommendations Report 19

Consequences Resulting from Lower Homeownership

The gaps in homeownership rates between white and BIPOC households contribute to

further financial and housing insecurity for BIPOC households, as homeownership is

considered to be the primary way most households build wealth in the United States.

The long-term profitability of homeownership is more favorable than many other

financial investments, even when factoring in periods of home price depreciation.

When BIPOC households are unable to accumulate wealth through homeownership, it

not only affects their ability to be financially secure but can also leave them increasingly

vulnerable to displacement and gentrification.

Renters who live in gentrified areas

may experience increases in rental pricing as newer housing and businesses change the

area's environment, often attracting younger, higher-educated, higher-income, and/or

whiter households. When household incomes do not keep pace with the rising cost of

rent, many people are forced to move in search of affordable housing.

The longest-lasting effect of lower homeownership rates on BIPOC households is the

detrimental impact on intergenerational wealth. Research has shown that in addition to

a young adult’s household income, the homeownership status of their parents is also

highly correlated with their ability to obtain homeownership, suggesting that “children

of homeowners have a higher homeownership rate than those with parents who are

renters.”

Lower intergenerational homeownership rates among BIPOC households can

therefore become cyclical, reinforcing the cycle of racial wealth inequity.

as blighted and slated for renewal. Urban renewal projects came at a cost, as

existing residents were often displaced due to gentrification caused by increased

property values from the new investments.

Washington State Homeownership Disparities Work Group – Recommendations Report 20

Chapter 2. Financial Barriers to Acquiring and

Sustaining Homeownership for BIPOC Households

One of the priority barriers to BIPOC homeownership identified

by the Work Group was expanding the types of assistance that

potential BIPOC homeowners can access. This chapter

summarizes the research describing the numerous financial and

structural barriers that BIPOC households face on their

homeownership journey. A complete literature review can be

found in Appendix B. Literature Review of Barriers to BIPOC

Homeownership.

Even with an optimal supply of homeownership units available for purchase (which is

not the case in Washington, as outlined in Chapter 3), numerous barriers prevent

households of color from obtaining mortgages and favorable lending terms at the same

rate as white households. These factors stem from structural and systemic issues

relating to racism and discrimination, historic policies prohibiting land and home

ownership, and explicit discriminatory practices from some players in the finance and

lending industries that influenced the economic outcomes for these households.

Before Buying a Home

Many of the elements assessed during the home

buying processes, like credit scores, debt, and the

ability to make a down payment, are inextricably

linked to income. Centuries of racism have resulted

in BIPOC households being disproportionately

concentrated in lower-wage occupations and

having below-average educational attainment,

resulting in less intergenerational wealth. These

factors have far reaching impacts on BIPOC

households’ ability to purchase a home, which, in

turn, limits their ability to create intergenerational wealth.

The traditional criteria used by institutional actors (both public and private) to

determine mortgage and borrowing eligibility are more challenging for BIPOC

households because of their disproportionately lower incomes, limited access to

banking, lower credit scores, and higher debt-to-income ratios—all of which, research

has demonstrated, are the result of systemic and structural racism. Some of the barriers

facing would-be BIPOC homeowners noted in the literature review in Appendix B.

include:

Section c-iii of the

proviso specifically

directed the Work

Group to review

barriers preventing

BIPOC households

from accessing credit

and loans through

traditional channels.

Washington State Homeownership Disparities Work Group – Recommendations Report 21

▪ Income is important for homeownership and is highly correlated with

educational attainment. Disparities exist in access to education among racial and

ethnic groups that mirror homeownership disparities.

▪ Debt-to-income ratios (DTIs) are the most common reason Black applicants are

denied loans.

Black students are more likely than white students to receive

unsubsidized loans for education, which increases the amount of debt that Black

college graduates must take on to pursue higher education, which follows them

into homeownership. This is in part because students of color often have less

wealth to draw on than their white counterparts, making them more likely to

turn to student loans to cover rising college costs.

▪ Disparities in inherited wealth limit the ability for BIPOC households to save for

down payments.

The Federal Reserve found that “white families are both more

likely to have received an inheritance and are also more likely to expect to

receive an inheritance: about 17% of white families expect an inheritance,

compared to 6% of Black families, 4% of Hispanic families, and 15% of other

families. Similarly, conditional upon expecting to receive an inheritance in the

future, white families expect to receive relatively larger inheritances.”

Given

that income and wealth are closely linked and that BIPOC households have

lower incomes on average than non-Hispanic white households, researchers

estimate that it may take up to 25 years for a typical Hispanic household to save

for a 10% down payment and nearly 30 years for a typical African American

household.

With rising rents outpacing incomes, many low-income BIPOC

renters will struggle to save for a down payment and may be disproportionately

likely to have little to no inheritance.

▪ Lack of credit and poor credit present as barriers to accessing a lower interest

rate loan for many prospective buyers of color. Researchers highlight how

“decades of discrimination in employment, lending policies, debt collection, and

criminal prosecution have left generations of Black families vulnerable to

financial insecurity and negatively impacted median credit scores.”

In the long

term, low credit scores can limit access to activities that can create income and

wealth, such as advanced education, entrepreneurship, or homeownership.

▪ Because credit scores rely on more traditional loans, such as mortgages and

credit cards, Black people are disproportionately more likely to have thin credit

histories or no credit scores. “This is a key point because in the housing context,

we know that most Black households are renters and that rental payments are

largely unreported to traditional credit bureaus. A Black household may not own

a home and pays only for rent, utilities, cell phones, and similar recurring

expenses, but these transactions are not reported to credit bureaus in any

positive way,” limiting their impact on credit scores.

There are currently

discussions at the federal level that would change reporting requirements to

Washington State Homeownership Disparities Work Group – Recommendations Report 22

include rental and utility payments to the credit bureaus, which could bring

more people onto the credit spectrum.

▪ Despite the disparities in credit scores among groups, the Urban Institute found

that Black borrowers were less likely to have a traditional mortgage than white

borrowers with the same credit score, revealing that Black borrowers face

additional barriers to accessing homeownership on top of having a lower credit

score.

▪ Black and Latino or Hispanic people are more likely than white people to depend

on high-interest financial services like check cashing counters and payday

lenders because there are fewer banks in Black and Latino or Hispanic

neighborhoods.

And “because Black people are more likely to have lower credit

scores, they are more likely to be unbanked or underbanked, causing them to

pay higher service fees to receive financial services and making them more likely

to depend on alternative financial institutions.”

▪ Some Muslim (Black and MENA) communities rely on harder-to-find,

nontraditional loaning and mortgage alternatives (or “halal mortgages”) for

noninterest home purchasing plans, as their Islamic faith prohibits interest-

bearing loans.

While Buying a Home

After qualifying for a mortgage, many people of color continue to face discrimination

through the lending process. Studies evaluating lending practices that control for

numerous variables have shown that households of color receive a disproportionate

share of subprime loans and are denied loans more often, even when controlling for

various financial characteristics (such as income, debt-to-income ratios, and credit

scores).

Researchers have also found that predatory lending products are marketed more

frequently to BIPOC households. These types of products include loans with high fees,

high interest rates, or terms like “pre-payment penalties, interest-only periods, negative

amortization, balloon payments, or terms longer than 30 years.”

These riskier financial

products make homeownership less secure and more expensive for BIPOC households

compared to white households. This higher risk and higher cost may also influence

some BIPOC households’ interest and willingness to become homeowners.

Some of the barriers facing BIPOC homeowners noted in the literature review in

Appendix B. include:

▪ Black and Hispanic applicants are often charged higher interest rates than white

borrowers (on average) after being approved for a mortgage, meaning they must

Washington State Homeownership Disparities Work Group – Recommendations Report 23

devote more of their incomes toward housing costs, even when the debt-to-

income ratio is not a barrier.

▪ Black and Latino households are more likely than white households to depend

on high-interest financial services like check cashing counters and payday

lenders because there are fewer banks in Black and Latino neighborhoods, which

results in higher payments and reduced wealth generation for those

households.

▪ Hispanic and Black households were twice as likely to use FHA and Veterans

Administration loans than white households in 2010.

While these loans offer

favorable terms for borrowers, they are less likely to be accepted by sellers,

especially in highly competitive markets.

▪ Households of color are also more likely to experience predatory and

discriminatory lending practices than white households. Researchers have found

that “even when accounting for debt-to-income and combined loan-to-value

ratios in addition to other financial characteristics, lenders were still more likely

to deny people of color home loans than white applicants.”

Sustaining Homeownership

Research shows that buying a home at a younger age has

some effect on overall wealth generation from the home.

Black homeowners disproportionately buy homes later in life

and sell earlier than white households, and thus experience

less wealth accumulation over time.

However, the age gap

in purchasing a home does not fully explain the housing

wealth gap between Black and white homeowners.

Researchers have found that Black households buying at the

same age as white households still saw “substantially lower

housing wealth than white households” by age 60 or 61.

Some of the barriers facing BIPOC homeowners noted in the literature review in

Appendix B. include:

▪ Black households, on average, buy their homes later in life than white

households.

This disparity results from all the barriers to purchasing a home:

lower average incomes, higher rates of debt, lower access to traditional banking

services, higher interest rates, and predatory lending, which research has shown

are the result of systemic and structural racism.

▪ Systemic factors also make Black and Hispanic/Latino homeowners less likely to

sustain homeownership than white homeowners.

“Black households who

sustained their homeownership had more than $23,500 higher housing wealth at

Researchers at the Urban

Institute found that “87%

of white homeowners

bought their first homes

before age 35, compared

with only 53% of Black

homeowners. Not only are

Black households less

likely to buy their homes

in young adulthood, 18%

never own a home before

age 60 or 61.”

Washington State Homeownership Disparities Work Group – Recommendations Report 24

ages 60 and 61 than Black households who moved from owning to renting

during their lives.”

▪ Poor housing conditions and fewer options for housing, combined with

policymakers directing amenities and resources away from communities of color,

have reduced property values and increased the risk of foreclosure in

communities of color, which in turn diminished returns on homeownership.

When Selling a Home

Discrimination also follows many BIPOC homeowners into the appraisal and selling

process, further reducing their ability to generate wealth from their homes to pass onto

future generations or other family members. Research demonstrates that appraisers,

most of whom are white (97%)

, sometimes value BIPOC-owned homes lower than

those owned by white families, even homes of similar size, location, and amenities.

Several recent families’ experiences showed that replacing photos of their Black family

with photos of white friends resulted in a second appraisal being much higher, with no

other changes to the house.

A recent Redfin analysis of home value estimates found that the average home in a

primarily Black neighborhood was worth $46,000 less than a comparable home in a

primarily white neighborhood, based on more than 7 million homes listed and sold

from 2013 through February 2021 nationwide, controlling for factors such as size,

condition, neighborhood amenities, and schools.

This also affected other people of

color: “For appraisals in majority-Latino tracts, 15.4% were valued lower than the

contract price. For both Black and Latino areas, the percentage of undervalued

appraisals increased as the white population percentage decreased.”

Washington State Homeownership Disparities Work Group – Recommendations Report 25

Chapter 3. Affordable Homeownership Supply Barriers

The Work Group repeatedly discussed the inadequate supply of

affordable homeownership units as a top-priority barrier to

overcome to increase the BIPOC homeownership rate in

Washington. Absent sufficient options of affordably priced homes

to purchase, any other policy change will have a limited impact on

improving the BIPOC homeownership rate.

Demand for housing in Washington is outpacing supply, putting

upward pressure on home prices. Due to high-input costs — such as land, labor, and

materials — projects must maximize square footage and selling prices to balance

financially, which limits the production of moderately sized and moderately priced

units. Generally, subsidies are needed to bridge the gap between an affordable selling

price and what it costs to develop a new unit, but there are too few subsidies available

(see Chapter 4. Current State Affordable Homeownership Funding Programs for a

discussion on affordable homeownership development subsidies).

Underproduction of Housing

The United States has underproduced housing units based on demand for decades, and

Washington has fared worse than most.

Across the state, too few housing units have

been built to accommodate the growing state population. From 2000 to 2017,

Washington only produced 0.99 units per new household, and from 2010 to 2020, this

dropped to only 0.89 units per new household. In many counties, fewer than one

housing unit was built for every new household that formed (moved to the county or

formed when households split up) from 2010 to 2020 (see Figure 11).

Public funding for new affordable homeownership units increasingly requires a ground lease or deed restriction so

that the property remains affordable in the future. These restrictions often have long affordability terms. When the

term is 99 years, it is considered “permanently affordable.” To remain affordable for future buyers, the amount of

equity a homeowner can achieve is limited, hence referring to this model as a “limited equity” or “shared equity”

housing unit. For projects funded by the state Housing Trust, the restrictions last for 25 years.

Sections c-i and c-iv

of the proviso

specifically directed

the Work Group to

study the creation of

homeownership

units.

Washington State Homeownership Disparities Work Group – Recommendations Report 26

Figure 11. Map of Housing Units to Household Formation, 2010-2020

Source: Washington State Office of Financial Management

This underproduction, coupled with the high demand for housing, caused prices to

increase dramatically. In many counties in and around Puget Sound, median home

prices are more than six times the median household incomes (see Figure 12), making it

challenging to find affordably priced homes. High demand and low supply for the few

affordable homes that are available make the home buying process very competitive,

with homes selling quickly, sight unseen, or for cash.

Figure 12. Map of Price-to-Income Ratios in Washington, 2019-2021

Source: 2019 ACS 1-Year Estimates and 2021 Zillow Home Price Index (not available for all counties)

Statewide

ratio: 0.89

Washington State Homeownership Disparities Work Group – Recommendations Report 27

What are Affordable Homeownership Unit Types?

Some types of housing units are generally considered more affordable, as in lower cost,

than newly constructed single-family detached homes. However, there can be wide

price differences among these different unit types, so these are not guaranteed to be

more affordable or lower cost in all circumstances. Condominiums, for example, can be

less expensive than single-family homes in some areas and circumstances, but in other

situations, they can be just as expensive, or even more expensive, than newly

constructed single-family detached homes.

Typically, aspects of affordable homeownership units can include:

▪ Physical aspects of the home or its location, such as:

o Older homes needing rehabilitation

o Homes in areas with little access to amenities

o Smaller homes or homes with fewer amenities (new or existing), such as

townhomes, duplexes, fourplexes, some condominiums, or modular

homes

▪ Financial aspects, such as:

o Cooperative housing

o Limited/shared equity or sweat equity homes

Why are there not enough affordably priced homes in Washington? The Department of

Commerce, many local governments, and many researchers across Washington have

been studying housing market barriers to production and ways to increase the overall

housing supply. The next section provides a short overview of common barriers to the

supply of lower-cost units. A more detailed review of the barriers is in Appendix B. It is

essential to understand how real estate development works in order to understand

supply and construction barriers.

Barriers to Affordable Homeownership Units

Financing. In the housing market, financial requirements and standards determine the

minimum amount of return on development that a developer or lender will accept to

take on the risk of the project. This means that the rent or sales price of a home needs to

offset the development costs and the return requirements of the developer, investor,

and financer. Development costs include a range of expenses such as land, materials,

construction labor, soft costs (architecture, engineering, financing, insurance), impact

fees charged by public jurisdictions, and costs of required design elements (open spaces,

parking, setbacks, etc.).

Because affordable homeownership units are intended to be affordable to low-income

households, there is a mismatch between the price and the price needed to offset the

Washington State Homeownership Disparities Work Group – Recommendations Report 28

cost of development and generate financial returns. This mismatch, or funding gap, is

often filled with public funding, grants, low-interest loans, philanthropic dollars, or

other types of funding that do not require a return on investment or require a lower

return. While some nonprofit organizations do not require a financial return, they still

have a funding gap that must be filled.

Development risk. Most development is financed with debt, which means that delays

and uncertainty can increase costs via interest payments that accrue on the debt during

the project. Therefore, long timelines (such as permitting processes, environmental

reviews, neighborhood opposition), risks (such as changing laws, environmental

challenges, or lawsuits), and delays (such as material or labor shortages) can all increase

costs, thereby driving up prices and reducing supply. High labor and material costs

translate to higher sales prices needed to break even, meaning that new construction

can be too expensive for many would-be buyers.

When a development cannot realize

the required rate of return to offset the risk, it will not proceed without a subsidy.

Subsidies. Subsidies for development can help fill the funding gap between the

affordable purchase price and the cost of development. Most subsidies have deed

restrictions or use covenants that ensure that funds support the intended public benefit

for sufficient periods of time. In the homeownership market, these programs

increasingly fund “permanent affordable housing,” which caps the equity that

households can gain on the sale of a home to ensure it remains affordable for the next

buyer (see Appendix A. Housing Definitions).

In Washington, the Housing Trust Fund program often receives

set-aside appropriations dedicated to affordable

homeownership development, but the amount of funding has

been insufficient to meet the need.

Barriers to increasing the

number of affordable homeownership units constructed

include “award caps” or per-unit per-project limits on subsidies

for developing homeownership units; program-level limits on

total funds available to award to developers; some of the program’s eligibility

requirements; and too little dedicated funding to homeownership.

Incentives. Similar to subsidies, development incentives can also help fill the funding

gap between an affordable purchase price and the cost of development. Development

incentives help offset the costs of development or ongoing operations to make a project

more financially feasible. Like subsidies, development incentives typically have deed

restrictions or use covenants that ensure that public funds support the intended use.

Development incentives can be financial (like tax exemptions or reduced impact fees),

physical (like extra height or density), or fewer parking stalls, which are costly to build

and take away from rentable space.

Chapter 4. Current

State Affordable

Homeownership

Funding Programs

explores the Housing

Trust Fund program in

greater detail.

Washington State Homeownership Disparities Work Group – Recommendations Report 29

Currently, the RCW 36.70A.540 offers guidance on affordable housing development

incentives for jurisdictions to consider. The RCW states that affordable homeownership

incentives must serve households with incomes below 80% of the county’s median

family income (MFI, see Appendix A. Housing Definitions) and that affordability must

remain in place for 50 years. A jurisdiction may adopt these incentives and make

changes to some of the parameters (such as increasing the income served if the local

housing market is not serving a higher-income segment of the population). While

nonprofit developers most commonly use the state’s affordable homeownership

subsidy programs, development incentives are also attractive to market-rate

developers.

Nonprofit capacity. The ability to increase the number and capacity of nonprofit and

community-based organizations developing affordable homeownership units is also

limited due to limited public funding (subsidies). Additionally, these organizations

compete for construction labor with higher-priced developments, which can offer more

incentives to construction workers.

Zoning and land use. Washington’s Growth Management Act requires cities and

counties in the most populated areas of the state to manage population growth via

comprehensive plans. These policies create urban growth areas that effectively limit the

area where cities can grow, thereby restricting the land available for housing and other

types of development. Comprehensive plans and buildable land inventories are

updated regularly to ensure that cities have appropriate zoning and development

capacity (among other characteristics) to accommodate growth. However, in effect,

policies that limit developable land can increase prices for housing when demand is

high as opposed to unmitigated sprawl.

The Growth Management Act provides a clear framework for housing planning and

development and requires local governments to plan on behalf of the whole

community. However, in some cases jurisdictions apply and implement land use

policies that intentionally or unintentionally restrict access to homeownership for

BIPOC communities. Segregation is still propagated through exclusionary zoning

polices and regulations, which limit housing production or discourage production of

higher-density housing types.

The Washington Legislature has made strides to eliminate zoning barriers to higher-

density (missing middle) housing types in recent years, but zoning is largely controlled

by local jurisdictions. Zoning considerations at the local level (such as density

restrictions, minimum lot sizes, or parking requirements) influence the type of

homeownership units that can be built, often limiting the amount of land available for

development.

A limited supply of developable land can drive up prices when

Washington State Homeownership Disparities Work Group – Recommendations Report 30

demand is high and zoned capacity is low, thus putting homeownership out of reach

for low and middle-income households.

Real estate investors. The supply of affordable homeownership units is also influenced

by buyer competition. Real estate investors have been buying lower-cost

homeownership units to rehabilitate and rent or sell at a profit, reducing the overall

supply of affordable homeownership units available. In Seattle, for example, real estate

data analyzed by the Washington Post shows that in 2021, investors bought roughly 8%

of homes for sale, three percentage points more than the 5% purchase rate in 2015.

Nationally, investors were much more likely to buy in Black neighborhoods.

These investors, sometimes called “flippers,” often have large balance sheets and quick

access to financing, allowing them to outcompete traditional buyers, buyers using

alternative lending products, and buyers using down payment assistance programs,

thereby reducing the supply of affordable homeownership units available for purchase.

It is important to note that investors cannot flip homes that have been publicly funded

and deed-restricted for long-term affordability.

Washington State Homeownership Disparities Work Group – Recommendations Report 31

Chapter 4. State Affordable Homeownership Programs

This chapter evaluates the largest state-funded and state-

administered programs that support low-income homeownership.

The largest two programs come from Commerce’s Housing Trust

Fund (HTF) and the Washington State Housing Finance

Commission (the “Commission”).

Housing Trust Fund (HTF)

The state HTF program funds the creation and preservation of

affordable housing opportunities – including multifamily rental

housing, shelters, and homeownership units.

HTF Eligibility

Applicants wishing to receive HTF funding must meet eligibility criteria and their

projects must meet certain qualifications. Eligible applicants include local governments

and Tribal nations, housing authorities, nonprofit housing providers, and community

land trusts. Eligible uses include the development or preservation of affordable

multifamily rental housing, affordable homeownership units, and emergency shelters,

or funding for homeownership down payment assistance and closing costs.

Households living in HTF-funded housing must have incomes less than 80% of the local

area median income (AMI, see Appendix A. Housing Definitions). This presents a

barrier for middle-income households, which have been priced out of homeownership

but make too much income to receive assistance from publicly funded programs. This

demonstrates a fundamental challenge to expanding homeownership assistance

programs: homeowners must make enough income to support their mortgage

payments and other debt obligations but cannot make more than the program eligibility

requirements. Publicly funded rental assistance programs do not typically have

minimum income requirements.

For homeownership, housing costs must account for less than 38% of the household’s

total gross income and total household debt cannot exceed 45% of the total household

income (see Appendix A. Housing Definitions).

HTF Funding Amounts

Funding is limited and is mainly competitively dispersed through annual funding

application rounds called notices of funding availability (NOFAs). The Housing Trust

Fund aims to distribute about one-third of funds to King County, one-third of funds to

projects in rural areas, and one-third of funds to projects in other urban areas. HTF

dollars flow through the following four major milestones:

Sections c-i and c-ii

of the proviso

specifically directed

the Work Group to

evaluate state

affordable housing

funds and state-

funded programs.

Washington State Homeownership Disparities Work Group – Recommendations Report 32

▪ Appropriations: Each year, the legislative process funds the

HTF within the capital budget, primarily using state bonds.

It can do this through direct appropriations to specific

projects, competitive set-asides, and/or by providing

competitive, flexible funds. When the Legislature sets aside

funds specifically for homeownership, the HTF usually

meets or exceeds that amount when making homeownership

awards. If the proviso allows for homeownership

investments without naming them in a specific set-aside

(such as flexible HTF funds), Commerce makes

homeownership awards alongside multifamily rental

housing in the annual HTF competitive application rounds.

In recent years, the majority of the HTF budget included

direct appropriations or funds set aside for specific rental or

shelter projects (such as homeless shelters, cottages, and multifamily housing

through rapid acquisition) with little or no funds dedicated to homeownership.

▪ Project awards: Each year, eligible developers and housing providers apply for

HTF funds. Commerce selects homeownership projects to receive funding based

on how many applications are received, how much funding is available, and the

specific priorities of the Legislature and the agency.

▪ Contract: Once awards are announced, Commerce negotiates HTF contracts with

recipients. Sometimes project details change, and it takes time for a contractor to

reassemble a viable project. When the Legislature makes direct appropriations,

the recipient skips the application process and Commerce proceeds directly to

contracting. HTF applicants administering down payment and other

homeownership assistance programs can use HTF funding once their contract is

executed.

▪ Placed in service: For applicants receiving funding for homeownership, projects

begin development and incur acquisition and/or construction costs after the

contract is executed. When acquisition/construction finishes, the units are

“placed in service” (that is, open to occupants) and the occupant moves in.

Total HTF funding has increased significantly in recent years in response to the ongoing

homelessness and affordable housing crisis across the state. However, an analysis of

HTF data demonstrates that only a small share of total HTF funding goes toward

homeownership projects (see Figure 13). In the past 10 years, the highest share of

funding directed toward homeownership was 8% in 2015 (2010 saw 32% of the total,

but it was a very small total).

Build or Acquire

Contract

Award

Fund

Washington State Homeownership Disparities Work Group – Recommendations Report 33

Figure 13. HTF Funding Annually by Housing Type ($M), 2010-2020

Source: Washington State Department of Commerce Housing Trust Fund, 2010-2021

In order to distribute funds more fairly and equitably across the state and among fund

recipients, HTF has policies that limit homeownership applicants to receiving no more

than $3 million per biennium. Homeownership projects are limited to $1.5 million in

HTF funding per cycle. While the HTF does not have firm per-unit limits, it seeks to

leverage other available resources and, on average, funds roughly $50,000-$60,000 per

home. This enables the state to produce more affordable homes but requires developers

and nonprofit housing providers to work with prospective homeowners and piece

together multiple funding sources to support the cost of the property. These per-unit

and per-project limits are insufficient compared to current development costs.

HTF Homeownership Programs

HTF funds homeownership through grants for new construction, acquisition, and

rehabilitation, or by providing down payment assistance and funding closing costs. An

analysis of 701 HTF homeownership contracts awarded from 2010 to 2020 (2,437

households) showed that down payment assistance is the most common contract type

(which includes direct subsidies to community land trusts to reduce the purchase price

of a home). In this HTF sample, 63% of contracts were for down payment assistance,

24% were for new construction (unit creation), 8% were for rehabilitation or resale, and

5% were for acquisition funds.

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Funding ($ millions)

Homeownership MultiFamily Rental

Washington State Homeownership Disparities Work Group – Recommendations Report 34

Unit Creation

From 2010 to 2020, HTF funded 890 homeownership units for 36 applicants for

approximately $37 million. This ranged from zero units in some years to 178 units in

2018 (see Figure 14). According to the HTF data, it takes about 2.4 years for a project to

progress from receiving a funding award to being placed in service (with a range of

same year to seven years).

Figure 14. HTF Homeownership Units Funded, 2010-2020

Source: Washington State Department of Commerce Housing Trust Fund, 2010-2020

Is HTF Homeownership Funding Reaching BIPOC Households?

To answer the question of whether HTF funding is reaching BIPOC households,

Commerce requested demographic data from its funding recipients. It received

information on 701 contracts awarded from 2010 to 2020 for 2,437 households. As this

was a specific request for this Work Group, these 701 contracts represent only a sample

of total HTF contracts made between 2010 and 2020.

As of 2019, Commerce requires funding recipients to report standardized demographic

data of residents in their annual reporting, allowing Commerce to aggregate and report

demographic trends. Required demographic data includes (but is not limited to):

▪ Household size

▪ Race

▪ Ethnicity

▪ Income

▪ First-time homebuyer status

▪ Cash contribution

For the top five contracting counties—King, Spokane, Pierce, Whatcom, and

Snohomish—the HTF reached a higher share of BIPOC households in King County and

Pierce County compared to the BIPOC share of the total population (see Figure 15).

159

0 0

178

104

163

100

120

140

160

180

200

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Washington State Homeownership Disparities Work Group – Recommendations Report 35

Specifically in the sample during this period:

▪ In King County, 55.5% of HTF recipients were BIPOC households, whereas

BIPOC households accounted for 40.4% of total households.

▪ In Pierce County, 47.9% of HTF recipients were BIPOC households, whereas

BIPOC accounted for 33.2% of total households.

Figure 15. Percent of Households Assisted by Race, Top Five Contracting Counties, 2010-

2020

Source: Washington State Department of Commerce Housing Trust Fund, 2010-2020

Other State Programs Influencing Homeownership

Washington State Housing Finance Commission (“the Commission”)

Given the relatively small size of the Housing Trust Fund, program data from the

Commission were also analyzed. The Commission is the state’s housing finance agency,

responsible for administering the state’s allocation of federal Low-Income Housing Tax

Credits (LIHTCs). It also administers several mortgage lending and down payment

assistance programs and administers counseling grants to a statewide network of

housing counseling agencies.

The analysis included 40,320 loans made from 2017 to 2021 from the Home Advantage

Program and the House Key Opportunity Program, both of which provide loans and

down payment assistance to low to moderate-income borrowers. The Home Advantage

Program is larger and accounted for about 93% of the loans in the analysis. Relevant

details of these programs and eligibility requirements are listed below.

Washington State Homeownership Disparities Work Group – Recommendations Report 36

Home Advantage Program

▪ Provides 4%-5% down payment/

closing cost assistance

▪ Statewide maximum income limit

of $160,000

▪ No purchase price limits

▪ Interest rates vary with market

and financing type

▪ Can reduce interest rate if buying

an energy-efficient home

▪ No first-time homeowner

requirement

▪ Program funds are unlimited

House Key Opportunity Program

▪ Offers below-market-rate loans for

first-time homebuyers

▪ Borrower income limits at ~80% of

county AMI

▪ Per county purchase price limits

▪ Interest rates vary with the market

and financing type

▪ First-time homebuyer requirement

▪ Funds are limited

The races and ethnicities of program participants closely approximate their share of

renter households across the state. White and Hispanic/Latino program participants are

slightly overrepresented in the program, while Asian households are underrepresented

(see Figure 16).

Figure 16. Home Advantage and House Key Opportunity Participants by Race, 2017-2021

Source: Washington State Housing Finance Commission loan data 2017-2021, 2019 ACS 1-year estimates

Washington State Homeownership Disparities Work Group – Recommendations Report 37

These Commission programs are succeeding in providing loans for lower-income

households and households with lower credit scores. This analysis found that the

median income for white participants (89.5% of AMI) was slightly higher than BIPOC

participants (86.2% of AMI). More borrowers had credit scores in the 650-700 range than

the national average.

Barriers within State-Funded Homeownership Assistance Programs

The accessibility and availability of funding for state homeownership programs are

insufficient relative to the demand and need for low-income homeownership assistance.

As described in Chapter 1. The State of BIPOC Homeownership in Washington, an

additional 143,000 BIPOC households need to become homeowners to close the

homeownership gap. The overall scale of state-funded programs is insufficient to make

a meaningful difference in the BIPOC homeownership rate, given housing costs in

today’s market.

Some of the barriers within state-funded programs include:

▪ Per-household limits for down payment assistance programs (typically around

$10,000) do not go far enough to help with today’s home prices.

▪ Eligibility requirements can be a barrier, particularly credit scores.

▪ Many of the public assistance programs that require a traditional mortgage and

private lenders do not help to overcome structural barriers that prevent BIPOC

households from obtaining mortgages in the first place.

▪ Housing Trust Fund homeownership development limits per unit, per project, or

per developer do not go far enough to help with today’s development and

construction costs, particularly in urban areas.

▪ The Housing Trust Fund is only creating 89 units per year on average, which is

not enough to keep pace with the demand for affordable homeownership units.

▪ While King and Pierce Counties are serving more BIPOC households with HTF

funds than would be expected from their general populations, the scale of total

funding and assistance is small compared to the need.

▪ Although HTF funds for homeownership have increased in recent years,

significantly more funding is needed to make any noticeable impact on BIPOC

homeownership rates.

Washington State Homeownership Disparities Work Group – Recommendations Report 38

Chapter 5. Fair Housing and Protected Classes in

Federal and State Laws

As the Work Group is focused on improving homeownership rates for BIPOC

households, federal and state laws surrounding protected classes and fair housing have

been a central part of discussions and considerations. Race is a protected class in the

Washington Law Against Discrimination and the Fair Housing Act, meaning that

policies and programs cannot deny or give preferential treatment to people based on

their race, creed or religion, color, national origin, familial status, sex (including gender

identity and sexual orientation), marital status, military status, age, or disability.

The Fair Housing Act

The Fair Housing Act, passed in 1968, is a significant piece of legislation from the Civil

Rights era. It aimed to remedy centuries of housing inequality by prohibiting

discrimination concerning the sale, rental, and financing of housing based on race,

religion, national origin, or sex. It made it illegal for both the government and private

parties to discriminate on the basis of race in the sale or rental of housing.

While the act had an important and positive impact on improving access to housing for

people of color, it did not end housing segregation or close the homeownership gap that

continues to exist between white and BIPOC households.

While forbidding the use of

race as a factor in accessing housing had good intention, the law has proven to be a

barrier to current efforts to target resources to racial minority groups who experienced

the greatest harm from centuries of discriminatory practices. There are some early

indications of change coming at the federal level, as the US Department of Housing and

Urban Development (HUD) released its first-ever Equity Action Plan in April of this

year. Part of this plan includes actions to reduce the racial homeownership gap “in

recognition of a history of racial discrimination in federal programs.”

Washington State Law Against Discrimination

The Washington State Human Rights Commission (WSHRC) was established in 1949 to

enforce the Washington State Law Against Discrimination (WLAD, RCW 49.60). The

laws have been expanded several times, most recently in 2020. The HUD deemed the

WLAD as substantially equivalent to Federal Housing Act.

Impact on Recommendations

All workgroup members want to improve homeownership opportunities for BIPOC

households. Most members agreed that race-based preferences in public resource

allocation would be most effective in truly making progress in redressing the impacts

that racist zoning, redlining, and housing policies have had on limiting wealth

Washington State Homeownership Disparities Work Group – Recommendations Report 39

generation for minoritized groups, understanding that this will require congressional

and legislative action.

Understanding that the Fair Housing Act is a federal law, the

Work Group suggests that the Washington State Legislature

advocate for policy change at the federal level to address

systemic racism and allow for policies, programs, and funding

that directly address the issues causing racial disparities in

homeownership through thoughtful and considerate programs

targeted at historically and systematically excluded

communities.

In compliance with fair housing laws, the recommendations advanced in Chapter 6 are

not race based but attempt to be race conscious, meaning that they address disparate

impacts and recognize and respond to the structural barriers that have long denied

full homeownership participation to people of color in the United States.

Recommendations were designed to close the BIPOC homeownership gap without

explicitly targeting racial groups.

Disparity Studies

As discussed previously, both federal and state laws explicitly prohibit discrimination

(or preference) based on race in renting or buying a home, getting a mortgage, seeking

housing assistance, or other housing-related activities. Only in very rare instances are

race-based policies legal, such as in the case of affirmative action programs or priority

procurement programs for women and minority-owned businesses.

To qualify for an exception from the Equal Protection Clause of the

14th Amendment to

the US Constitution, a program must pass a judicial test of “strict scrutiny,” usually by

conducting a disparity study.

In this study, the government must show sufficient

evidence that a particular program is:

(1) “justified by a compelling governmental interest,” documented by

econometric evidence of past or present racial discrimination requiring remedial

attention; and

While the recommendations

in this report adhere to the

rules of the Fair Housing Act

law, many Work Group

members believe that more

effective strategies could

have been deployed had race-

based recommendations been

legal.

Washington State Homeownership Disparities Work Group – Recommendations Report 40

(2) is “narrowly tailored to remedy that discrimination.”

In any case, race-neutral alternatives must be considered first. The courts have

increasingly moved toward limiting the explicit consideration of race. Even if a court

were to rule that promoting equity is a compelling state interest, it would still require

the government, wherever possible, to use means other than race to achieve equitable

outcomes.

Impact on Recommendations

The recommendations in the next chapter aim to lawfully prioritize populations based

on factors like geography, socioeconomic status, and family homeownership, metrics

that would center racial minorities but are not explicitly race based. If race-based

policies were promoted, they would require a legally compliant disparity study that

met the “strict scrutiny” standards listed above.

Washington State Homeownership Disparities Work Group – Recommendations Report 41

Chapter 6. Recommendations Analysis

The Work Group spent six months learning and analyzing the

data on the state of BIPOC homeownership in Washington,

reviewing the research literature on barriers to homeownership

for these communities, hearing about how existing programs

currently work and could be improved, and debating actionable

recommendations for the governor and Legislature to consider.

After conducting this work, the Work Group prioritized 27

recommendations to help overcome what they see as the two biggest barriers to BIPOC

homeownership:

1) Affordable homeownership supply. Too few affordable homeownership

options, including insufficient incentives to create affordable units.

2) Direct homeownership assistance. Insufficient assistance for BIPOC households

who want to become homeowners, including down payments, closing costs,

support with maintenance and repair needs, and/or mortgage assistance when

necessary.

The Work Group crafted numerous recommendations for state agencies and the

Legislature to consider in the hopes of overcoming these two barriers. These

recommendations are detailed in the next section. The Work Group agreed

unanimously on all but two recommendations (#15 and #16); they are included in the

report as they reached more than 80% consensus with the Work Group members.

Given the array of forces creating and sustaining obstacles to BIPOC homeownership,

the Work Group offers recommendations on three other categories of barriers. As these

did not rise to the highest level of prioritization, implementation considerations were

not provided. These are listed in the Additional Recommendations section.

In summary, the Work Group’s recommendations relate to:

1) Lending products. Improving inadequate lending products for BIPOC

borrowers, including better information, guidance, incentives, and policies.

2) Existing assistance programs. Overcoming the inaccessibility of existing

assistance programs, including better marketing and expanded options.

3) Sustaining homeownership. Overcoming systemic factors that

disproportionately affect BIPOC households’ ability to sustain homeownership.

The proviso specifically

directed the Work

Group to make

recommendations to

increase ownership unit

development and

access to credit.

Washington State Homeownership Disparities Work Group – Recommendations Report 42

Priority Recommendations

These 27 priority recommendations were evaluated to provide context and information

for stakeholders, legislators, agency and legislative staff, and advocates to adopt and

move toward implementation. The table below lists:

▪ The recommendation number

▪ The category of barrier it helps to overcome (increase the supply of affordable

homeownership units or increase direct assistance)

▪ The primary audience targeted in the recommendation

▪ A description of the recommendation

▪ Implementation notes for legislators and advocates

The table groups the recommendations based on “readiness:”

▪ Recommendations that can be advanced through administrative action at a state

agency or legislative action for funding are listed first, since these are generally

ready for quick implementation.

▪ Recommendations that require legislative action to change laws or create new

programs and those that require additional research, analysis, or robust

stakeholder engagement are listed as longer term, since they would not be acted

on until late 2023 or beyond.

Priority Recommendations for the Near Term

These recommendations are ready to deploy in late 2022 or during the 2023 legislative

session. These generally require administrative changes and/or legislative action for

funding (rather than program creation, stakeholder outreach, or further study).

#, Category,

& Audience

Description

Implementation Notes

Increase

Supply

Legislature

Increase biennial state

funding for affordable

homeownership programs,

including for land

acquisition and

predevelopment costs.

Requires ongoing legislative action to

increase biennial funding.

Building on existing Commerce or Commission

programs, consideration is needed to improve

access for eligible applicants, eligible use of

the funds, and lending/grant terms.

Increase

Supply

Legislature

Fund a technical assistance

or capacity-building program

to build the nonprofit

organizational infrastructure

to develop, finance,

facilitate, build, and steward

Requires legislative action and funding.

Requires research, analysis, or stakeholder

engagement.

The HTF should build on its existing programs

and technical assistance resources, scale

what works, and work with the industry to

Washington State Homeownership Disparities Work Group – Recommendations Report 43

Recent changes include aligning the application requirements and definitions with other funding sources (about

four years ago the Department of Commerce expanded the definition of “homebuyer” at the request of HTF

recipients to align with other the definition used by funding sources); aligning the application process with other

funding sources; and aligning reporting requirements of the HTF with those required by other funding sources (HTF

reporting requirements are centralized in the state’s Web Based Annual Reporting System [WBARS], which is shared

with 12 other public funders: cities, counties, and the Washington State Housing Finance Commission, which

oversees the Low-Income Housing Tax Credit program).

#, Category,

& Audience

Description

Implementation Notes

all types of affordable

homeownership projects.

identify gaps in knowledge, resources, and

capacity. Research into best practices in other

states should also be considered.

Increase

Supply

Department

of Commerce

Provide technical planning

assistance and resources to

municipal governments to

increase affordable

homeownership units.

Requires legislative action (if funding is

needed).

Requires research, analysis, or stakeholder

engagement.

The Commerce Growth Management Unit

should build on its existing programs and

technical assistance resources, scale what

works, and work with the industry to identify

gaps in knowledge, resources, and capacity.

The unit should develop guidance on best

practices and policy tools for municipal

governments developing affordable

homeownership unit opportunities.

Increase

Supply

Department

of Commerce

Revise the Housing Trust

Fund and programs at the

Housing Finance

Commission to reduce the

administrative burdens on

applicants, such as:

a. Streamlining the

application process.

b. Reducing the time from

funding award to

contract execution.

Requires research, analysis, or stakeholder

engagement.

Commerce has made efforts to streamline the

HTF application,

but more improvements

could be made.

Commerce and Commission staff should work

with stakeholders to understand how they can

further streamline and improve programs,

applications, and reporting requirements to

ease the burden on nonprofits.

Direct

Assistance

Legislature

Increase the amount of

funding available for direct

assistance to homebuyers

and homeowners.

Requires legislative action and funding.

May require interdepartmental coordination.

Direct assistance may include down payment

assistance, home repair/maintenance

assistance, or other types of assistance to

retain or sustain homeownership.

Building on existing HTF programs,

consideration is needed for the eligible

Washington State Homeownership Disparities Work Group – Recommendations Report 44

#, Category,

& Audience

Description

Implementation Notes

applicants, eligible use of the funds, and

lending/grant terms.

Efforts should be made to leverage other

existing government funding sources without

requiring overly burdensome layers of

regulation or oversight.

Direct

Assistance

Department

of Commerce

Make current programs

more flexible by increasing

the per-household limits on

existing assistance awards.

Increasing award limits is within Commerce’s

administrative purview. Engaging with

stakeholders before making a policy change

would be appropriate.

Consideration is needed for the new

assistance limits, new uses of funding, and

other program factors, with the understanding

that higher per-applicant caps mean fewer

applicants receiving awards without more

appropriations from the Legislature.

Direct

Assistance

Department

of Commerce

Target homeownership

assistance to the BIPOC

community, such as:

a. Prioritize assistance to

people who have current

or historical ties to

previously redlined

neighborhoods.

b. Prioritize assistance to

neighborhoods that are

vulnerable to

gentrification and

displacement or facing

environmental justice

issues, such as climate

change or pollution.

c. Prioritize assistance to

first-generation

homeowners.

This may need administrative changes or may

require the creation of a new program.

Due to Fair Housing Laws, consideration is

needed for targeting mechanisms to ensure

compliance while achieving intended goals.

If a program uses a geographic boundary, the

implementing agency would need to

determine the boundaries and monitor

changes within the geography over time to

ensure that the program funds meet their

intended goals and that unintended

consequences do not occur.

Direct

Assistance

Legislature

Provide incentives to home

sellers to accept offers from

purchasers using down

payment assistance

programs, such as

expanding the Real Estate

Excise Tax (REET)

exemption in HB 1643 to

Requires legislative action.

To achieve the broadest impact, a program

should be available to all income-qualified

households beyond those receiving HTF or

other state-funded direct assistance.

Washington State Homeownership Disparities Work Group – Recommendations Report 45

#, Category,

& Audience

Description

Implementation Notes

sales to individuals using

down payment assistance.

Direct

Assistance

Legislature

Department

of Commerce

Expand debt mediation and

credit repair programs.

Requires legislative action for funding.

Requires research, analysis, or stakeholder

engagement.

Public and private debt mediation and credit

repair programs are already offered, but they

should be expanded.

To achieve the broadest impact, a program

should be available to all households, beyond

just those receiving HTF or other state-funded

direct assistance.

The implementing agency should connect with

nonprofits and community organizations

already doing this work to advertise and

market programs to prospective and existing

homeowners.

#10

Direct

Assistance

Department

of Licensing

Department

of Financial

Institutions

Ensure that awareness of

homeownership programs is

part of licensing and

education requirements for

people in the real estate

industry.

Requires research, analysis, or stakeholder

engagement.

The implementing agency would need to work

with a variety of agencies and departments

involved in the licensing and regulation of real

estate actors, such as mortgage lenders,

bankers, insurers, appraisers, agents, and

realtors or brokers.

#11

Direct

Assistance

Legislature

Fund culturally specific

organizations for outreach

to increase the visibility of

and access to

homeownership assistance

programs for BIPOC

communities.

Requires legislative action and funding.

Requires research, analysis, or stakeholder

engagement.

Commerce has existing outreach programs

that could be expanded.

The implementing agency should connect with

nonprofits and community organizations

already doing this work to advertise and

market programs to prospective and existing

homeowners.

#12

Direct

Assistance

Improve connections with

BIPOC communities to

Requires research, analysis, or stakeholder

engagement.

Washington State Homeownership Disparities Work Group – Recommendations Report 46

Priority Recommendations for the Longer Term

These recommendations are not ready to deploy in the next two years. These are mostly

recommendations that require legislative action to create a new program, change a law,

conduct stakeholder outreach, or fund and conduct further study. They may require

legislative action during the 2023 session to flesh out ideas or conduct further study.

#, Category,

& Audience

Description

Implementation Notes

#13

Increase

Supply

Legislature

Increase and expand

funding for the development

of affordable

homeownership units,

particularly incentives for

local governments that can

reduce construction or land

acquisition costs.

Requires legislative action to increase

funding.

Requires research, analysis, or stakeholder

engagement.

The implementing agency would need to

conduct research, analysis, or stakeholder

engagement to understand the most useful

types of incentives.

#14

Increase

Supply

Department

of Commerce

Legislature

Target state funding for

affordable homeownership

unit development to specific

geographies, such as “high

opportunity” areas, areas at

risk of gentrification, rural

areas, or areas that have

previously seen the

displacement of BIPOC

households.

Requires legislative action to increase

funding.

Requires research, analysis, or stakeholder

engagement.

The implementing agency would need to

evaluate the geographic boundaries chosen

and monitor changes over time to ensure that

gentrification and displacement from new

development do not occur.

The agency would need to evaluate the

mechanism to designate an area (such as an

overlay zone or layer) as well as the types of

incentives that are most appropriate to target

in different areas.

#15

Increase

Supply

Mandate or offer additional

incentives for local zoning

changes, such as increased

allowable density, height, or

Requires legislative action and funding.

Requires research, analysis, or stakeholder

engagement.

#, Category,

& Audience

Description

Implementation Notes

Legislature

ensure their barriers are

understood by funders.

The implementing agency should conduct

stakeholder engagement with affected

communities and nonprofits and community-

based organizations that are successfully

reaching them to identify barriers and gaps

and find solutions to improve community

connections.

Washington State Homeownership Disparities Work Group – Recommendations Report 47

#, Category,

& Audience

Description

Implementation Notes

Legislature

floor area ratio (FAR), to

encourage the creation of

more affordable

homeownership units.

These incentives are currently at a local

government’s discretion. The Legislature has

the authority to require cities/counties to offer

these incentives or to create a statewide

program.

Analysis is needed to calibrate the

development incentives to ensure they offset

reductions in feasibility. A process to monitor

and adapt the program is needed to ensure it

aligns with market costs.

#16

Increase

Supply

Legislature

Mandate or offer additional

incentives for the

development of affordable

homeownership units, such

as expediting permitting

processes and/or waiving

impact fees.

Requires legislative action and funding.

These incentives are currently at a local

government’s discretion. The Legislature has

the authority to require cities/counties to offer

these incentives or to create a statewide

program.

Impact fees pay for local infrastructure and

services. If the state requires these to be

waived, it may need to offer cities/counties

funding to offset the lost resources.

#17

Increase

Supply

Legislature

Specify limited equity

cooperative (LEC) eligibility

and include shared

ownership and shared loans

as eligible for down

payment assistance and

other resources in state

programs.

Requires legislative action.

LECs are for-profit entities and therefore

ineligible for grant funding. Changing this

requires legislative action and careful

consideration.

Changing Commerce Housing Trust Fund

policies (the HTF Handbook) requires policy

review and consultation with stakeholders,

other funders, the Affordable Housing

Advisory Board, and its subcommittee, the

Policy Advisory Team.

#18

Increase

Supply

Legislature

Create a program to offer

loan guarantees to

nonprofits to build more

affordable homeownership

units.

Requires legislative action to fund and create

a program.

Requires research, analysis, or stakeholder

engagement.

The implementing agency would need to

conduct research, analysis, or stakeholder

engagement to understand:

• The most useful types of financing.

• The legal authority to offer loan

guarantees.

Washington State Homeownership Disparities Work Group – Recommendations Report 48

#, Category,

& Audience

Description

Implementation Notes

• How much direct/secondary financing

could be taken on under current risk and

lending limits/policies.

• The process for changing current risk and

lending limits/policies.

#19

Increase

Supply

Legislature

Fund a comprehensive land

identification, mapping,

assemblage, and

acquisition strategy

statewide.

Requires research, analysis, or stakeholder

engagement.

Requires legislative action to fund and create

a program.

Commerce tracks some state agency surplus

land available for housing in an annual report

per RCW 43.63A.510, but this effort could be

expanded.

The implementing agency would need to

develop a program or tool to identify and map

vacant land or redevelopment sites suitable

for housing.

Research, analysis, and stakeholder

engagement is needed to understand the

barriers that the land assembly strategy would

help to overcome.

#20

Increase

Supply

Legislature

Require state agencies to

donate surplus land to

organizations building

affordable homeownership

units.

Requires legislative action to fund and create

a new program.

The Legislature could require state agencies

with surplus land to offer it at below-market

costs (or no cost) for affordable

homeownership development.

RCW 39.33.015 provides existing authority

allowing state agencies, municipalities, or

political subdivisions to provide surplus land

for housing, including at no cost, but this is

not a requirement.

The implementing agency would need to

create a program to map, evaluate housing

suitability, and track surplus land. It would

also need to work with other state agencies

as they seek to dispose of land and establish

the affordability requirements exchanged for

the low-cost land.

#21

Pilot factory-built housing

production to create more

Requires legislative action.

Washington State Homeownership Disparities Work Group – Recommendations Report 49

#, Category,

& Audience

Description

Implementation Notes

Increase

Supply

Legislature

affordable homeownership

units.

Requires research, analysis, or stakeholder

engagement.

Commerce was tasked by previous budget

provisos to pilot some innovative

development (such as tiny homes and

modular housing).

The likely method of implementation is a pilot

program working with housing developers

already in or looking to expand into this

space, or manufacturers working to provide

housing units.

The implementing agency (likely Commerce)

would need funding to design, staff, and

operate a pilot program and would need to

identify housing developers and

manufacturers to work with.

#22

Increase

Supply

Legislature

Authorize more financing for

missing middle housing, so

it is easier for organizations

to secure financing,

including predevelopment

costs, to create new

affordable homeownership

opportunities.

Requires legislative action.

Requires research, analysis, or stakeholder

engagement.

The implementing agency would need to

conduct research, analysis, or stakeholder

engagement to understand:

• Challenges for middle housing developers

to access existing funding.

• The types of financing most useful to

unlock this type of development.

#23

Increase

Supply

Legislature

Authorize changes to tax

policy to encourage the

development of affordable

homeownership units.

Requires legislative action to create a new

program.

Requires interdepartmental coordination.

Requires research, analysis, or stakeholder

engagement.

The implementing agency would need to

conduct research, analysis, and stakeholder

engagement to study the opportunities to

utilize tax policy to encourage affordable

homeownership opportunities.

An example of a past tax policy that

encouraged affordable homeownership is HB

1643 (2022), which exempts the purchase or

transfer of land used for affordable housing

Washington State Homeownership Disparities Work Group – Recommendations Report 50

#, Category,

& Audience

Description

Implementation Notes

(rental or homeownership) from the Real

Estate Excise Tax (REET).

#24

Increase

Supply

Legislature

Enact policies that interrupt

the growing trend of real

estate transactions going to

investors rather than

individual homebuyers.

Requires research, analysis, or stakeholder

engagement.

Requires creating new programs and or

regulations.

Requires larger systems change.

This recommendation is aimed at larger

systems affecting a variety of industries and

players (capital investment, lending, real

estate, regulations, etc.).

The changes might require legislative action

or monitoring/implementing programs for a

state agency.

The implementing agency would need to

conduct research, analysis, and stakeholder

engagement to study the issue of investor

competition and develop recommendations

that could effect change across a variety of

industries (lending, real estate, regulations,

etc.) to make this a reality.

#25

Direct

Assistance

Legislature

Make current programs

more flexible by:

a. Allowing direct

assistance beyond down

payment assistance to

include home repair/

maintenance assistance

and/or assistance to

retain or sustain

homeownership.

b. Providing assistance for

homebuyers above 80%

AMI.

Expanding the eligible uses for state-funded

homeownership assistance programs requires

legislative action.

The state cannot lend or grant funds to

households who are not low income, which is

generally considered to be those earning less

than 80% of AMI. Increasing program income

eligibility limits requires legislative action.

#26

Direct

Assistance

Legislature

The state should

reauthorize funding for

individual development

accounts and other

matched savings accounts.

Requires legislative action.

The Individual Development Accounts (IDA)

program previously allowed for matched

savings for the purchase of a home. It should

be refunded and expanded to match savings

for additional homeownership costs that help

BIPOC households sustain homeownership

Washington State Homeownership Disparities Work Group – Recommendations Report 51

#, Category,

& Audience

Description

Implementation Notes

(such as ongoing maintenance and repair

expenses).

#27

Direct

Assistance

Legislature

Fund government-backed

loans, so that large down

payments are not necessary

Requires legislative action to create a

program.

Requires research, analysis, or stakeholder

engagement.

The implementing agency would need to

conduct research, analysis, or stakeholder

engagement to create a program and to

understand:

• The legal authority of offering government-

backed loans.

• The process for changing current risk and

lending limits/policies.

• New lending terms, eligibility

requirements, and application criteria.

• The amount of funding necessary.

To achieve the broadest impact, a program

should be available to all households, beyond

just those receiving HTF or other state-funded

direct assistance.

The implementing agency should connect with

nonprofits and community organizations

already doing this work to advertise and

market programs to prospective and existing

homeowners.

Additional Considerations

The following suggestions are also endorsed by the Work Group members but were not

prioritized for further implementation analysis. Many of these suggestions are beyond

the control of the Legislature or state agencies and call for bold, sweeping changes to

numerous industries or current laws. Because the Work Group believes that bold

initiatives are needed for substantive change to occur, it included these additional

suggestions to highlight the extent of changes needed.

Washington State Homeownership Disparities Work Group – Recommendations Report 52

Recommendations to Overcome the Barrier of the Inadequacy of Lending Products for

BIPOC Borrowers

A. Make existing financial products more profitable. The state should work to make

existing state lending products more profitable for lenders to increase uptake and

help overcome existing barriers by:

▪ Increasing the number of lenders participating in down payment assistance

programs and boosting awareness of these programs

▪ Increasing incentives to lenders who make loans to first-time homebuyers

▪ Advocating for changes in Fannie Mae and Freddie Mac to restore the HFA

Preferred Program and lessen their reliance on credit scores, or finding new ways

to measure creditworthiness

▪ Offering grants or other incentives to allow lenders to make loans that would

otherwise be unprofitable, such as:

o Offering assistance to financial institutions that make smaller loans more

profitable and thus encourage lending for cooperative housing

o Offering a guaranteed return (or loss prevention) to the lender for taking

on the loan

B. Make current industries work better for BIPOC households. The state should enact

policies to make current financing, lending, banking, and other real estate industries

work better for BIPOC households, such as:

▪ Recruiting lenders, appraisers, and other professionals that more accurately

reflect the diversity of the community served, while ensuring compliance with

state and federal laws that prohibit discrimination in employment

▪ Addressing discrimination within home valuations

▪ Incorporating racial bias training for real estate, lending, and appraising

professionals

▪ Addressing disparities within the automated underwriting system

▪ Combatting predatory lending

▪ Reforming how credit scores are calculated to include rental and other monthly

payments in credit score calculations

▪ Advocating for the elimination of price-based differentials based on credit and

down payment size with federal housing agencies

▪ Advocating for additional support for technological innovation for FHA and VA

loans

Washington State Homeownership Disparities Work Group – Recommendations Report 53

C. Fund alternative financing programs. The state should fund alternative programs

to the traditional bank-financed mortgage to help overcome existing barriers, such

as:

▪ Lending programs that consider incomes and eligibility of the entire

family/household, not just the borrower (could be responsive to cultural family

dynamics)

▪ Programs that use nontraditional credit and manual underwriting options

instead of algorithms

▪ Programs or loan products that do not use typical credit scores

D. Fund pilot programs. The state should fund pilot programs that emulate lessons

learned in other states to help overcome existing barriers, such as:

▪ Special-purpose credit programs to make homeownership accessible to people

historically denied access to opportunity in the financial system

▪ Programs to help prospective homebuyers repair their credit and understand the

impact of credit ratings

Recommendations to overcome barriers related to the inaccessibility of existing

assistance programs

A. Expand funding and resources available. The state should offer additional funding

and resources for potential homeowners, such as:

▪ Increasing marketing of free/available resources with emphasis on BIPOC

households and/or new immigrants

▪ Funding housing counselors to work with individuals wanting to buy a home

B. Help overcome cultural barriers. The state should work to overcome cultural

barriers by:

▪ Advertising and marketing the benefits of homeownership, financial and

otherwise, to BIPOC communities to disprove or overcome family culture and

expectations of not being a homeowner

▪ Using trusted messengers and partnerships with community-based

organizations to promote awareness of homeownership programs

▪ Encouraging culturally specific homebuyer education programs via partnerships

with local organizations/faith groups/immigrant populations

▪ Changing language that can be misleading (such as “first-time homebuyer”)

▪ Encouraging more people identifying as BIPOC to enter the real estate and

mortgage lending fields

Washington State Homeownership Disparities Work Group – Recommendations Report 54

C. Enhance existing programs. The state should change existing policies and programs

by:

▪ Changing or offering alternative class structures (for the home buying process,

financial capability, foreclosure prevention, etc.) that expand accessibility (such

as shorter classes, classes on weekends or at various times of day)

▪ Offering or requiring better education for real estate agents to know how to get

first-time homebuyer offers accepted (compared to those with more capital)

▪ Creating funding distribution parameters to ensure certain groups throughout

the state have access to support/resources

D. Increase education on fair housing law. Agencies that administer homeownership

assistance should ensure that homeowners are educated on the protections of state

and federal Fair Housing laws.

▪ All programs that participate in administering programs included in these

recommendations should receive training on state and federal Fair Housing laws

for their staff and volunteers

▪ All such programs will incorporate nondiscrimination statements on all

marketing and/or outreach materials, such as: “We do business in accordance

with the Federal Fair Housing Act and the Washington State Law Against

Discrimination” or “We welcome all participants without regard to race, color,

creed, national origin, sex, sexual orientation or gender identity, honorably

discharged veteran or military status, HIV/AIDS or Hepatitis C status, the

presence of any sensory, mental, or physical disability, families with children

status, or use of an assistance animal by a person with a disability.”

Recommendations to overcome systemic barriers preventing BIPOC households from

sustaining homeownership

A. Increase and diversify homeownership funding. The state should offer additional

funding and resources for homeowners, such as:

▪ Housing counselors to work with homebuyers for at least three years after they

purchase

▪ Counseling programs that increase awareness of the steps needed to sustain

homeownership

▪ Cohorts and homebuyer clubs for ongoing support for homebuyers (new

funding for new programs and funding those that already exist)

B. Fund new programs. The state should create new programs to monitor and assist

homeowners at risk of losing their homes, such as:

Washington State Homeownership Disparities Work Group – Recommendations Report 55

▪ Programs aimed at promoting healthy mortgage servicing relationships and loss

mitigation options

▪ Programs that evaluate the risk of foreclosure and offer early interventions to

prevent foreclosure and subsequent wealth loss

▪ Fund better protections for homeowners who experience income shocks like

unemployment or illness

▪ Programs offering aggressive loan forbearance and credit reporting mandates to

protect BIPOC homeowners and potential homebuyers from financial

devastation due to the COVID-19 pandemic and other such macro shocks

C. Conduct additional research. The state should conduct studies and evaluate

existing policies surrounding the costs of homeownership, such as:

▪ Study the reasons why people lose their homes and invest in programs that

address these problems, such as the Foreclosure Fairness Program

▪ Study whether reserve studies for homeowners associations (HOAs) are

complete and accurate and that buyers understand them

▪ Emphasize policies that do not add to the cost of housing or find ways to

eliminate costs

▪ Support rent relief programs to help BIPOC homebuyers improve their financial

position and/or credit and promote savings for down payments

Washington State Homeownership Disparities Work Group – Recommendations Report 56

Appendices

Appendix A. Housing Definitions........................................................................................... 57

Appendix B. Literature Review of Barriers to BIPOC Homeownership ........................... 62

Washington State Homeownership Disparities Work Group – Recommendations Report 57

Appendix A. Housing Definitions

These definitions come from either the Work Group itself or the Housing Trust Fund

Handbook Glossary.

Affordability. Affordability is achieved when a household’s rent and utility costs (other

than telephone) do not exceed 30% of the monthly income for the targeted income

group as adjusted for household size. In the context of homeownership, affordability

occurs when a household’s monthly housing costs are generally no more than 38% of

monthly household income and total debt is no more than 45% of monthly household

income. Housing costs include mortgage principal, interest, property taxes, homeowner

insurance, homeowner association fees, and land lease fees, as applicable. Total debt

includes other debt and utilities.

Area Median Income (AMI). See median family income (MFI).

Community Land Trust. A private, nonprofit, community-governed and/or

membership corporation whose mission is to acquire, hold, develop, lease, and steward

land for making uses such as housing, farmland, gardens, businesses, and other

community assets permanently affordable for current and future generations. A CLT’s

bylaws prescribe that the governing board is composed of individuals who reside in the

CLT’s service area, one-third of whom are currently or could be CLT leaseholders.

Date of Occupancy. The date at which either a renter or household occupies a unit or a

homeowner closes on the purchase of a house.

Direct Assistance Programs. Publicly funded programs that provide financial support

to assist a person with a variety of homeownership opportunities including but not

limited to the purchase of a home, mortgage payments, energy and utility payments,

home improvements, and the refinancing of a home.

Displacement. The permanent relocation of a person (to include families, individuals,

businesses, nonprofit organizations, and farms) as a result of a project assisted with

HTF funds.

Displaced Person. A person (family, individual, business, nonprofit organization, or

farm, including any corporation, partnership, or association) that moves from real

property or moves personal property from real property permanently as a direct result

of acquisition, rehabilitation, or demolition of a project assisted with HTF funds.

Down Payment. The cash difference between the contract price for the property being

purchased and the amount covered by the mortgage.

Eligible Project Types [for HTF]. Assisted-living facilities, boarding homes, emergency

shelters (including shelters for persons experiencing homelessness and survivors of

domestic violence), group homes, homes for first-time homebuyers, multifamily rental

Washington State Homeownership Disparities Work Group – Recommendations Report 58

housing, seasonal and year-round housing for farmworkers, transitional housing, and

permanent supportive housing.

Extremely Low-Income Households. Households earning 30% of the area median

income or less.

Farmworker Household. A household whose income is derived from farm work in an

amount not less than $3,000 per year and which, at the time of initial occupancy of the

housing project, has an income at or below 50% of the area median income. Also, see

household.

First-Time Homebuyer. An individual or their spouse or domestic partner who has not

owned a home during the three-year period prior to purchase of a home. Substitute

Senate Bill 5651 from the 2022 session amends the 2021-2023 Housing Trust Fund

Capital Budget and changes the definition of a first-time home buyer as follows:

(a) In addition to the definition of "first-time home buyer" in RCW 43.185A.010,

for the purposes of awarding homeownership projects during the 2021-2023

fiscal biennium, "first-time home buyer" also includes:

(i) A single parent who has only owned a home with a former spouse while

married;

(ii) An individual who is a displaced homemaker as defined in 24 C.F.R. Sec. 93.2

as it existed on the effective date of this section, or such subsequent date as may

be provided by the department by rule, consistent with the purposes of this

section, and who has only owned a home with a spouse;

(iii) An individual who has only owned a principal residence not permanently

affixed to a permanent foundation in accordance with applicable regulations; or

(iv) An individual who has only owned a property that is discerned by a licensed

building inspector as being uninhabitable.

First-Generation Homebuyer. A person whose immediate parent or guardian did not

own a home during their lifetime.

Gross Income. Includes a household’s earned income, income from assets, and income

from other sources as defined by 24 CFR Part 5 §5.609.

Household. One or more persons inhabiting a housing unit as their principal residence.

Interest. The amount of money charged by the lender for the use of a principal amount

of money. It is expressed as a percentage and may be calculated in a variety of ways.

The interest rate may be fixed over the life of the loan or may be adjustable at regular

intervals as defined by the lender.

Washington State Homeownership Disparities Work Group – Recommendations Report 59

Loan. Funds provided by a lender to the housing project, which must be repaid to the

lender within a specified period of time and under certain conditions.

Low-Income Household. A single person, family, or unrelated persons living together

whose adjusted income is less than 80% of the median family income, adjusted for

household size, for the county where the project is located.

Low-Income Housing Covenant. A covenant is a legal instrument used to document an

agreement to ensure or exclude certain uses or activities pertaining to a specific piece of

property. In the case of the Housing Trust Fund, the covenant ensures that the land will

be used for low-income housing (sometimes for particular groups of people) for a

specified period of time (usually 40 years). The covenant runs with the land and is still

in force, even if the land is sold.

Median Family Income (MFI). The US Housing and Urban Development (HUD)

produces an area median family income each year to measure affordability thresholds

against. Affordable housing deals, loans, and other HUD requirements will be assigned

to a percentage of the MFI. HUD defines an area’s median family income (MFI), but

AMI is often used to mean the same thing. A note on MFI vs. AMI from HUD:

“HUD estimates Median Family Income (MFI) annually for each metropolitan

area and non-metropolitan county. The metropolitan area definitions are the

same ones HUD uses for Fair Market Rents (except where statute requires a

different configuration). HUD calculates Income Limits as a function of the area's

Median Family Income (MFI). The basis for HUD’s median family incomes is

data from the American Community Survey, table B19113 - MEDIAN FAMILY

INCOME IN THE PAST 12 MONTHS. The term Area Median Income is the term

used more generally in the industry. If the term Area Median Income (AMI) is

used in an unqualified manor [sic], this reference is synonymous with HUD's

MFI. However, if the term AMI is qualified in some way - generally percentages

of AMI, or AMI adjusted for family size, then this is a reference to HUD's income

limits, which are calculated as percentages of median incomes and include

adjustments for families of different sizes.”

vii

Middle-Income Housing. Housing that is typically affordable to households earning

between 80% and 120% of an area’s MFI.

Missing Middle Housing. Missing middle housing is a term coined by Opticos Design

to refer to medium-density housing types like duplexes, triplexes, townhouses,

vii

HUD. 2018. “FY 2018 Income Limits Frequently Asked Questions.”

https://www.huduser.gov/portal/datasets/il/il18/FAQs-18r.pdf

Washington State Homeownership Disparities Work Group – Recommendations Report 60

courtyard-style apartments, cottage clusters, or accessory dwelling units.

viii

This is not to

be confused with middle-income housing, which is focused on the level of affordability

of the unit rather than the typology of the housing. Missing middle housing is often

aligned with middle-income housing because it is smaller than typical single-family

housing types and thus more affordable, but that is not always the case.

Modular Housing. A modular home is a factory-assembled structure designed

primarily for use as a dwelling when connected to the required utilities that include

plumbing, heating, and electrical systems contained therein, does not contain its own

running gear, and must be mounted on a permanent foundation. A modular home does

not include a mobile home or manufactured home. (RCW 46.04.303)

Permanently Affordable Homeownership. Homeownership units that are sponsored

by a nonprofit organization or government entity that are subject to a ground lease or

deed restriction that includes a resale restriction, among other requirements, and where

the sponsor and organization executes a new ground lease or deed restriction with a

duration of at least 99 years at the initial sale and with each successive sale.

Placed in Service. A project that has been completed and achieved 90% occupancy in

the case of multifamily/rental projects or 100% occupancy in the case of homeownership

projects.

Rural. Projects will be deemed “rural” to determine if they contribute to the HTF

statutory target of 30% rural projects (see RCW 43.185.050 [1]) and to determine which

Evergreen Sustainable Development Standard requirements apply if they are located in:

▪ Counties with a population of less than 90,000, except for those cities within

these counties with a population of greater than 25,000. For example, Franklin

County, except the City of Pasco.

▪ Counties with a population greater than 90,000 but less than 390,000 when more

than an aggregated 25% of that county’s population reside in one substantially

contiguous metropolitan area. In this case, the county except such metropolitan

area would be considered rural. For example, Yakima County, except the City of

Yakima.

▪ Counties with a population greater than 390,000 but where the project is located

in a sufficiently remote location to be reasonably considered as not associated

with an urban center. For example, Eatonville, Pierce County. Applicants for

projects thought to be in rural areas under this definition should contact HTF

staff for an official determination prior to submitting an application for funding.

viii

Opticos Design, 2017, “Missing Middle Housing: Responding to the Demand for Walkable Urban Living,”

https://opticosdesign.com/wp-content/uploads/2017/08/MissingMiddle_Slides_OpticosDesign.pdf

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Single-Family Housing. A structure designed for residential use by one family, or a

unit so designed, whose owner owns, directly or through a nonprofit housing

organization, an undivided interest in the underlying real estate, including property

owned in common with others. In the HTF context and in terms of HTF eligible housing

models, both homeownership and rental housing models can involve the development

or acquisition/rehab of single-family structures. The housing model rather than the

physical building structure determines HTF program eligibility, as well as application

and contracting criteria.

Total Development Cost (TDC). The sum of project development costs noted on a

project development budget. Such costs will include building/land acquisition and

construction/rehabilitation hard and soft costs (such as development and other

development costs noted on the HTF development budgets). Residential and

nonresidential TDCs may be noted in the HTF applications.

Urban. An urban area or community is defined as any municipality with a population

greater than 25,000, which does not fall into the definitions of rural. Projects located

within a municipality with a population less than 25,000 but which is adjacent to a city

deemed “urban” may be deemed functionally related to that city and therefore also

deemed urban. For example, Brier, population 6,361 (2003), which is functionally

related to the City of Lynwood. Also, review the rural definition above.

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Appendix B. Literature Review of Barriers to BIPOC Homeownership

This appendix provides a literature review of the barriers to BIPOC homeownership.

While many of these findings have been incorporated into Chapter 2. Affordable

Homeownership Supply Barriers and Chapter 3. Financial Barriers to Acquiring and

Sustaining Homeownership for BIPOC Households, this appendix provides a more

robust review than was provided in the body of the report. Additional citations are also

provided to link readers to the research.

1. Barriers to the Supply of Affordable Homeownership Units

This section describes the types of homeownership units that are more affordable to

BIPOC households, macroeconomic trends in the construction of these units, and

common reasons why the construction of these units is declining. Where items lack

citation, they come from the consulting team’s housing development knowledge and

expertise.

What are Affordable Homeownership Unit Types?

The term “affordable housing” can have several meanings. On its own, the term

typically connotes rent or income-restricted rental housing that has a public subsidy

requiring that the unit be rented or sold at “affordable” prices. In this second use of the

term, this means the house is affordable to a low-income household, such that the

household pays less than a certain threshold of their income toward housing.

In rental housing, affordability is typically considered to be when a household pays no

more than 30% of its pretax income on housing costs. In the context of homeownership,

this threshold is slightly higher. The Washington State Housing Trust Fund defines

affordability as occurring “when a household’s monthly housing costs are generally no

more than 38% of monthly household income and total debt is no more than 45% of

monthly household income. Housing costs include mortgage principal, interest,

property taxes, homeowner insurance, homeowner association fees, and land lease fees,

as applicable. Total debt includes other debt and utilities.”

The following types of housing units are generally considered more affordable, as in

“lower cost,” than newly constructed single-family detached homes. However, among

these different unit types, there can be wide price differences, so these are not

guaranteed to be more affordable or lower cost in all circumstances. Condominiums, for

example, can be less expensive than single-family homes in some areas and

circumstances, but in other situations, they can be just as expensive or even more

expensive than newly constructed single-family detached homes. Typically, affordable

housing types include:

▪ Older homes needing rehabilitation

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▪ Homes in areas with little access to amenities

▪ Smaller homes or homes with fewer amenities (new or existing)

o “Patio homes” (slab-on-grade homes without a basement)

o Townhomes

o Condominiums

o Missing middle housing types (such as accessory dwelling units,

duplexes, fourplexes, courtyard-style units, etc.)

o Modular homes

o Mobile or manufactured homes

▪ Cooperative housing

▪ Limited/shared equity or sweat equity homes (such as Habitat for Humanity

builds)

Barriers to Developing Affordable Homeownership Units

The United States has underproduced housing units to meet demand for some time.

Freddie Mac estimates that the decline in single-family homes is the main driver of this

overall housing shortfall and that the decline in “entry-level” single-family homes

(which they define as homes under 1,400 square feet) has seen an even larger decline.

Freddie Mac’s research suggests that entry-level homes accounted for roughly 34% of

all new homes completed in the 1970s, but by 2019 its share dropped to only 7% of all

new homes completed.

Figure 17. Decline in Number of Newly Constructed Smaller Homes

Source: Freddie Mac. 2021. http://www.freddiemac.com/research/insight/20210507_housing_supply.page. Data from

U.S. Census Bureau.

Washington State Homeownership Disparities Work Group – Recommendations Report 64

Figure 18. Decline in Newly Constructed Smaller Homes as a Share of All New Home

Construction

Source: Freddie Mac. 2021. http://www.freddiemac.com/research/insight/20210507_housing_supply.page. Data from

U.S. Census Bureau.

I. Development Costs as a Barrier to New Construction of Affordable Homeownership Units

In the homeownership market, sales prices need to offset development costs and the

profit/return requirements of the developer, investor, and financer. When development

costs are high, the sales price needed to break even or profit will be even higher.

Development costs include land, materials, construction labor, soft costs (architecture,

engineering, financing, insurance), systems development charges from public

jurisdictions, and costs of required design elements (open spaces, parking, setbacks,

etc.).

If total development costs are too high, development is unlikely to occur as the project

will not break even or return a profit to the investors and developers without some

form of financial assistance.

Financing and Investment Return Requirements

In addition to development costs, there are also financial requirements and standards

that determine the minimum amount of return on development that a developer or

lender will accept. This translates to selling prices or rental costs that can be too high for

many homeowners or renters to afford.

II. Zoning and Land Availability

Zoning regulations can make it difficult or illegal to build smaller, lower-priced units or

more units to help ease supply and demand issues. These considerations include limits

on density, meaning fewer houses can be built overall, minimum lot sizes requiring

Washington State Homeownership Disparities Work Group – Recommendations Report 65

larger properties, parking requirements taking away developable land, building codes

with costly requirements, and tax lot laws that prevent developers from splitting lots or

developing homeownership units instead of rentals.

III. Construction Defect Liability

Although recent legislation in Washington has worked to address this issue, condo

defect liability laws have steered the market away from producing condos, which are

higher density, smaller, and thus more affordable homeownership options. Common

barriers to condo development include the ability for developers to secure loans

(including Federal Housing Administration [FHA] loans) due to insurance and

inspection regulations and requirements.

IV. Labor Shortage

Higher construction wages due to a shortage of construction workers, especially skilled

trade contractors like carpenters, electricians, plumbers, and bricklayers, have driven up

the cost of all types of construction. The housing crash in 2008 and the subsequent

recession drove thousands of construction workers out of the industry. Demand for

labor has surged with the recovery of the housing market, but older workers are

retiring, while fewer young people are entering the construction trades to replace

them.

V. Difficulty Scaling Alternative Affordable Homeownership Development Models

Nonprofit organizations primarily develop lower-cost homeownership products, such

as shared-equity models; these include community land trusts, “sweat-equity” models

(such as Habitat for Humanity), or cooperative housing models. However, scaling up

has been difficult due to limited funding and the variety of views on what scaling up

should be and how it should be implemented.

Additionally, these organizations also

compete for construction labor with higher-priced developments, which can offer more

incentives to construction workers.

VI. Development Timelines and Risk

Because most housing developments are paid with loans, delays and long timelines cost

money via carrying costs or the interest payments that are accruing on loans. Therefore,

long development timelines (such as permitting processes and environmental reviews),

risk to development processes (such as changing laws, environmental challenges, or

lawsuits), and delays (such as local opposition) all cost money and reduce interest in

development, thereby driving up prices and reducing supply.

VII. Limited Government Subsidies to Develop More Units

When developers and investors cannot realize the profits and return on investments

needed to offset the risk of development—or if costs are too high for a market price—

development will not occur without financial subsidy. However, federal housing

assistance is not an entitlement program where supply flexes to meet demand and

Washington State Homeownership Disparities Work Group – Recommendations Report 66

eligibility, and funds are limited. In addition, federal development subsidies are used

for incentivizing the building of both rental units and homeownership units, and there is

no specific federal program devoted to exclusively subsidizing the development of

affordable homeownership units.

In Washington, the availability of public subsidies through the HTF is insufficient to

meet the demand for newly constructed permanently affordable homeownership

units.

Per-unit limits on subsidies for the development of homeownership units,

program level limits on total funds available to award to developers, and some of the

program’s eligibility requirements are all barriers to increasing the number of

affordable homeownership units constructed.

VIII. Housing Investors are Buying Up Affordable Homeownership Units

Real estate investors are buying lower-cost homeownership units to rehabilitate and put

back on the market at a profit or to rent out. These investors, sometimes called

“flippers,” with large balance sheets and quick access to financing outcompete

traditional buyers and buyers using down payment assistance programs, thereby

reducing the supply of affordable homeownership units available for purchase.

According to the real estate data provider CoreLogic, “In 2018, investors bought

roughly 20% of US starter homes (homes priced in the bottom third of the local market)

— twice that of 20 years ago. . . . In the most popular markets, they bought nearly 50%

of the most affordable homes and 25% of all single-family homes.”

Investors cannot

flip homes that have been publicly funded and deed restricted for long-term

affordability.

2. Barriers in the BIPOC Homeownership Journey

This section provides additional information and relevant citations for the literature

review of barriers to BIPOC homeownership throughout the homeownership journey.

Barriers Present Before Buying a Home

I. Income

Income is important for homeownership. Median household income for Black

households is substantially lower than for white households. Income disparities

nationwide are related to homeownership disparities, as those with higher incomes

have higher homeownership rates.

Income and educational attainment are highly correlated, and disparities exist in access

to education among racial and ethnic groups. An analysis of 2019 one-year ACS data

shows a difference in return on education between white households and households of

color: in 2019, Black graduates had a median income of $48,000, Hispanic graduates had

a median income of $45,000, Native American graduates had a median income of

$43,100, and Asian graduates had a median income of $57,700, in comparison to white

Washington State Homeownership Disparities Work Group – Recommendations Report 67

graduates’ median income of $58,000.

According to the Urban Institute however,

“although having more Black households with a college degree would likely increase

Black household income and homeownership, the impact would be small and would

not close the homeownership gap. Black homeownership increases with educational

attainment, but a smaller share of Black households own homes relative to white

households, irrespective of educational achievement.”

II. Debt-to-Income (DTI) Ratios

A high debt-to-income ratio (DTI) is the most common reason Black applicants are

denied loans.

Loan applicants can see a high DTI ratio either when the price of homes

is very high, when their incomes are low, or both. Even with down payment assistance,

the homes in urban areas may be unaffordable for many potential homebuyers of color.

Most lenders have limits on the DTI ratio that qualifies for a mortgage to ensure that the

monthly mortgage payments can be paid from monthly incomes.

Most lenders prefer DTI ratios under about 36%, somewhat higher than traditional

concepts of cost burdening (which occurs when a household spends 30% of its income

on housing). According to a report from the Oregon Legislative Policy and Research

Office, the highest DTI ratio a borrower can have and still receive a qualified mortgage

is 43%. Qualified mortgages are “loans that do not have certain risky features that may

contribute to the borrower’s ability to repay the loan, such as interest-only periods,

negative amortization, balloon payments, or terms longer than 30 years.”

Existing debt can also be a barrier to homeownership since it can factor into mortgage

lending terms. Black students are more likely than white students to receive

unsubsidized loans for education, which increases the amount of debt that Black college

graduates must take on to pursue higher education. These private loans often come

with fewer consumer protections and higher interest rates than federal loans.

BIPOC families and students often have less wealth to draw on than their white

counterparts, making them more likely to turn to student loans to cover rising college

costs. This student debt follows them into potential homeownership and impacts their

debt-to-income ratio.

Because of structural advantages, white borrowers are able to

pay down their education debt at a rate of 10% a year, compared with only 4% for Black

borrowers. As a result, 15 years after they leave college, Black adults hold 185% more in

student loan debt than white adults.

According to the Board of Governors of the Federal Reserve System, Hispanic

borrowers took out the smallest among of federal student loan money in 2019, at

$30,890, in comparison to white borrowers with around $40,000 and Black borrowers

with $44,800 loans on average.

2019 1-Year ACS data from IPUMS

Washington State Homeownership Disparities Work Group – Recommendations Report 68

III. Down Payments

The Urban Institute also identifies the challenge of saving for a down payment as a

barrier to homeownership because of the disparities in income and wealth between

households of color and white households and the gap between wages and home

costs.

Households who cannot buy homes, buy homes later in life, buy less expensive homes,

or buy homes with more debt see less equity over time and are thus less able to pass on

wealth as an inheritance to the next generation.

According to a recent study by the Federal Reserve, “White families are both more

likely to have received an inheritance and are also more likely to expect to receive an

inheritance: about 17 percent of white families expect an inheritance, compared to 6

percent of Black families, 4 percent of Hispanic families, and 15 percent of other

families. Similarly, conditional upon expecting to receive an inheritance in the future,

white families expect to receive relatively larger inheritances.”

The Urban Institute found that smaller returns on equity for homeowners of color

“meant smaller inheritances for children of color, leaving them without an important

resource for first-time homebuyers.”

The accessibility and availability of public subsidies for down payment assistance

through the Washington Housing Trust Fund and the Washington State Housing

Finance Commission are generally insufficient to meet the demand for these programs.

Low assistance limits available to prospective buyers, some eligibility requirements

(such as income limits or credit scores), and some structural issues with how the down

payment assistance programs are designed (such as requiring a traditional mortgage)

are all barriers to helping move the needle on BIPOC homeownership in Washington.

IV. Low Credit Scores and Being “Underbanked”

Lack of credit and poor credit present as barriers to accessing a lower interest rate loan

for many prospective buyers of color. These prospective buyers are disproportionately

unbanked or underbanked and face greater challenges to building and maintaining

good credit. They are effectively excluded from the lending process.

The Consumer Financial Protection Bureau (CFPB) analyzed 2019 Home Mortgage

Disclosure Act (HMDA) data, finding that, on average, Black applicants had the lowest

credit score of all racial and ethnic groups.

100

Researchers have found median credit

scores for Black people to be 60-100 points lower than the median score for white

people, on average.

101

102

Asian people have the highest average credit scores, with an

average of 745. In comparison, white people have an average of 734, Hispanic people an

average of 701, and Black people an average of 677, according to recent FICO score

data.

103

Washington State Homeownership Disparities Work Group – Recommendations Report 69

The CFPB analysis also found that mortgage denial rates were higher for people of color

even when credit scores were held constant.

104

“Unfortunately, Black and Hispanic

borrowers continued to have fewer loans, be more likely to be denied than non-

Hispanic white and Asian borrowers and pay higher median interest rates and total

loan costs.”

105

Researchers at the Brookings Institute highlight how “decades of discrimination in

employment, lending policies, debt collection, and criminal prosecution have left

generations of Black families vulnerable to financial insecurity and negatively impacted

median credit scores.” In the short term, low credit scores can make it challenging or

impossible to pay for immediate needs or unexpected expenses. In the long term, low

credit scores can limit access to activities that can create income and wealth, such as

advanced education, entrepreneurship, or homeownership. This, in turn, contributes to

the growing wealth disparity between Black and white families.

106

In addition, the most widely used version of the FICO credit score offers points when a

household pays its mortgage on time but does not include on-time rent payments.

107

This has a greater impact on Black, Native, and Hispanic households, who are more

often renters.

A recent Brookings Institute report identified stark disparities in access to banking

institutions for Black Americans. They noted that racial discrimination and various

types of market failure have led to banking and credit deserts in underserved urban and

rural communities. Unbanked and underbanked rates were higher among Latino or

Hispanic, American Indian, and Alaska Native households than white households and

highest for Black households.

108

Today, Black households are 3 to 5 times as likely as

white households to be unbanked, which causes them to be more likely to be credit

invisible or unscorable, with lower credit scores on average than white households with

similar incomes.

109

Black and Hispanic households are twice as likely as white

households to lack a credit score.

110

Being unbanked or underbanked can also lead to exposure to risky alternative financial

services (such as payday loans) that charge higher interest rates and can trap borrowers

in cycles of debt, increasing their financial vulnerability and increasing their chances of

credit delinquency.

111

112

These nontraditional credit establishments are more common

in majority Black neighborhoods than in majority white neighborhoods.

113

The Center

for Responsible Lending found that even in high-income, high-minority neighborhoods,

there were more payday lending shops than in predominantly white neighborhoods.

114

Prospective homebuyers of color often lack the ability to access services that are

culturally appropriate or in their native language, and this barrier is higher in rural

areas.

Washington State Homeownership Disparities Work Group – Recommendations Report 70

V. Cultural and Familial Differences

Some members of Oregon’s communities of color have reported a lack of trust in

financial institutions, with many households of color refusing to open bank accounts.

115

This distrust may also be the case in neighboring Washington. This lack of trust is the

result of racist practices in the financial system, such as redlining and predatory lending

practices, lack of transparency about fees, or a feeling that national banks want only

certain kinds of customers.

116

Young adults are more likely to be homeowners if their parents are. Researchers at the

Urban Institute found this to be a linear relationship: “A 10 percent increase in parental

wealth increases a young adult’s likelihood of owning a home by 0.15 to 0.20 percentage

points. Only 14 percent of millennials whose parents have a net worth below $10,000

are homeowners, but 36 percent of millennials whose parents have $300,000 or more in

net worth are homeowners.”

117

The reasons for the correlation between parents’ wealth and a child’s homeownership

are multiple. Children of homeowners may envision themselves as homeowners, may

learn from their parents about the wealth-building value and importance of owning a

home, and/or they may receive financial support and advice from their parents.

118

The Urban Institute found that “the difference in parental homeownership and wealth

explains 12 to 13 percent of the 24-percentage point homeownership gap between Black

and white young adults.”

119

Barriers Present While Buying a Home

I. Higher Interest Rates

Black applicants are often charged higher interest rates than white borrowers (on

average) after being approved for a mortgage, meaning they must devote more of their

incomes toward housing costs, even when the debt-to-income ratio is not a barrier.

120

Hispanic borrowers are charged at similar rates to Black borrowers, while Asian

borrowers have lower rates than white borrowers at all rates.

121

II. Use of Alternative Mortgage Products

Black households are more likely to use alternative mortgage lending products

compared to white households and are more likely to pay higher interest rates as a

result.

122

Researchers with the Urban Institute found that Black households are more likely to use

FHA and Veterans Administration loans than traditional mortgage loans.

123

And

according to the State of Housing in Black America Report, “Black borrowers pay

significantly higher rates for FHA and slighter higher rates for conventional mortgage

loans.”

124

Hispanic or Latino households use FHA and Veterans Administration loans at

Washington State Homeownership Disparities Work Group – Recommendations Report 71

a similar rate to that of Black households, a rate almost 100% higher than white

households in 2010.

125

More Black applicants applied for a loan at a mortgage company (66%) than white

applicants (53%), who relied more heavily on banks.

126

While there are advantages and

disadvantages to working with a bank versus a broker, typically, brokers are more

expensive and take longer to close than banks, costing the buyer money. However,

mortgage brokers are often more able to find loan products for those with lower credit

scores or other risky characteristics.

127

III. Predatory and Discriminatory Lending Practices

Households of color are also more likely to experience predatory and discriminatory

lending practices than white households. Researchers have found that “even when

accounting for debt-to-income and combined loan-to-value ratios in addition to other

financial characteristics, lenders were still more likely to deny people of color home

loans than white applicants.”

128

Studies evaluating lending practices that control for numerous variables have shown

that households of color receive a disproportionate share of subprime loans and are

denied loans more often, even when controlling for various financial characteristics

(such as income, debt-to-income ratios, and credit scores).

129

130

Researchers also found that predatory lending products are more frequently marketed

to BIPOC households. These types of products include loans with high fees, high-

interest rates, or terms like “pre-payment penalties, interest-only periods, negative

amortization, balloon payments, or terms longer than 30 years.”

131

IV. Discrimination Based on Real Estate “Love Letters”

It has become common practice across the country for a prospective buyer to write a

personal letter to the seller, attached to an offer on the home, expressing why they love

the home and want to buy it. Especially in tight housing markets, this extra touch has

been recommended by real estate agents who see it as a way for the buyer to stand out

among other bidders. However, there is a growing concern that that these letters can

and have perpetuated housing discrimination by revealing a buyer’s race, religion,

sexual orientation, or marital status, allowing for discrimination from sellers. Oregon

passed a law in 2021 requiring seller’s agents to reject “Love Letters” or other forms of

personal communications, including photos, from buyers. The Oregon law was later

blocked from enforcement via injunction by a federal judge who said that it likely

violates the First Amendment rights of real estate agents.

132

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Barriers Present During Homeownership

I. Buying Homes Later in Life

Barriers present during homeownership can limit homeowners’ ability to gain equity

and generate wealth. One limiting factor facing BIPOC households is that, on average,

they buy homes later in life than white households.

133

134

Researchers at the Urban Institute have shown that “buying a home at a younger age

leads to greater wealth in retirement” and that because BIPOC households buy homes

later in life than white households, they see less wealth generation over time. They

found that “87 percent of white homeowners bought their first homes before age 35,

compared with only 53 percent of Black homeowners. Not only are Black households

less likely to buy their homes in young adulthood, 18 percent of them never own a

home before turning 60 or 61.”

135

However, the age gap in purchasing a home does not fully explain the housing wealth

gap between Black and white homeowners because Black households buying at the

same age as white households still saw “substantially lower housing wealth than white

households” by age 60 or 61.

136

Poor housing conditions and fewer options for housing, combined with policymakers

directing amenities and resources away from communities of color, have reduced

property values and increased the risk of foreclosure in communities of color, which in

turn diminished returns on homeownership.

137

II. Shorter Homeownership Journeys

The Urban Institute has also found that Black households are less likely to sustain

homeownership, selling their homes at earlier ages than their white counterparts.

138

“Black homeowners face a one-third to one-half probability that they will exit

homeownership and return to renting, and only 6-7% of those who leave

homeownership will become homeowners again.”

139

Immigrants also tend to have

more difficulty sustaining homeownership, and US citizenship appears to lower exits

from homeownership.

140

“Black and Hispanic/Latino households are [also] less likely to

sustain homeownership. Less than half of homeowners of color with low income

remained homeowners within four years of becoming a homeowner, compared with

60% of white homeowners with low income.”

141

More Black homeowners sell their homes and transition back to rental housing before

age 60 or 61 than do white homeowners, cutting short their homeownership journey

and their ability to gain equity.

142

The Urban Institute found that “Black households

who sustained their homeownership had more than $23,500 higher housing wealth at

ages 60 and 61 than Black households who moved from owning to renting during their

lives.”

143

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Researchers identified two reasons why Black homeowners exit homeownership earlier.

First, Black homeowners tend to have fewer family members who can help when

finances are tight, and in fact, those homeowners are often the ones helping other family

members in need. Secondly, the decline in sustained ownership is a recent

phenomenon, starting in the 1990s, suggesting that it signaled a shift from Black

households being excluded from the housing market to one where Black prospective

homeowners were seen as a lucrative opportunity for moneymaking from lenders and

others in the real estate market to take advantage of, often offering products that were

unsustainable.

144

Barriers Present When Selling a Home

I. Discriminatory Appraisals

Research has shown that appraisers sometimes value BIPOC-owned homes lower than

those owned by white families, even when the homes have similar amenities.

A recent

Redfin analysis of value estimates for more than 7 million homes that were listed and

sold from 2013 through February 2021—accounting for the fundamental factors that

contribute to a home’s value, such as size, condition, neighborhood amenities, and

schools—found that the average home in a primarily Black neighborhood nationwide is

worth $46,000 less than a comparable home in a primarily white neighborhood.

145

“For

appraisals in majority-Latino tracts, 15.4% were valued lower than the contract price.

For both Black and Latino areas, the percentage of undervalued appraisals increased as

the white population percentage decreased.”

146

In addition to discrimination in individual appraisals, homes located in majority-Black

neighborhoods have been chronically undervalued.

147

When Black households sell their

homes, research has found that homes of similar quality in neighborhoods with similar

amenities are valued 23% less in neighborhoods where half the population is Black

compared to neighborhoods with few or no Black residents, even after adjusting for

housing quality and neighborhood quality.

148

“Using Census Bureau data from 1980-

2015, the study from Junia Howell and Elizabeth Korver-Glenn shows that during that

period, homes in white neighborhoods appreciated in value, on average, almost

$200,000 more than comparable homes in neighborhoods of color.”

149

One family’s experience showed that replacing photos of their Black family with photos

of white friends resulted in a second appraisal being much higher, with otherwise no

change to the house.

150

II. Less Equity to Pass On

This all suggests that BIPOC households fall behind in their journey to building equity

and future wealth and lowers their ability to pass on inheritances, which are helpful for

the next generation to use as a down payment or invest in other areas of their lives, such

as education or small businesses.

151

152

Washington State Homeownership Disparities Work Group – Recommendations Report 74

3. Crises Disproportionately Affect BIPOC Homeownership

During economic downturns, people of color experience higher unemployment rates

than their white counterparts and are more likely to lose wealth, which has a negative

impact on homeownership.

153

2008 Housing Crisis

Researchers at the Urban Institute found that middle-aged Black households are the

cohort that has lost the most ground on homeownership over time, with their

homeownership rate declining 9% from 2001 to 2016—six percentage points higher than

the 3% decline experienced by middle-aged white and Hispanic families.

154

“Having

lost their homes during the 2008 crisis, these Black households find themselves unable

to move back into homeownership; in addition, they have experienced a huge blow to

their personal balance sheet and wealth that will be difficult to recover as they approach

retirement age.”

155

The Urban Institute has also found that the “homeownership gap between people of

color and white people often worsens amid a recession because people of color are

disproportionately harmed” and that “structural barriers producing wide and

persistent disparities in homeownership also make homeowners of color more

vulnerable to loss of home and wealth.”

156

There is an ongoing impact to credit histories from defaults on predatory loans during

the Great Recession.

157

In the recovery from the housing crisis, the Urban Institute found that “Black and

Hispanic households have been disproportionately affected by overly tight mortgage

lending standards,” accounting for a large share of mortgages that were not originated

due to tight lending requirements in the 2009-2015 recovery period. During this time,

researchers estimated that “loans to Black and Hispanic borrowers declined by 50

percent and 38 percent respectively, compared with a 31 percent decline for white

borrowers.”

158

COVID-19 Crisis

In its recent report on crises impacting BIPOC homeownership, the Urban Institute also

found that Black families are at greater risk of contracting and/or dying from the

COVID-19 virus.

More than half of Latino and nearly half of the Black survey respondents reported

experiencing an economic challenge because of the pandemic in comparison to only

21% of white respondents. Both Black and Latino respondents reported pandemic-

related mental health concerns at a rate 10 points higher than whites.

159

Washington State Homeownership Disparities Work Group – Recommendations Report 75

The federal government’s first COVID-19 relief package gave relief only to employer

firms, which disproportionately excluded Black businesses, as 95% of Black-owned

firms are nonemployer businesses.

160

“An analysis of PPP loans by ZIP code by the

Associated Press found that ‘thousands of minority-owned small businesses’ were

among the last to receive loans during the first two rounds of funding.”

161

COVID-19, like the 2008 Housing Crisis and Hurricane Katrina, has disproportionately

negatively impacted families of color economically, potentially because their

households are already more vulnerable entering the cyclical downturn.

162

Washington State Homeownership Disparities Work Group – Recommendations Report 76

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homeownership-add-housing-wealth-gap

Urban Institute. 2018. “Buy young, earn more: Buying a house before age 35 gives homeowners more bang for

their buck.” https://www.urban.org/urban-wire/buy-young-earn-more-buying-house-age-35-gives-homeowners-

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Urban Institute. 2019. “Testimony of Alanna McCargo Subcommittee on Housing, Community Development, and

Insurance.” www.urban.org/sites/default/files/publication/100210/mccargo_alanna_-

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Urban Wire: Housing and Housing Finance. 2019.

Urban Institute. 2019.

Consumer Finance Protection Bureau. 2020.

Washington State Homeownership Disparities Work Group – Recommendations Report 78

Habitat for Humanity. “Research series: How do racial inequities limit homeownership opportunities?”

https://www.habitat.org/stories/research-series-how-do-racial-inequities-limit-homeownership-opportunities

Urban Institute. 2021.

Ibid.

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Than Similar Homes in White Neighborhoods.” www.redfin.com/news/undervaluation-homes-black-versus-white-

neighborhoods/

The New York Times. 2022.

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Than Similar Homes in White Neighborhoods.” www.redfin.com/news/undervaluation-homes-black-versus-white-

neighborhoods/.

Bloomberg. 2021. “Freddie Mac Finds ‘Pervasive’ Bias in Home Appraisal Industry.”

https://www.bloomberg.com/news/articles/2021-09-28/study-finds-widespread-racial-disparities-in-appraisals

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Brookings Institute. 2020. “Parking Requirements and Foundations are Driving up the Cost of Multifamily

Housing.” www.brookings.edu/research/parking-requirements-and-foundations-are-driving-up-the-cost-of-

multifamily-housing/

Minneapolis Federal Reserve. 2018. “The Vanishing Starter Home.” www.minneapolisfed.org/article/2018/the-

vanishing-starter-home

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Ibid.

Washington State Department of Commerce. 2021.

U.S. Department of Housing and Urban Development. “Housing Discrimination Under the Fair Housing Act.”

https://www.hud.gov/program_offices/fair_housing_equal_opp/fair_housing_act_overview

U.S. Department of Housing and Urban Development. “History of Fair Housing.”

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https://www.nationalaffairs.com/publications/detail/against-the-tiers-of-constitutional-scrutiny

Washington State Department of Commerce. 2021.

Up for Growth. 2018.

Freddie Mac. 2021. “Housing Supply: A Growing Deficit.”

http://www.freddiemac.com/research/insight/20210507_housing_supply.page

Washington State Homeownership Disparities Work Group – Recommendations Report 79

Minneapolis Federal Reserve. 2018.

Seattle Affordable Middle Income Housing Advisory Committee. 2020.

Mercatus Institute. 2019.

Brookings Institute. 2020.

Minneapolis Federal Reserve. 2018.”

Sightline Institute. 2019. “Modifications to Washington’s Condo Law Could Give Production a Shot in the Arm.”

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Minneapolis Federal Reserve. 2018.

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Washington State Department of Commerce. 2021.

Business Insider. 2019. “Starter Homes are Becoming a Battleground Between Millennials Looking for Their First

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www.businessinsider.com/real-estate-investors-millennials-buying-starter-homes-competition-2019-6

Washington State Department of Commerce. 2021.

Urban Institute. 2019.

The Markup. 2021.

Legislative Policy and Research Office. 2019.

Brookings Institute. 2021.

Houle, Jason and Fenaba R. Addo. 2018. “Racial Disparities in Student Debt and the Reproduction of the Fragile

Black Middle Class.” Sociology of Race and Ethnicity.

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5193137

Urban Institute. 2019.

Ibid.

Board of Governors of the Federal Reserve. 2020.

Urban Institute. 2021.

100

The Markup. 2021.

101

Ibid.

102

Urban Institute. 2021.

103

Investopedia. 2022. “Average Credit Scores by Race”. https://www.investopedia.com/average-credit-scores-by-

race-5214521

104

The Markup. 2021.

105

Consumer Financial Protection Bureau. 2021. “Mortgage refinance loans drove an increase in closed-end

originations in 2020, new CFPB report finds.” https://www.consumerfinance.gov/about-us/newsroom/mortgage-

refinance-loans-drove-an-increase-in-closed-end-originations-in-2020-new-cfpb-report-finds/

106

Brookings Institute. 2021.

107

Legislative Policy and Research Office. 2019.

108

Brookings Institute. 2021.

109

Brookings Institute. 2021.

110

Boston Consulting Group. 2021. “Racial Equity in Banking Starts with Busting the Myths.”

https://www.bcg.com/publications/2021/unbanked-and-underbanked-households-breaking-down-the-myths-

towards-racial-equity-in-banking

111

Zillow. 2020. “Black Applicants Are Far More Likely to be Denied a Mortgage.” www.zillow.com/research/black-

applicants-denied-mortgage-27651/

112

Brookings Institute. 2021.

113

Legislative Policy and Research Office. 2019.

Washington State Homeownership Disparities Work Group – Recommendations Report 80

114

Center for Responsible Lending. 2019. “Payday and Car Title Lenders Drain Nearly $8 Billion in Fees Every Year.”

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115

Legislative Policy and Research Office. 2019.

116

Masunaga, Samantha and Jackeline Luna. 2021. “Big banks want communities of color to trust them. But it’s not so

simple.” https://www.latimes.com/business/story/2021-06-19/big-banks-banks-community-people-of-color-trust

117

Urban Institute. 2019.

118

Ibid.

119

Ibid.

120

Clever. 2021. “America’s Housing Inequality and the Racial Wealth Divide.” listwithclever.com/research/2021-

housing-inequality-report/

121

Financial Samurai. 2021. “Mortgage Interest Rates by Race: The Differences Are Significant.”

https://www.financialsamurai.com/mortgage-interest-rates-by-race/

122

Brookings. 2021.

123

Urban Institute. 2019.

124

National Association of Real Estate Brokers. 2020. “2020 State of Housing in Black America.” www.nareb.com/site-

files/uploads/2020/10/2020-SHIBA-REPORT-OFFICIAL-COPY.pdf

125

HUD User. “A Second Look at FHA’s Evolving Market Shares by Race and Ethnicity”

https://www.huduser.gov/portal/pdredge/pdr_edge_featd_article_080312.html

126

National Association of Real Estate Brokers. 2020.

127

The Mortgage Reports. 2021. “Mortgage broker vs. bank or mortgage lender: Which is best?”

www.themortgagereports.com/29656/who-is-better-a-mortgage-broker-or-a-bank

128

The Markup. 2021.

129

Legislative Policy and Research Office. 2019.

130

The Markup. 2021.

131

Legislative Policy and Research Office. 2019.

132

Kristian Foden-Vencil. 2022. “Lawsuit claims Oregon’s real estate ‘love letter’ ban stifles free speech.” OBP.

https://www.opb.org/article/2021/11/27/bend-oregon-lawsuit-real-estate-love-letters-ban-free-speech/

133

Urban Institute. 2019.

134

Consumer Finance Protection Bureau. 2020.

135

Urban Wire: Housing and Housing Finance. 2019. “Three differences between black and white homeownership

that add to the housing wealth gap.” www.urban.org/urban-wire/three-differences-between-black-and-white-

homeownership-add-housing-wealth-gap

136

Urban Wire: Housing and Housing Finance. 2019.

137

Urban Institute. 2021.

138

Ibid.

139

University of Georgia. “Understanding Homeownership Disparities Among Racial and Ethnic Groups”.

https://www.hocmn.org/wp-content/uploads/2013/11/REPORT_UnderstandingHomeownershipDisparities.pdf

140

Ibid.

141

Habitat for Humanity. “Research series: How do racial inequities limit homeownership opportunities?”

https://www.habitat.org/stories/research-series-how-do-racial-inequities-limit-homeownership-opportunities

142

Urban Institute. 2021.

143

Ibid.

144

Gregory Sharp, Matthew Hall. 2014. “Emerging Forms of Racial Inequality in Homeownership Exit, 1968–2009”,

Social Problems, Volume 61, Issue 3, 1 August 2014, Pages 427–447, doi.org/10.1525/sp.2014.12161

145

Ibid.

146

Bloomberg. 2021.

147

Brookings Institute. 2021.

148

Brookings Institute. 2018. “The Devaluation of Assets in Black Neighborhoods.”

www.brookings.edu/research/devaluation-of-assets-in-black-neighborhoods/

Washington State Homeownership Disparities Work Group – Recommendations Report 81

149

Kinder Institute for Urban Research. “Race determines home values more today than it did in 1980.”

https://kinder.rice.edu/urbanedge/2020/09/24/housing-racial-disparities-race-still-determines-home-values-America

150

Redfin. 2021.

151

Urban Institute. 2019.

152

Brookings Institute. 2021.

153

Urban Institute. 2020. “How Economic Crises and Sudden Disasters Increase Racial Disparities in

Homeownership.” www.urban.org/sites/default/files/publication/102320/how-economic-crises-and-sudden-disasters-

increase-racial-disparities-in-homeownership.pdf

154

Urban Institute. 2019.

155

Ibid.

156

Urban Institute. 2020.

157

Legislative Policy and Research Office. 2019.

158

Urban Institute. 2019.

159

The Commonwealth Fund. 2020. “Beyond the Case Count: The Wide-Ranging Disparities of COVID-19 in the

United States.” https://www.commonwealthfund.org/publications/2020/sep/beyond-case-count-disparities-covid-19-

united-states?gclid=Cj0KCQiAubmPBhCyARIsAJWNpiNlLjGtNAAL3k9ioUoAKWGT4teCGJANTu5ympQSMJr-

dXhRzq5tuIUaAnWzEALw_wcB

160

Brookings Institute. 2021.

161

PBS. 2021. “’The system was never created for us.’ Business owners of color still struggle to get enough COVID

aid.” https://www.pbs.org/newshour/economy/the-system-was-never-created-for-us-business-owners-of-color-still-

struggle-to-get-enough-covid-aid

162

Urban Institute. 2020.