Can Lease-To-Own Housing Programs Increase Black Wealth?

CBx Vibe:Energy” Big K.R.I.T.

By Lesley Green-Rennis

  • Blackstone, the private equity firm, recently spent $6B to purchase America’s largest rent-to-buy company, Home Partners, which owns 17,000 houses across the country
  • Black homeownership currently stands at just 45%, compared with white homeownership at 72%

Homeownership is an important step to bridging the racial wealth divide. If Black homeownership matched white homeownership, Black wealth would increase by almost $40,000, bridging racial wealth inequality by about 30%. With current mortgage rates the highest they have been since 2008, and the number of homes for sale nationally plummeting, an alternative path to homeownership may be leasing to own your future home.

Why This Matters: Leasing to own is a model that allows future homeowners to rent a home for a specific amount of time with the intent of purchasing at the end of the lease.  Rent-to-own programs typically require 1-2% of the home price upfront, which goes toward the down payment if the renter decides to buy. Investors accounted for more than 18% of all U.S. home sales in the third quarter of 2021.

It’s important to remember the monthly rent on lease-to-own homes is higher than the actual market value. Currently, the homeownership rate among Black people stands at 45%.

Lease-to-own programs have been around for decades, but have a history of being predatory and targeting low-income, Black and brown homebuyers. Newer lease-to-own programs claim to provide avenues to strengthen ownership and build wealth among Black homeowners. Additionally, companies offer credit and budget counseling services to help renters prepare for homeownership. Well-constructed lease-to-own models could make homeownership more likely for lower-income, low-wealth households.

Situational Awareness: Some say the reason the real estate market is so competitive in the first place, is that lease-to-own companies are buying up homes. The current movement is powered by fintech startups like DIVVY, Verbhouse, and ZeroDown, these companies buy homes in cash, and then rent them to customers using lease-to-own agreements.  

New investors are buying and then selling thousands of homes to landlords. Blackstone, the private equity firm, recently spent $6 billion to purchase America’s largest rent-to-buy company, Home Partners, which owns 17,000 houses across the country. Whether or not lease-to-own programs come through for Black home buyers as a way to build wealth remains to be seen.  

CBx Vibe:Energy” Big K.R.I.T.

CONTRIBUTOR

Lesley Green-Rennis

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