Because real estate developers are both business owners and owners of real estate, they are in a unique position to build wealth from both of these assets. Yet Black and Hispanic Americans are underrepresented in owning real estate and businesses. They also face critical constraints as business owners in the real estate development industry. Increasing the numbers of Black and Hispanic real estate developers and helping existing developers grow could reduce the nation’s racial wealth gaps and expand the economy by millions of jobs and billions in new business revenue.
Very little research has examined the intersection between real estate, business ownership, and race and ethnicity. A recent research report from the Brookings Institution on the value of commercial real estate in majority-Black neighborhoods found that there was no prior research on the subject of commercial real estate and race. Similarly, the research group Bella Private Markets has published a series of studies on ownership diversity among real estate firms and investment funds and has highlighted the lack of research on the topic.
Perhaps unsurprisingly given the lack of research on real estate and race in general, almost no research has been conducted specifically on real estate developers and race. In fact, as of the date of this report, searches on Google Scholar for the terms “Black owned real estate development firm,” “Latino owned real estate development firm,” and “Hispanic owned real estate development firm” return no results. Although the Bella Private Markets studies included analyses focused on real estate asset managers, they did not specifically focus on real estate developers. Their real estate data did include some developers, but also included real estate investment funds and real estate service providers. The Bella Private Markets studies also did not examine specific racial and ethnic categories, but rather included all “minority-owned” businesses.
In this section of the report, we present the key facts about racial wealth gaps and racial gaps in real estate and business ownership.
Racial Wealth Gaps
Data from the Federal Reserve’s Survey of Consumer Finances (SCF) show America’s large racial wealth gaps. According to the 2019 SCF (the most recent year in which the survey was conducted), the typical (median) white family has a net worth of $188,200, compared to $36,200 for the typical Hispanic family and $24,100 for the typical Black family. The SCF also reveals that white families are more likely to own a home, have equity in a business, and have equity in non-residential real estate.
FIGURE 1 – MEDIAN NET WORTH BY RACE AND ETHNICITY The typical white family has 5.2x as much wealth as the typical Hispanic family and 7.8x as much wealth as the typical Black family.
Racial Gaps In Real Estate Ownership
About 74 percent of white families own a home, compared to 48 percent of Hispanic families and 45 percent of Black families. Among families who own a home, the typical white family holds more wealth; the typical white family that owns a home has $230,000 in home equity, as compared to $200,000 for Hispanic families and $150,000 for Black families.
FIGURE 2 – PERCENT OF FAMILIES WHO OWN EACH ASSET Black and Hispanic families are at most half as likely as white families to have equity in a business or non-residential real estate.
White families are also more likely to own non-residential real estate. About 8 percent of white families own non-residential real estate, compared to 4 percent of Hispanic families and 3 percent of Black families. The typical white owner of non-residential real estate holds more equity than the typical Hispanic or Black owner. The typical white family that owns non-residential real estate has $80,000 in equity, compared to $65,000 for Hispanic families and $40,000 for Black families.
FIGURE 3 – MEDIAN VALUE OF OWNED ASSETS Among families who own homes, businesses, or non-residential real estate, the typical Black or Hispanic family has less equity than the typical white family.
Racial Gaps in Business Ownership
White families are more likely to own a business. About 17 percent of white families own all or part of a business, compared to 7 percent of Hispanic families and 5 percent of Black families. Among the families that have equity in a business, the typical white family has $100,000 in equity, compared to $52,300 for Hispanic families and $70,000 for Black families.
Other research shows that Black and Hispanic Americans are underrepresented as business owners. About 15 percent of the U.S. population is Black, but Black-owned businesses are just 2 percent of all employer businesses. Similarly, 19 percent of the U.S. population is Hispanic, but Hispanic-owned businesses are just 6 percent of all employer businesses.
Census Bureau data also show that Black and Hispanic business owners are underrepresented not just in business as a whole but also in every major industry category, including the broader real estate sector of which developers are a part. Recent research on real estate asset managers finds that minority-owned firms control just 1 percent of real estate assets under management.
FIGURE 4 – BLACK AND HISPANIC PEOPLE ARE UNDERREPRESENTED AS BUSINESS OWNERS Only 1% of businesses in the real estate sector are Black-owned and only 4% are Hispanic-owned.
Why Are There Racial Gaps in Real Estate and Business Ownership?
These gaps in wealth and asset ownership are due in large part to the United States’ long history of racial and ethnic discrimination against potential home buyers. Until 1968, when the Fair Housing Act was enacted, it was legal for home builders and sellers to discriminate against potential buyers based on their race. This practice was not only legal but also mandated by federal agencies such as the Federal Housing Administration (FHA) and the Veterans Administration (VA). These agencies provided financial backing to the builders of large numbers of homes in the early to mid-20th century, making the construction of America’s suburbs possible. In the 1950s, for example, estimates indicate that approximately one-third of privately owned homes were backed by the FHA or VA. However, the FHA and VA would not provide this support unless the builders promised that they would not sell to certain groups, including Black and Hispanic families. The FHA and VA ended these explicitly racist policies only after the 1968 Fair Housing Act became law. Many Black and Hispanic Americans living today, or their parents, were prevented from buying homes because of these policies.
Although this type of discrimination is now illegal, banks in many cities continue to lend disproportionately in majority white neighborhoods. Research shows that Black and Hispanic applicants are also denied mortgages at higher rates than white applicants even if their credit scores, income, and other indicators of creditworthiness are the same. And without mandates that banks disclose aggregate information about business lending or applications for business loans—including the applicants’ and borrowers’ race and ethnicity—researchers, journalists, and others have limited ability to identify, analyze, and address these practices. These lending patterns continue to make it more difficult for Black and Hispanic families to access home ownership, the primary wealth-building tool for many Americans. This means that Black and Hispanic families are less likely to have home equity to tap to start a business or make investments in other kinds of real estate.