Melissa Newman bought a house in north Minneapolis 16 years ago.
“I was about 25 when I started looking,” said Newman. “I just had my baby, and I thought, ‘I’ve gotta do more for my daughter.’”
Newman cleaned up her credit, got her finances in line, went to the bank, and left with a home loan approval. She began visiting homes in north Minneapolis, settling on a newly constructed house near the intersection of 36th Avenue North and 6th Street North.
When the sale was final, she was giddy.
“I came to closing with my car full of boxes excited to buy this house,” said Newman. “I’m a first-time homebuyer, just me and my daughter getting a brand new house. I’m 26, 27 years old, just excited about the next chapter.”
Newman is now part of what has become increasingly rare: Black residents of Minneapolis who own their own homes.
Minneapolis’ Black homeownership rate keeps falling.
Contrary to constant retellings, the bygone history of racist mid-20th-century housing practices is not actively behind the continuing decline of Black homeownership in Minneapolis. Researchers have theories but don’t know exactly why Black homeownership continues to fall. In Minneapolis, according to a 2019 report by the APM Research Lab, the Black homeownership rate is 19%. The white homeownership rate in the Minneapolis area is currently 77%. That’s a gap of 58%.
Homeownership is the fastest, most stable way a family can grow wealth in America. Homeowners leverage the value of their homes to pay college tuition — and the down payment for a home — for their kids. To not own a home is to be at a great economic disadvantage relative to homeowners.
Things weren’t always this way in Minnesota. Though it is often presumed that rates for Black homeownership were worse during the days of Jim Crow and have either stagnated or at least gradually improved, it’s the opposite. Far more Black Minnesotans owned a home when it was still legal to operate white-only drinking fountains.
In 1950, the Black homeownership rate in Minnesota was 46%, according to the Federal Reserve Bank of Minneapolis.
Back then, more Black people lived in the city than in suburbs or rural towns, which means a large share of that nearly 50% midcentury rate were Black Minnesotans residing in Minneapolis.
Since then, it’s never been so good for Black homeownership in Minneapolis. It’s been especially bad over the past 20 years.
In both Hennepin and Ramsey County, 31% of Black people owned their home in 2000, according to the Urban Institute.
In the 1990s and 2000s, the population of Black residents, helped by an influx of African immigrants, began to steadily grow. So did the amount of housing construction. By 2018, the Hennepin-Ramsey county Black homeownership rate fell to 21%.
And now, today, the Black homeownership rate in Minneapolis is below 20%.
So, what is behind the steady, contemporary decline in the Black homeownership rate?
As a possible explanation for continuing obstacles to Black homeownership and wealth in the city, researchers point to a web of ongoing factors — but the cause for the growing gap between white and Black homeownership heading into the 2020s is largely a mystery.
The study of Black homeownership over the past 20 years in Minneapolis is much more complicated than a book report on racial covenants or redlining. One more recent place to start is the housing crash in 2008.
As eager as many Americans are to wash their hands, watch “The Big Short” and tell themselves that the Great Recession is something that has come and gone away, its effects are still strongly felt in Black communities. The predatory financial products, like subprime loans, that have been mostly weeded out since the 2008 crash, were designed to target and extract wealth from low-income and Black communities. Many of the homes that fell out of Black hands and into foreclosure in Minneapolis around the 2008 housing crash, especially on the northside, were purchased and converted into rentals by huge corporations that bought multiple homes on a block at a time.
“The legacy of the Great Recession is single-family rentals,” said Yonah Freemark, an Urban Institute researcher who worked on an expansive analysis released in June 2021, Who Owns the Twin Cities?, that focuses on recent factors impacting Black homeownership.
Between 2005 and 2020, estimates Freemark and his fellow Urban Institute researchers who worked on the “Who Owns” study, the number of single-family rentals (SFR) in Ramsey and Hennepin counties more than doubled from 22,000 to over 48,000 homes. According to a study from the University of California, Berkeley, 87 percent of single-family homes were owned by the family living there in 2000.
North Minneapolis has seen a rise in SFRs owned by investors with at least three properties, according to the Urban Institute. Homeownership has declined in those areas, and over 10 percent of housing in north Minneapolis neighborhoods are SFR units owned by investors.
“Over the past 15 years,” according to the Urban Institute report, “the amount of property wealth held by local homeowners of single-family homes declined in the two counties [=(Ramsey and Hennepin) despite a growing population. Investors have picked up the slack, siphoning away billions of dollars of local property value in single-family homes that are now rented.”
Besides SFRs, there are factors like income, education and family inheritance that affect the Black homeownership rate — historical factors that impact Black homeownership rates around the nation.
White individuals enjoy higher incomes and higher levels of education than Black individuals, and many first-time white home buyers rely on money from their parents or other family members for their down payment. Still, those factors, said Freemark, do not account for a chunk of the disparity between Black and white homeownership.
“Although variation in income, marital status, access to parental support, credit scores, and (to some degree) location are correlated with homeownership rates, about 17 percent of the Black-white homeownership gap (around the nation) remains unexplained by demographic indicators,” reads the Urban Institute report.
More possible explanations
“I wish I had definitive answers for you, but thinking about it, if I were to sit down and start a research project looking at this, I’m looking at a few different pieces of data,” said Libby Starling, the director of the Community Development and Engagement department at the Federal Reserve Bank of Minneapolis.
There are some aspects to slave descendant and African immigrant or refugee migration patterns, notes Starling, that should be considered. One is the degree to which Black households are choosing to move to the suburbs.
“For example, between 2000 and 2010 in particular, is when we saw Brooklyn Center go from being primarily white to being majority residents of color suburb,” said Starling, adding that, though not as dramatic, Brooklyn Park saw a similar shift. “When looking at the seven-county Twin Cities area, between 2000 and 2010, though we don’t know if this exactly true of Black households, certainly the majority of the households of color live outside of Minneapolis and St. Paul.”
Between 2000 and 2010 is also when the Twin Cities saw an influx of African immigrants. African immigrants who are Muslim sometimes adhere to religious rules that disallow loans with interest, said Stalling.
Myron Orfield, director of the Institute on Metropolitan Opportunity at the University of Minnesota, believes that the white-Black homeownership gap in Minneapolis can be largely explained through a singular culprit: neo-segregation.
Orfield defines neo-segregation as a trend that he says took hold when Skip Humphrey was Minnesota’s attorney general, a position he held from 1983 until 1999.
Humphry, and “Humphry Democrats,” as Orfield calls them, loosened language in state law so that, though it would be illegal to deny a student access, based solely on race, to a school, the state would not classify schools that seem to have high concentrations of Black students as segregated.
“That was explained as a choice, that Black people wanted to live with one another, not that they were being sequestered to certain parts and school districts in the city,” said Orfield. He added that this resulted in multiple lawsuits against the Minneapolis school district on claims of segregation preventing students of color from enrolling in majority-white schools.
“Segregation of housing follows school segregation,” said Orfield. He also said that segregation is the primary means by which white people are able to strip wealth from Black people.
As more Black people began living in closer and closer quarters in Minneapolis, they present neat, concentrated pockets for unscrupulous bankers and real estate firms to swoop in during the mid-2000s with bad financial products like subprime loans, take the home back from the Black family in foreclosure, stripping them of their wealth.
The bank then sells the home to another Black family, and the cycle repeats itself, said Orfield. Or the bank sells the foreclosed home to a corporate investor who retains the profits from land ownership and rents the home to a Black family.
A big help, said Freemark, would be new regulations for SFR investors. The two largest players in Minneapolis, said Freemark, are Invitation Homes and the Front Yard Residential Corporation.
At a state level, the legislature could prevent corporations from buying multiple homes during a single foreclosure auction and instead prioritize local governments and affordable housing programs, according to the Urban Institute.
A bill was introduced in March at the Minnesota Legislature that would restrict the conversion of single-family homes into rentals by corporate developers.
On a local level, Minneapolis officials could establish a progressive tax that would discourage large real estate portfolios within the city. Progressively taxing earned revenue — which means the tax rate increases with the increase of income — eases the cost burden for small landlords but increases the cost for large conglomerates.
David McGee, the executive director of the Minneapolis-based nonprofit Build Wealth Minnesota with 30 years of experience as an underwriter, believes there has been a worrying dearth of analysis on underwriting.
“That never comes up to the surface,” he said. “Underwriting — that’s the decision maker.”
McGee said, over the past 80 years or so, boilerplate underwriting — which was intentionally devised to serve white families with higher incomes — has never greatly changed.
Since the Great Recession, many lenders — including local governments — have forgiven loans deemed predatory. McGee believes that sort of understanding can be extended to reshape underwriting. If lenders are aware that a Black person or family might have a bad financial product in their past and a lower income — those things, within reason, should be forgiven as well.
“If a Black janitor is making $37,000 a year and maybe has a predatory car loan on their credit report, but they have kept their job for 15 years and never paid rent late for 17 years, underwriters should look for ways to work with them,” said McGee, noting that it is reasonable to expect that the Black janitor will consistently pay their mortgage.
“Without knowledge, people assume the worst about their situation,” said Kathy Wetzel-Mastel, executive director for PRG Minneapolis, a nonprofit that also provides homebuyer services. “They assume they are going to get a, ‘No,’ if they go to a bank and ask for a home mortgage. Then, when someone makes it really easy, people are like, ‘Well, this is my only opportunity, so I am going to jump at it.’”
And, bad, opportunistic actors have not been completely eradicated from real estate. Another predatory practice in housing is called steering — real estate agents steer Black buyers to Black neighborhoods with low home values and a history of equity stripping while directing white buyers to neighborhoods with good school districts, rising home values and ample opportunities for growing wealth.
“This practice denied Black homebuyers the opportunity to purchase homes in predominantly white neighborhoods, forcing them to compete with their peers in a smaller, lower-valued housing market,” said Henry Rucker in a statement. Rucker is a real estate broker and former Diversity, Equity and Inclusion Committee chair for the Minneapolis Area Association of Realtors.
A way to get rid of such practices is to bring in more people of color “across the entire real estate industry,” said Rucker, “including loan officers, realtors, closers at title companies, appraisers, and home inspectors, to name a few.”
Wetzel-Mastel said solutions to the Black homeownership gap could come out of local governments, like Minneapolis City Hall, if they became more intentional and surgical with their housing efforts, instead of trying to solve multiple problems with blanket initiatives.
“What problem are we trying to solve here? Are we trying to solve the problem that, pretty soon, no one is going to be able to afford to own a home in the city of Minneapolis? Or, are we trying to solve the problem of having the worst Black-white homeownership disparity, and therefore the greatest wealth disparity, among the 50 largest cities?” she said. “Probably we should try to solve for both but probably shouldn’t try to solve for both with the same programs.”
Newman is the exception — and it hasn’t been easy
As soon as she was handed the key to her new home, said Newman, the value of the house fell below her buying price of just over $200,000.
Although she is the rare Black Minneapolis resident to own her own home, that homeownership has not led to the wealth accumulation that white Minneapolis homeowners typically experience in neighborhoods outside of north Minneapolis.
“I entered 2021 telling myself I would end the year by getting rid of stressors,” said Newman.
She educated herself on the housing market and the intricacies of the home loan products she agreed to. After doing some work understanding what her options were, including legal recourse, Newman was able to come to an agreement with her lender to restructure her loan.
Still, over the last decade and change, Newman’s property has been a home to her and her daughter. She said she is still learning more about the housing market and is considering if she wants to hold on to her North Side home, but she has no immediate plans.