Explaining the black-white homeownership gap: The role of own wealth, parental externalities and locational preferences

African Americans in the United States are considerably less likely to own their homes compared to Whites. Differences in household income and other socio-economic and demographic characteristics can only partially explain this gap and previous studies suggest that the 'unexplained' gap has increased over time. In this paper we use the Panel Study of Income Dynamics (PSID) intergenerational data, which provides information on household wealth, parental characteristics and location choice. We find that African-American households are 6.5 percent less likely to own if only traditional explanatory variables are controlled for. However, the black-white homeownership gap disappears if differences in wealth and in the preferred location type (i.e., a broad location classification based on the degree of urbanization of the place of residence) are accounted for.