A new study by the Urban Institute concluded that limited English proficiency has a considerable impact on homeownership rates. Now, you might be thinking that that’s obvious, and it is. Limited English proficiency will obviously limit one’s choices for employment, and access to financial services, such as savings, investing and mortgage lending, are certainly limited to a non-English-speaking family.
But it brings up several important questions. How serious a problem is this? How does it impact the United States as a country, and us as a society? Is there a way to help alleviate the barriers? Let’s explore.
Language as a Barrier to Homeownership: How Serious is the Problem?
According to the report, neighborhoods with the highest English proficiency had a homeownership rate more than 10 percent higher than those with the lowest. (Seventy-four percent homeownership versus 64 percent.) The data, when controlled for other factors such as race, age and income, still showed a 5 percent point differential between proficient English speakers and limited English speakers. If that doesn’t sound like a lot, let’s do some quick math.
The net worth of the average home-owning family is $195,400, compared to families that rent at $5,400. The difference is staggering and implies that solving this issue will open the door to economic opportunities for millions of families.
According to data from the U.S. Census Bureau, there are about 55.4 million individuals who predominantly speak a language other than English at home. Of these, around 22 percent speak English “not well or not at all.” From this, we estimate that there are 12.2 million individuals who have very limited or no English proficiency. This is NOT a small problem.
Communication Problems in the Housing Market: What is the Impact?
Homeownership has an enormous impact on Gross Domestic Product, and thus directly impacts the strength of the economy and job growth. According to the National Association of Home Builders, housing’s contribution to the GDP runs between 15 to 18 percent, in two distinct ways. Residential construction, including home building and remodeling, contributes 3 to 5 percent of GDP, while consumption spending on housing services (everything it takes to own or rent, plus maintain a home) contributes another 12 to 13 percent.
In 2017 the GDP was $19.387 trillion. Assuming the lower end of the range at 15 percent, housing’s contribution to the U.S. economy in 2017 was $2.91 trillion. If we could fully address the impact of limited English proficiency on homeownership, at the very least the economic activity generated would be in the billions of dollars.
In the meantime, according to a 2018 report by First American Financial Corporation, homeownership represents one of the greatest sources of wealth for American families. In an earlier report, the financial services company stated that nationwide the net worth of the average home-owning family is $195,400, compared to families that rent at $5,400. The difference is staggering and implies that solving this issue will open the door to economic opportunities for millions of families.
So, limited English proficiency is costing the U.S. economy billions of dollars a year and severely curtailing the economic opportunities for newer immigrant families.
How Do We Work to Eliminate Language Barriers?
So, can the problem be addressed? Valuable tools that educate and prepare prospective home buyers for the process are increasingly available in multiple languages. Realestate.com, for example, offers its home shopping experience, home buying guides and resources in Spanish, Chinese and French, in addition to English.
Bilingual real estate agents are pretty common in diverse areas, so prospective home buyers should have access to agents who speak their language and can guide them in their decisions.
The Federal Housing Finance Agency (FHFA, parent organization of Fannie Mae/Freddie Mac) has created a new mortgage application designed to be more easily implemented online, and to address some of the vexing barriers to homeownership.
Bilingual loan officers are less common, although that number is growing. The application and disclosures involved in a home loan, however, are available only in a limited number of languages, and are not always offered to borrowers in their own languages.
That may be changing, however. The Federal Housing Finance Agency (FHFA, parent organization of Fannie Mae/Freddie Mac) has created a new mortgage application designed to be more easily implemented online, and to address some of the vexing barriers to homeownership. One of the features is a language preference question: Once a user selects his or her preferred language, the entire application and all disclosures will be delivered in that language. The application can be implemented by lenders on their own websites. Lenders may begin using the new form on July 1, 2019, and its use will be mandatory by February 2020.
Contracts used by real estate agents in most states are available in other languages, but it is not known how many languages are covered or if they are regularly used.
The Future: Improving Homeownership Opportunities
Limited English proficiency no doubt constricts economic opportunity in a variety of ways, and mortgage financing will always (rightly) be tied to the ability of a borrower to repay the loan. After all, we do not want to repeat the mistakes that led up to the Housing Crisis.
America is a diverse country, however, a melting pot of immigrants from all over the world. There have always been hard-working Americans who contribute to our society and economy but yet have limited English-speaking skills. If we can identify and correct the barriers to homeownership that our industry can control, we could effectively serve millions more families.
Let’s get started.