Disparate impact and the racial wealth gap

Researcher Catherine Ruetschlin has identified the biggest potential danger of the fair housing case currently before the U.S. Supreme Court: that America’s racial wealth gap could been pulled even further apart if the court decides to strike down the disparate impact provision of the Fair Housing Act.

Writing in Salon over the weekend, Ruetschlin describes how the findings of a report she co-authored, “The Racial Wealth Gap: Why Policy Matters,” relate to the court’s upcoming decision. Disparate impact prohibits housing policies that create racial inequalities even though they have no stated or intended racial bias. In the case before the court, the way that housing credits were approved and disapproved in the Dallas area was found to be in violation of disparate impact because it disproportionately skewed against minority households. However, as Ruetschlin notes, this Supreme Court has a recent history of ruling against laws that establish racial protections unless there is obvious racial discrimination taking place – “color blindness” taken to its legal extreme. If the majority of the justices follow this line of thinking and rule against disparate impact, Ruetschlin writes, this “supposedly race-neutral philosophy…will only make it more difficult to close racial wealth gaps.”

The report identifies home ownership as the most significant of the many factors contributing to racial wealth inequality. The gap is wide – according to the report, the average white household had $111,146 in wealth holdings in 2011, while the average African-American household had just $7,113 and the average Hispanic household had just $8,348. Meanwhile, 73 percent of white households own their home, compared with 45 percent of African-American households and 47 percent of Hispanic households. If homeownership was equalized, the report found that the wealth gap between African-Americans and whites would shrink by 31 percent and the gap for Hispanic households would shrink by 28 percent.

Ruetschlin stresses that these stark homeownership gaps were created by policy decisions, including “redlining,” or the forced segregation of neighborhoods that occurred in cities across the United States. Such explicitly racist policies are now illegal, thanks to civil rights legislation like the Fair Housing Act. But policies that create the same result without the explicit intent still happen all the time, which is why disparate impact is so important. After disparate impact was violated in the Dallas area, housing credit policy had to change in order to give minority families more choice in where to live, offering families the opportunity to move into higher opportunity neighborhoods. Eroding the barriers of segregation through housing policy is a step in the right direction toward reducing the wealth gap.

“Given the importance of neighborhood poverty to upward mobility and wealth building,”  Ruetschlin writes, “this case had the potential to be the most destructive [of any recent Supreme Court decision], dramatically curtailing opportunity and making the wealth gap into a chasm.”