Financial Constraints and the Racial Housing Gap

We highlight the role of financial constraints in contributing to persistent disparities in wealth and access to geographic opportunities across demographic groups. We document a racial leverage gap—Black borrowers have substantially higher LTV ratios at mortgage origination, reflecting differences in pre-existing wealth and family transfers. We use a spatial life-cycle model to analyze the impacts of worse initial conditions on the home purchase decisions, spatial allocation, and long-term wealth accumulation of minority borrowers. Wealth and income outcomes for Black borrowers are substantially improved by relaxing LTV constraints and reducing moving frictions