Washington Post Wonkblog: A Radical Idea to Compensate Black Homeowners Harmed by Racial Bias, by Emily Badger:
Homes in black middle-class neighborhoods, like the one where Natalie Y. Moore grew up on the South Side of Chicago, typically don't gain value over time the same way homes in mostly white middle-class neighborhoods do.
The people who live there are penalized for biases built into the housing market. White home buyers seldom consider neighborhoods with even a modest black population, and so housing demand is much lower in those communities. That drives down prices and muzzles appreciation. It means that homeownership simply isn't as good of a deal in neighborhoods that are even slightly black.
Moore, a public radio reporter writing in her new book, The South Side: A Portrait of Chicago and American Segregation, quotes an idea from Emory University law professor Dorothy Brown on how to partially remedy this: "Why don't we say no one gets a mortgage interest deduction unless they live in an integrated neighborhood?" Brown told her. "We realize you're taking a penalty in the market, and we want to compensate you by lowering your taxes." And Brown's radical proposal to implement the idea: Let's extend the mortgage interest deduction only to homeowners who live in neighborhoods that are at least 10 percent black. [Shades of the American Dream, 87 Wash. U.L. Rev. 329 (2010).] ...
I called Brown to talk through her idea more. To my surprise, she is actually not interested in nudging people to live in more integrated neighborhoods. She's not sure integration in itself is a worthy goal. "Every time I presented this paper, someone said, 'Oh you’re encouraging integration,' " Brown says of the 2009 paper in which she first floated the idea. "I said, 'No I’m not.' I’m basically compensating people who live in more than 10 percent black neighborhoods. Some of those are racially integrated. Some of those are not."
She is more interested in making it up to people who are harmed by biases in the housing market than getting us to behave in ways that would overcome those biases. As a scholar, she primarily writes about the race and class implications of federal tax policy. The mortgage interest deduction disproportionately benefits whites because they're much more likely to be homeowners. But she realized that white homeowners disproportionately benefit even relative to black homeowners because housing is worth so much more to whites.
"There’s a market penalty – I call it an appreciation gap – in any home in a neighborhood with more than 10 percent black [population]," she says. "It doesn’t matter if you’re a white homeowner or a black homeowner. If you’re in a neighborhood that's 10 percent black, that home isn't going to appreciate the same way it would if you picked it up and moved it to an all-white neighborhood. I found that fascinating."
Tax policy, she figured, should disrupt that pattern, not exacerbate it. As a practical matter, that would mean that black homeowners in all-black neighborhoods would get the deduction. It would mean that white, Hispanic, Asian and black homeowners in neighborhoods that are 10 percent black would get it, too (a similar penalty doesn't appear to be associated with Asian and Hispanic residents). Whites with few blacks in their neighborhood would not.
See also Dan Shaviro (NYU), Tax Policy Colloquium on Dorothy Brown's "Shades of the American Dream" (Feb. 13, 2009)