Black Americans’ Real Estate Investments “Consistently Undervalued”

According to a new joint study from the Brookings Institution and Gallup, owner-occupied homes in majority-black neighborhoods are “undervalued by the real estate market…and consistently sell or are appraised for lower prices, at an average of $48,000 per home.”[1] Cumulatively, this means these neighborhoods take about $156 billion in loss of equity in what Gallup and Brookings promptly dubbed “the segregation tax.”

The study also concluded that homes with similar features and that would otherwise likely be similarly valued tend to take a 23 percent cut in appraised value if the neighborhood is mainly black, although it also noted that the study did not control for lower property value factors like high crimes, longer commute times, and lower access to high-scoring schools. All of these issues are certainly relevant to these communities and should be explored and evaluated as well, but the researchers insist “their analysis shows these factors only explain roughly half of the undervaluation.”

The study used the 2016 American Community Survey and Zillow to determine neighborhood demographics and property values for 119 metro areas with “majority black” neighborhoods. Andre Perry, head researcher on the project and proponent of encouraging companies and investors to take risks when it comes to bringing capital and resources to cities in the Midwest, including Detroit, Michigan, and Gary, Indiana, suggested that many of these undervaluations lead to entire metro areas being overlooked for investment[2]. “I don’t want this project to be about ‘Let’s fix black cities,’” he said. “That’s what we often do…. These places are worthy of investment and risk-taking.”

The study authors emphasized that it is not the presence of black homeowners that hurts home values, but rather negative signaling about home values that creates the problem. This is a bit confusing, since the report certainly seems to emit some fairly negative signaling of its own. The group concluded that this issue of persistent undervaluation is of particular import for metropolitan areas, since 90 percent of the country’s black American population lives in metro areas[3]. They also noted two states, Florida and Alabama, have metro areas that met or exceeded home values of comparable neighborhoods that were not made up of majority-black households.

Do you think this type of research is productive? Why or why not?