Caleigh Harris, Associate Member, University of Cincinnati Law Review
The American dream most often includes a nuclear family, their loving golden retriever, a white-picket fence, and—of course—the suburban home. Homeownership in the United States is touted as one of the most secure investments and the best way to garner generational wealth. Neighborhoods, however, are still severely segregated due to policies that not only segregate people, but also stop the flow of money and adequate resources to communities of color.
Where one lives ostensibly determines the resources and quality of life for that person and their family. Housing is a prolific indicator of social mobility, determining much of a person’s life opportunities based on where they grew up. Education is funded through property taxes; sanitation services, access to health care and fresh food, and transportation and job opportunities are all closely tied to housing and the racial composition of a neighborhood. Housing is one of the most impactful social tools to keep classes distinct and races separated.
Yet, despite real estate being labeled the “golden” financial investment, homeownership for Black Americans is ultimately a poor financial decision. Current tax and mortgage policies essentially ensure the class divide between homeownership and further emphasize the racial/wealth gap in this country as it relates to housing.
Part II of this article will give a brief history of the de jure segregation in the United States and the ensuing Fair Housing Act, which attempted to combat this segregation. Additionally, it will explain how the tax code and mortgage subsidies favor white, wealthy homeowners. Part III of this article will analyze the proposed tax policy by Professor Dorothy A. Brown—a scholar in tax policy, race, and class—which aims to reform mortgage interest deductions to disproportionately favor Black Americans. Part III will grapple with the constitutionality of the proposed plan and its likelihood of success. Finally, Part IV will conclude with a brief summary of the issues minority homeowners face today and the possible paths for reaching housing equality.
Between 2010 and 2021, the total number of housing units grew by 6.7% in the United States. Yet, despite this growth in available units, the rates of homeownership remain starkly contrasted between races. Class and income disparities alone do not fully explain these statistics. The division of homeownership between Blacks and whites in 2021 reflects the policy decisions made during the Jim Crow era to deliberately segregate communities by race. President Roosevelt encouraged New Deal policies that actively segregated communities by creating public housing projects that segregated by race or, in some instances, excluded African American families from certain developments. Due to racially restrictive covenants, the benefits of the Fair Housing Administration (“FHA”) were disproportionately available to white Americans, leaving Black Americans without adequate resources to navigate the housing market. In 1968, the Supreme Court upheld the Fair Housing Act, thus making it illegal to discriminate in housing policy based on race.
But, as the data from the 2020 census demonstrates, the Fair Housing Act (the “Act”) was not a magic wand used to erase the effects of de jure segregation; nor does the Act stop policymakers from attempting to enforce legal roadblocks to fair housing. In 2020, the U.S. Department of Housing and Urban Development (“HUD”) released a final rule—without notice—entitled Preserving Community and Neighborhood Choice (“PCNC”). The rule effectively weakened HUD’s 2015 Affirmatively Furthering Fair Housing (“AFFH”) rule by ignoring the mandate of 42 U.S.C. §3608(e)(5) to further fair housing through affirmative programs and activities. Therefore, the PCNC increased the disadvantages marginalized groups face in housing law. On July 31, 2021, HUD restored the AFFH requirement in an effort to “fulfill [sic] its legal mandate under the Fair Housing Act.”
HUD’s proposed AFFH reflects the goals of the agency—to affirmatively protect people from unsavory and predatory housing practices. However, the current tax policy works in a much less (visibly) onerous way to attack fair housing practices and maintain the racial wealth gap through homeownership. Professor Dorothy A. Brown’s scholarship focuses on the role of tax policy in discrimination practices. As she reports, tax laws have the effect of taxing wealthier, disproportionately white Americans less and taxing poor, disproportionately Black or other people of color, more.
I.R.C. § 262 provides that, generally, no tax deductions are allowed for personal, living, or family expenses. This is why rent is not deductible when one files their taxes. However, one exception is the mortgage interest deduction—which allegedly encourages homeownership, yet research proves that the deduction is not the reason most people buy homes.
The Internal Tax Code provides that the gain from selling one’s home is generally not a taxable event. However, if one sells their home at a loss, it is not deductible and the I.R.C. does not permit using the loss to reduce taxable income. At first glance, the I.R.C.’s policies for tax deduction seem to make sense: why should it be the responsibility of other taxpayers to bear the burden of fronting an individual’s misfortune in the housing market? Brown’s research debunks the conventional wisdom behind this question and proves that racist policies exacerbate the wealth appreciation gap between white and Black Americans.
Research shows that homes in white neighborhoods are worth more and valued higher than homes in racially diverse neighborhoods. Findings from one study concluded that after controlling and equalizing for income, Black homeowners received 18 percent less value for their homes than white homeowners. While there are various societal factors that may explain these phenomena, the fact of the matter remains that Black Americans are receiving less on re-sale for their homes than white Americans.
When analyzing the tax code, this particular loss has implications that go beyond the loss at sale. The history of segregation in the United States may explain why neighborhoods are valued differently based on racial composition, but the policies of today explain why Black Americans struggle building wealth through homeownership. Since white homeowners are more likely to sell their home for a profit than Black homeowners, they are also more likely to receive the mortgage tax deduction. The flip side of this policy is that homeowners who sell their home at a loss—disproportionately Black and other minority homeowners—are unable to get a tax deduction from such sale. The result is that wealth appreciation gap between races is further increased.
To combat this racially neutral discriminatory policy in tax law, Brown has suggested different paths for reform. She first suggests a tax system that would allow all homeowners to deduct lost profits from home sales from their taxes, while simultaneously limiting the amount deductible from profit gain of home sales. Another suggestion, which will be the focus of this discussion, is a reform of the mortgage interest deduction. Brown purports,
“Instead of reinforcing the race-based discrimination currently existing in the housing market, tax law should counteract it. A tax subsidy for homeowners in “racially diverse” neighborhoods would make homes in those neighborhoods more valuable as compensation for the earlier market penalty.” 
Brown suggests that homeowners in neighborhoods with zero to 10% Black neighbors do not receive mortgage interest deductions upon sale; however, homeowners in neighborhoods with more than 10% Black composition would get a deduction. The effect is to subsidize homeowners whose financial investment and value in their homes has been penalized due to the discriminatory and unfair housing practices of the real estate market.
The central question to these reforms is the legal viability against constitutional challenges. Members of the Supreme Court have different standards for such affirmative action cases. Various justices believe the Constitution should be colorblind and therefore no special legislation should be passed that acknowledges racial disparities that are facially neutral; others believe such policies should be viewed under intermediate scrutiny; finally, some believe affirmative action cases should receive strict (but not fatal) scrutiny.
The current Court has yet to hear a case challenging affirmative action, but with the additions of Justices Gorsuch, Kavanaugh, and Coney Barrett, the Court is likely to swing on the side of strict scrutiny for any affirmative action case (if not the color-blind approach). Housing discrimination, in theory, is a byproduct of bad policies of the past, which have (again, in theory) been disposed of and replaced with fair housing practices. The fact that tax policy disproportionately discriminates against Black homeowners does not necessarily make the policy unconstitutional. Therefore, for Brown’s mortgage interest deduction reform to pass strict scrutiny, policymakers would have to prove that the reform is narrowly tailored to serve a compelling governmental interest. With the current Court, a reform of this type is unlikely to pass strict scrutiny.
Challengers to the reform would likely argue that the FHA has effectively remedied the discriminatory practices of the past, or that it should not be the taxpayers’ responsibility to subsidize homes depending on the composition of the neighborhood. Those who are opposed to affirmative action policies might oppose the racial undertones of the reform, citing to colorblind logic and blaming the market, crime, or de facto segregation as possible reasons for the discrepancy in housing.
While there is not a clear path forward for such reform constitutionally, it seems to make the most sense intuitively. Brown’s proposal aims to address classist and racist practices that are hidden behind facially neutral tax policy––an area in which most people would never think to be radicalized. While the FHA was passed more than 50 years ago, Black Americans have never been compensated for the intentional government discrimination practices that have created these discrepancies seen today.
The overall truism is that economic security begets wealth, equality, and overall quality of life. Although current constitutional jurisprudence may not uphold such policy reform, the age of colorblindness has become a disservice to the American people. There is no more compelling governmental interest than to ensure the wellbeing of our citizens and help lift those afflicted out of poverty.
Poverty and poor living conditions afflict people of all backgrounds; however, in 2017, poverty rates amongst Black and Latinx people were twice as high as those of white people. The mortgage interest deduction reform does not overlook poverty amongst anyone, regardless their race. Rather, it recognizes that lower-income neighborhoods with lesser-valued homes are much more common in neighborhoods that are more demographically diverse. As Brown, Rothstein, and dozens of other scholars have pointed out, such disparities are not the result of chance. History and political segregation have played a major role in where people live today. While segregation laws are officially “off the books,” insidious measures like the mortgage interest deduction ensure that wealth disproportionately stays in the hands of white people and out of those of Black people, thus creating a farther and wider wealth gap for low-income Black Americans to cross.
Housing remains central to many measures of opportunity and success for Americans. Where one grows up remains impactful for the rest of their lives, and how one’s caretakers invested in homeownership also has a significant role to play in generational wealth and financial stability. Aside from the more obvious concerns effecting housing, tax policy remains an insidious and secretive tool used to keep class and race distinct in the United States. Reform in tax credits, subsidies, and mortgage interest deductions work to ensure equality amongst homeowners and provide a pathway for remedying the de jure segregation of the twentieth century.
 Danilo Trisi and Matt Saenz, Economic Security Programs Reduce Overall Poverty, Racial and Ethnic Inequities, Center on Budget and Policy Priorities (July 1, 2021), https://www.cbpp.org/research/poverty-and-inequality/economic-security-programs-reduce-overall-poverty-racial-and-ethnic.
 Id. (Citing Richard Rothstein, The Color of Law, Liveright (2017). “By reserving these housing opportunities for white people and confining Black people to disadvantaged areas, the federal government fostered inequities not just in homeownership and wealth, but in education, as inadequate tax revenues from low property values and other sources of underinvestment hampered schools’ quality.”)
 Dorothy A. Brown, Shades of the American Dream, 87 Wash. U. L. Rev. 329, 332 (2009).
 Evan Brassell, Despite Slower Overall National Growth, Housing Stock Rapidly Expanded in the South and West from 2010 to 2020, United States Census Bureau (Aug. 12, 2021), https://www.census.gov/library/stories/2021/08/growth-in-housing-units-slowed-in-last-decade.html.
 United States Census Bureau, Quarterly Residential Vacancies and Homeownership, Second Quarter 2021 (July 27, 2021), Table 7, https://www.census.gov/housing/hvs/files/currenthvspress.pdf.
 Dorothy A. Brown, Homeownership in Black and White: The Role of Tax Policy in Increasing Housing Inequity, 49 U. Mem. L. Rev. 205, 213 (2018). “Even after controlling for income. . . differences between whites and blacks in homeownership are substantial, between 16 and 34 percentage points for groups with income below $50,000 and between 12 and 22 percentage points for groups with incomes between $50,00 and $100,000.” (Quoting from William G. Gale, Jonathan Gruber & Seth Stephens-Davidowitz, Encouraging Homeownership Through the Tax Code, 115 Tax Notes 1171, 1172 (2007)).
 Rothstein, supra note 2.
 Rothstein, supra note 2, at 19.
 Brown, supra note 5, at 214. FHA loans had low and fixed interest rates, lower down payments, and generally lower costs.
 Jones v. Alfred H. Mayer Co., 392 U.S. 409 (1968).
 Letter from Ronald Newman, National Political Director, et al., American Civil Liberties Union to the Office of the General Counsel, Department of Housing and Urban Development (Mar. 10, 2020), https://www.aclu.org/letter/aclu-comment-huds-proposed-rule-affirmatively-limiting-furthering-fair-housing?redirect=letter/aclu-comment-huds-proposed-rule-affirmatively-furthering-fair-housing.
 HUD No. 21-098, HUD Restores Affirmatively Furthering Fair Housing Requirement, U.S. Department of Housing and Urban Development (June 10, 2021), https://www.hud.gov/press/press_releases_media_advisories/HUD_No_21_098.
 Brown, supra note 5, at 207.
 I.R.C. § 262 (2021).
 Brown, supra note 5, at 210.
 I.R.C. § 121 (2021).
 I.R.C. § 165(c).
 Brown, supra note 5, at 216. Additionally, Brown cites a report that concludes, “not only are blacks less likely to own homes than whites, but, when they do, the value of their homes is smaller at the means, at the medians, and with and without controls.” (quoting Kerwin Kofi Charles & Erik Hurst, The Transition to Home Ownership and the Black-White Wealth Gap, 84 REV. ECON. STAT. 281, 288 (2002)).
 Id. citing David Rusk, The “Segregation Tax”: The Cost of Racial Segregation to Black Homeowners, Brookings Inst. Ctr. On Urban & Metro. Policy (2001), https://www.brookings.edu/wp- content/uploads/2016/06/rusk.pdf.
 Brown, supra note 5, at 226.
 Id. at 336.
 Id. at 226.
 Id. See also supra note 2, at 371. “This is not a solution designed to encourage integration but one designed to address the market penalty paid by all homeowners in neighborhoods with more than 10% black neighbors.”
 Regents of the University of California v. Bakke, 438 U.S. 265 (1978). UC Davis medical school saved 16 out of 100 spots for minority applicants. The plurality ruled that the quota was unconstitutional. Intermediate and strict scrutiny were used to analyze the policy.
 Washington v. Davis, 426 U.S. 229 (1976). Holding that disproportionate impact is not enough to violate the 14th Amendment/Equal Protection class when the law itself is facially race-neutral.
 Brown, supra note 5, at 373.
 Trisi and Saenz, supra note 1. https://www.cbpp.org/research/poverty-and-inequality/economic-security-programs-reduce-overall-poverty-racial-and-ethnic.
 Id. 20.9% of Black people were impoverished; 20.1% of Latinx; 9.8% of white people.