A Blueprint for Equitable Homeownership

“It is time to make our financial systems more democratic and serve a broader population,” Edward Golding (Senior Lecturer; Executive Director, MIT Golub Center for Finance and Policy) says while discussing the paper he co-authored with Michelle Aronowitz and Jung Hyun Choi last year. “It is time we start asking the hard questions.”

In “The Unequal Costs of Black Homeownership,” Golding and his colleagues examined current lending practices in the United States that account for a loss of $67,320 in retirement savings for Black homeowners and posed potential solutions to these problems. They found that Black homeowners pay higher interest rates both pre- and post-origination, in addition to paying more insurance premiums and higher property taxes. These disparities were driven by a host of factors, which include a reliance on risk-based pricing rather than pooled-risk pricing, lower rates of refinancing among Black borrowers, and other systemic issues.

Since the paper’s publication in October 2020, the housing industry has begun to acknowledge and address these disparities. For example, Freddie Mac published research validating these findings in early 2021. However, there is still progress to be made.

To facilitate further progress, Golding believes greater representation is essential. “It is important that we increase diversity and inclusion in the financial markets, and that those individuals feel empowered to express their views,” he says. “Small decisions on risk-based price and other related matters get made every day. Those decisions add up, and we need to have people with different life experiences in the room making them.”

Golding also sees this as an area that is ripe for the kind of innovations for which MIT Sloan is known. “One area where MIT Sloan alumni can help—both on the technology side and on the financing side—is in building the technology,” he explains. Golding is especially concerned with what he calls the “durable pipes”—the technology needed for collecting and assessing housing data that could replace current outdated methods. For example, better use of rent payment data could reduce evictions and promote homeownership.

“What we need is a technology solution: How do we build this? How do we make it work?” says Golding. “It’s a really difficult problem, and it hasn’t received the attention that it needs.”