Diversity in Real Estate

Posted On: January 19, 2017
By: ffdadmin

On January 19, 2017, I had the pleasure of sharing a (side) stage at Inman Connect NY with Leslie Ebersole and Phil Faranda to discuss diversity in real estate. Fifteen minutes on a side stage isn’t enough, but it’s better than nothing, and kudos for Leslie for submitting the topic and making it happen at all.

diversity in real estate, a discussion an ICNY17

To keep the conversation going, this post is some of what was said, a lot of what there wasn’t time for, and a little of what I wished I had said a little better.

Why Does Diversity in Real Estate Matter?

Diversity in real estate matters because the demographics of America are profoundly shifting, and real estate in America has historically provided the ladder for climbing up the economic scale. Where you live determines, perhaps more than anything, access to opportunity.

Consider that where you live profoundly influences:

  • Your access to quality schools.
  • Your access to clean air, water ( remember Flint, MI, anyone?), and a healthy environment.
  • Your access to transit, freeways, and jobs.
  • Your access to stores that sell fresh, healthy food at market rate prices.
  • Your exposure to violence and crime
  • Your ability to build wealth with real estate (predominantly white neighborhoods appreciate at a faster rate than non-white neighborhoods).

As for demographic shifts, in 2011 more non-white babies were born in America than white babies. In 2014 children of color became the new majority in our public schools. Said another way, public schools are already majority minority.

Since 1997, the number of white school-age kids fell by about 15 percent while latino school-age kids have more than doubled, Asian kids increased by 56 percent and the number of black students and other non-white kids grew modestly.

In 2017, there are currently four states that are majority-minority: California, Hawaii, New Mexico, and Texas. By 2044, America as a nation will be majority-minority. Go visit Los Angeles today if you want a feel for our future national fabric.

Is Discrimination in the DNA of Our Industry, or Our Society?

Do businesses make society, or reflect society? Do we, as an industry, have an obligation “above and beyond” because home-ownership is so strongly correlated with access to opportunity and building wealth.

I’ll be blunt: in my experience, real estate has never been at the leading edge of anything. When more minorities can buy homes than whites, our industry might reflect that. Until then, it probably won’t.

To make it personal, let’s look at my team that’s been selling real estate in San Francisco for the past 15 years. My team will work with anyone that wants to work with us. The only thing my team will discriminate on is a homeowner’s ability to pay for their home. If you’ve got the means, we’ve got the team. As a gay man who knows what both privilege and discrimination feel like, this matters to me. And yet….

In my team’s 15 years of selling hundreds of homes, we have had exactly four African-American clients. 4! According to 2016 Census numbers, 6% of SF’s population is African American. If 6% of our clients were black, we’d have around 25. We can run team stats for single moms or other non-white categories and the numbers are just as under-represented.

Does this mean my team is unconsciously racist, or that our numbers are skewed because we live in a high-cost of living area and that while 6% of our population is black, far fewer than 6% of black households can afford to purchase a home in SF?

According to the U.S. Census Bureau, 2014 homeownership rates for African Americans, Latinos and Whites were 42.1 percent, 44.5 percent, and 72.3 percent respectively.

If 42% of the 6% can afford a home, our clients should be about 2.5% black. Which is a lot closer to our actual number, but we still underperform that.

Here are some other mind-blowing numbers about race and homeownership:

Home ownership rates for Latinos and African Americans are lower than in 1998
African Americans were as segregated from whites in 1990 as they were in 1900.
White Americans are a shrinking portion of the American population and a growing portion of homeowners.

And racism is still pretty okay, according to many Americans. In 2008, when asked as part of the General Social Survey, 28% of whites supported an individual homeowner’s right to discriminate on the basis of race when selling a home.

In addition:

  • 20% of whites said their ideal neighborhood was all white.
  • 25% said it had no blacks.
  • 33% said it had neither Hispanics nor Asians.
  • Just 1 out of 4 white respondents said they would live in a neighborhood where 50% or more of their neighbors were black.
  • More than 4 in 10 white seniors said a growing population of immigrants is a “change for the worse.” (Pew, 2011)

Perhaps If we only feel bad about this for long enough, something will change?

Access to Credit is the New Jim Crow

While researching stats and facts for this, I discovered what the new generation of American discrimination looks and feels like. Perhaps as an unexpected consequence of society’s push for tolerance and political correctness, the new discrimination is much kinder, gentler, and subtle. Compassionate Discrimination? Kinda like George W. Bush’s bullshit compassionate conservatism?

Regardless of the new look and feel of discrimination, I believe it is just as toxic to the American Dream today as it ever was. A bigot wearing Prada is just as dangerous (and, arguably, more dangerous) as a bigot in a white robe and pointy hat.

The primary way that non-whites have been shut out of the American dream of home-ownership is through credit scoring. Because minority communities don’t have access to credit like white communities, they are unable to build a FICO score and credit history that meets “modern” underwriting standards. FICO is an inherently racist measure of credit-worthiness and it has had a profound negative impact on minority communities ability to recover from the Great Recession of 2008.

Consider that:

African Americans make up about 13% of the population, yet received just 5 percent of conventional loans in 2001. By 2012, it had dropped to 2 percent.

Latino borrowers, who make up roughly 17% of our population represented only 8 percent of conventional borrowers in 2001 and that was down to 4.5 percent in 2012.

Access to credit for a community or individual determines their economic growth ability exactly like access to light and water determines the ability of a plant to grow and flower. No water or air? Not only will that plant NOT flower, but that plant will shrivel up and die.

Decades of institutional racism in real estate means that in 2013, white families had, on average, seven times the wealth of African-American families and six times the wealth of Latino families.

Diverse Leadership Teams Do Better, but Industry Leadership isn’t Diverse

The McKinsey group recently released a research report showing that companies with diverse leadership teams produce 10-30% better financial results. They coined it the very catchy “Diversity Dividend.” While this is perhaps the most visible study in this area, other studies have also found that the economic performance of geographic regions with high levels of segregation is worse than that of places that are less segregated. You can even find studies showing children across the board perform better in school when taught in integrated classrooms, yet over the past several decades our classrooms have generally become more segregated.

How does our industry leadership do when it comes to diversity? Surely we’ve assembled leadership teams that earn 10-30% more because we are a bottom-line driven profit-seeking industry with tight margins that will do anything to do better?

Let’s look at our overall industry demographics, and compare those with the American population and our industry leadership. Not to shoot the messenger, but I think it’s reasonable to use the 2017 Swanepoel Power ranking as a representative sample of industry leadership.

51% of Americans are female.
62% of Realtor sales agents in America are female.
20%(ish) of the Swanepoel Power 200 are women.

Or, viewed another way, the largest talent pool that is just 38% male somehow becomes a group of industry leaders that is 80% male. No sexism here! I’m sure the ladies just didn’t want any more responsibility or stress for their fragile constitutions (sarcasm, dear reader, sarcasm).

61% of America is white.
82% of Realtors are white.

17% of America is Hispanic.
8% of Realtors are Hispanic.

13% of America is Black.
5% of Realtors are Black.

As an industry, we do not look like America. Not even in 2017. Much less in 2044 unless we make some changes.

But the Gays are Doing Okay?

As a gay man, one of the things I’ve noticed is that the civil rights of my “tribe” have arguably made more progress than perhaps any other minority group in America. Which isn’t to say that LGBTQ equality has arrived. Far from it – but why have we done better?

Why was NAR willing to update the code of ethics in 2010 to include sexual identity as a protected class, the first time NAR has ever been ahead of national laws on housing discrimination?

Is it because we look like you? Is it because we aren’t the threatening other? Are we the “Casper the Ghost” of minorities?

It’s weird. As a nation, we’ve made almost no progress on most social/racial issues, yet the “gays” are doing far better than they were 30 years ago. Why?

Where Do We Go? Can We Solve This?

In my experience, it’s tough to solve a problem before you acknowledge that it is a problem. So perhaps we could, as an industry, start there?

In talking with a variety of industry folks, one of the most frustrating experiences was that these statistics and data were continually rebutted with lovely personal anecdotes about how we aren’t racist.

We are an industry of storytellers that love data until the data doesn’t fit our story.

Another start may be to stop telling ourselves stories about how awesome and diverse we are and get comfortable with some painful data. We aren’t diverse.

If we want to attract young and diverse talent to build a diverse leadership funnel, another start might be acknowledging the racism of the past and agreeing to give more than lip service to efforts to combat structural and unconscious racism? The Rooney rule from the NFL could provide a starting point for discussion?

I don’t have the answers, and I won’t pretend to. I hope you’ll join the conversation so that we can find some. I think it’s that important.