Generational Weatlh Building

Generational wealth is financial wealth and assets that can be passed down from one generation to the next. Most people plan to pass on their wealth to their children or other designated heirs, giving them the gift of greater financial security. The passing down of wealth through inheritance can have a beneficial multiplier effect, building a “wealth snowball” that grows exponentially over time. Generational wealth can also give families a financial “head start” which has the potential to change the trajectory of a family by breaking the cycle of poverty and building a foundation for future success. Homeownership is an example of generation wealth building (Department of Financial Protection and Innovation).

The wealth gap, a disparate distribution of assets and resources typically amongst marginalized people in a society, impedes families’ ability to:

• buy homes in higher-opportunity neighborhoods
• weather health emergencies, or temporary unemployment
• retire in comfort
• pay for children’s higher education
• gift or bequeath what remains to children and grandchildren perhaps for down paymetns on their first home

(Richard Rothstein and Leah Rothstein, 2025)

How Does Homeownership Build Wealth?

With homeownership, property values can rise over time while mortgage payments decrease the total amount owed, this gives the owner equity in their investment. In some cases, homes can appreciate, exceeding the original value of the home, even after adjusting for inflation. Richard Rothstein and Leah Rothstein give the following example to demonstrate this effect in their book Just Action:

If you bought a home thirty years ago for $100,000, and made a down payment of $10k, and had a thirty-year mortgage of $90k, you are left with $90k in wealth (on top of the $10k you initially invested) once you paid off your loan. If your house is still worth $100k, then $90k is all the wealth you’ve accumulated from the forced savings built into your monthly mortgage payments. If your house is now worth $300k, you’ve gained an additional $200k in wealth without having done anything to earn it.

As shown, once homeownership is obtained the home and property as assets can exponentially increase a household’s wealth over time. This happens for a few reasons such as the price of the home increasing by the time it is paid off, having a fixed mortgage payment each month, and the fact that mortgage payments often take a smaller proportion of a household’s income every month when compared to renter households.

According to the U.S. Census Bureau’s five-year American Community Survey (ACS) (2019-2023) in Iowa the median homeowner household income was $89,471 and these households spent 16% of their income on ownership costs each year. When compared to renter households in Iowa, housing costs were less affordable with less income to utilize. For renters, the median household income was less than half of what it was for homeowners sitting at $42,188, in addition, they were also spending a larger proportion of their income paying 27.2% of their income towards rent (Iowa Financial Authority, n.d.). Unlike a mortgage, monthly rental costs are not fixed and are often raised on families that already struggle to make payments. This inevitably pushes families from their homes in search for other affordable housing options which are limited and quickly diminishing in number. With few housing options that are available and affordable, families are left to make difficult decisions on how they will put a roof over them and their family’s heads. Some resort to making requests of other family members or friend for a place to stay, but others without those relationships have to stay at emergency shelters or are left on the streets until they can secure something long-term.

Disparities in Homeownership

Even if a family is able to purchase their first home, not all homeownership is equal, as there are well documented disparities between the rates of homeownership and home values depending on the race and ethnicity of the household. In 2022, Black homeownership rates were the lowest among major racial/ethnic groups with about 30% of Black households owning their home in Polk County. When compared to other racial groups, the group with the highest homeownership rate was seen among White-households with a homeownership rate of 71%, that’s over double what is seen among Black households (One Economy Report, 2025). There are numerous barriers that have barred Black and other racially diverse households from accessing homeownership both historically and present day. For example, Redlining practices supported by the Home Owners’ Loan Corporation (HOLC) and mortgage lenders in the 1930s, had generational impacts on Black families’ ability to access homeownership and their overall well-being. To learn more about these historical policies and their impacts on Black communities, please visit our webpages on Redlining and its Lasting Effects and Urban Renewal.

One might think that these discriminatory practices and policies are things of the past, but recent data suggest that Black households continue to  face challenges with accessing opportunities to build generational wealth. For many households, homeownership is unattainable without a mortgage from a bank or lender. Unfortunately, not everybody has success when submitting applications for a mortgage with  diverse households’ mortgage applications being rejected more often than White households. In Polk County, Black households are denied at significantly higher rates than other races/ethnicities when applying for mortgage loans from lenders (One Economy Report, 2025). When comparing Black households to White households, Black households’ mortgage applications are denied three times more than White households (15% vs. 4.4%). This discrepancy is also seen between Latino households and White households with mortgage denial rates of 9.8% and 4.4% respectively (One Economy Report, 2025).

The wealth gap continues to widen especially when the housing market experiences periods of increasing home values. During the pandemic between 2020 and 2022, most homeowners saw a rapid increase in home values due to low mortgage interest rates and a national housing shortage.  While all homeowners benefited from this, it only exacerbated the wealth gap, since fewer African Americans and Latinos owned homes so they weren’t able to benefit from this surge in value. The resulting high costs made homeownership even less attainable for those who didn’t already own.

When it comes to the quality and value of homes that people are able to access, there are vast differences seen between races and ethnicities. Data shows that average home values are much lower among Black and Latino homeowners ($161,000 and $180,000 respectively) than White ($253,000) or Asian ($234,000) owned homes (One Economy Report, 2025). Even when Black and Latino households are able to attain homeownership they are still at a significant disadvantage when compared to White and Asian households. Often these lower cost homes are smaller, older in age, have more housing problems like increased exposure to hazardous chemicals (e.g., lead paint and radon), and are located in areas with limited access to essential resources in the community. This means that these individuals and families end up residing in substandard living conditions because of the financial investment needed to remedy many of these issues.

Not only do lower cost homes experience these housing issues issues more often, in Iowa, they are also subject to a regressive property tax rate. What this means is that lower income areas and homes are taxed at a higher rate than homes located in wealthier areas. In 2024, the Iowa state Auditor Office released a report looking at the impacts of having a regressive property tax system on homes of varying values. Their research discovered that when an area’s median household income increased by $1,000 it was associated with a 10.6 cent  decrease in the overall  property tax rate they paid. In other words, when an area (e.g. city or township) has a median household income of $150,000 it is expected to have a property tax rate $10.60 lower than a place with a $50,000 median household income (Iowa Auditor of State, 2024). Households with lower home values are often working with lower incomes to begin with, but yet they are paying a greater proportion of their income to property taxes than homeowners with higher valued homes and incomes. Once again contributing to the growing wealth gap between racial and ethnic groups.

Zoning

Zoning codes dictate the housing types that cities and suburbs allow. In mostly middle-class white areas, they often permit only single-family homes on large lots and forbid less-expensive duplexes, triplexes, town homes, and apartments. These exclusionary rules are not on their face racially discriminatory but are so in effect because they ban the only dwellings that many Black and Latino families can afford.

Community Land Trust (CLT) as an Affordable Housing Solution

Community Land Trusts (CLTs) are a special non-profit organization that takes care of property in a community, like houses. CLTs are uniquely positioned to make homes stay affordable forever. Through a CLT, a home that is affordable to a family today is also affordable to the next family that lives there. CLTs usually have different types of homes, including ones for rent and for purchase. 

The Des Moines metro and surrounding communities are implementing this model as a way to address the increasing price tag on homeownership and wealth building. The CLT model they are using includes these four key features:

• A shared ownership model in which homebuyers own the structure and hold a ground lease for the land owned by the CLT.
• Perpetual affordability keeps the investment by the CLT in teh property to protect the affordability of the home for the first, second, third, and future home buyers.
• Community control as typically 2/3rds of the CLT board is made up of residents and community members that live within the CLT service area, Most CLT’s use somethign cllased a Tripartite governance structure that shares leadership and representation between residents of CLT properties (1/3), community members (1/3) and public officials (1/3).
• Shared appreciation of the value of the property and wealth building. At the time of the resale of the home, the CLT and the homeowner split the benefit of the appreciation of the home’s value based on what is called a resale formula. The resale formula generally says that the homeowner benefits from all of their invest into the property and the CLT keeps its investment with the property to keep the home affordable.

When communities join a CLT they improve opportunity for all community members to access affordable homes and homeownership, but this is especially true for low to moderate income households that would normally struggle to purchase a home in the traditional market. By lowering the barrier to access homeownership, first time homebuyers are set up for success if they later decide to buy a home in the traditional market, since they are able to generate wealth even when they share the appreciation of the property with the CLT. The National League of Cities states that, “CLT homeowners typically invest less than $2,000 at the time of purchase and accumulate approximately $14,000 in equity when they sell their home. Almost 60% of sellers use the equity from their CLT homes to purchase a market-rate home after selling.” The benefits of having a CLT extend past a single family because the resale formula they use keeps the home affordable and separate from private market influences. Long lasting CLTs can also offer better living standards while helping retain wealth within the community, ensuring that not all the profits made on a home’s sale leave the community. CLTs are an exciting new model to explore that offer many families and communities a clear path forward to sustainable homeownership, stable housing, and wealth building.

More Information and Resources

Please check out the organizations and their resources below to learn more about homeownership and what is happening in Central Iowa’s housing market!