This is my final article in a series about housing affordability. In previous articles, I talk about the role of the property industry in the housing affordability crisis, public housing’s role in reducing poverty, the tax credits that are shaping our affordable housing industry, and the new strategies to create what is known as “naturally occurring affordable housing.” All of these articles are accompanied by a podcast where I interview some of the people working in the affordable housing sector. This special series is made possible by the generous underwriting ofMRI Software.
A typical white family in America has nearly eight times the amount of wealth as a typical black family.
I just want to sit with this incredible, terrible fact for a moment. Whereas a typical white family has $100,000 in wealth, a typical black family has just $12,500. African Americans represent 13.4 percent of the U.S. population yet hold just 4 percent of the country’s total household wealth, according to data from the Survey of Consumer Finances.
With all of the social justice gains that have been made since Africans were being bought and sold by American landowners as nothing more than a means for production, we still have this staggering wealth disparity. This one fact should be the center of our conversation around race. We can say all the right things when it comes to institutional racism, but as long as this gap exists, we do not have racial equality. If you want to find out where the real injustice lies, and what needs to be done to correct it, you only need to revisit that one unsavory statistic.
It is also important to remember that real estate is one of the main reasons for the disparity in net worth between racial groups. Black and brown Americans were prevented from living in predominantly white neighborhoods, even long after racial discrimination was banned in the courts, excluding them from the opportunities that come with it. Many American cities and suburbs were designed in ways to keep races apart, ‘protecting’ affluent white neighborhoods and concentrating poverty in a way that makes it all but inescapable for those unlucky enough to be born into it.
In fact, America’s first full-time city planner, a man named Harland Bartholomew who literally wrote the book on Urban Land Uses, was known to implement zoning that would restrict the degradation of “finer residential districts […] by colored people.” He later went on to plan cities like Washington D.C., St. Louis, Pittsburgh, New Orleans, and Kansas City. His method of restricting multifamily buildings in affluent single-family neighborhoods resulted in shockingly effective racial segregation that prevails to this day. In St. Louis, where he was the first city planner and served at that position for nearly 30 years, the racial divide is so complete that “at least 60 percent of the black-white population would have to relocate to end segregation.”
Segregation by zoning has had the devastating effect on wealth creation that we are witnessing today. Not only have Black and other minority homeowners missed out on the steady appreciation of property value that most parts of the country have seen for the last century, but exclusionary zoning has also disadvantaged them in other important ways. Right now in more than 50 metropolitan areas in the U.S., the share of minority kids who attend high-poverty schools is at least 30 percentage points higher than the share of white kids who do. Studies have consistently found that students in high-poverty schools are less likely to succeed academically, creating a headwind for their success for the rest of their lives.
I talked to Richard Rothstein about the connection between real estate and education. He was the education columnist for the New York Times and went on to write one of the most influential books about geographic segregation in America called The Color of Law. He explained that the focus on test scores, culminating with the No Child Left Behind program, is a persistent reason for the White flight that many minority neighborhoods experience. “If you were to ask parents what makes for a ‘good’ school, they wouldn’t say high test scores but that is the definition of a good school that we decided to use,” he told me.
Rather than just focus on putting affordable housing in affluent areas, Rothstein thinks that there should also be incentives to bring white families into desegregated neighborhoods. His method for doing this: give students that go to diverse high schools priority when it comes to college admissions. “Alumni of competitive colleges and universities should be pushing their alma maters to recruit from diverse school districts,” he said. After seeing the unethical and downright illegal things that parents are willing to do in the college admissions bribery scandal in 2019, I think we all have a better understanding of how powerful of an incentive a spot at a top university can be.
Rothstein embraces the wider definition of inclusion when it comes to our neighborhoods. He thinks that it isn’t just about adding affordable housing but also finding ways to bring the cost of market-rate housing down as well. “Housing is unaffordable not just to low-income individuals, the ones that the Low Income Housing Tax Credit is designed to help. If we want truly economically and racially diverse neighborhoods we can’t just have pockets of low-income housing in high-income areas, it has to be a mix of workforce housing as well.”
Of profit and protection
In order to reverse the centuries of segregation in our cities and help lift one of the most at-risk populations out of poverty, we need to make changes to the way we think about real estate. There is a complicated relationship between people of color and urban gentrification since they seem to be the ones that are often displaced by it. While we desperately need to improve poor neighborhoods and create a better socio-economic mix in our cities, we must do it in a way that the people affected by the changes want and need.
The first step towards uplifting a population that the property industry has historically held back is to find ways to preserve affordability in existing minority neighborhoods. I talked to one person that is doing exactly that. Sharif Mitchell pivoted his successful career as a tax consultant and multifamily lender to and now is Operating Principal at Dantes Community Partners, a real estate investment management firm that makes “socially impactful and income-generating investments” in affordable and workforce housing. “I transitioned to banking and, from that seat, I wanted to find a way to help people that looked like me, by providing them with capital that they desperately need,” he said.
Mitchell explained that one of the detractors of the affordable housing sector for many property developers and owners is perception, “people think that affordable housing is solely housing for people on Section 8, people that make less than 30 percent AMI [average median income], but that isn’t true at all,” he explained. In fact, in places like New York City, affordable housing can go up to 130 percent AMI which would include salaries of up to $155k for a family of four. “That means that we are talking about a wide array of professionals not able to live on subsidy, which includes government workers, teachers, nurses, social workers, first responders, construction workers, and police.” Mitchell thinks that we need to remember the value to our cities that these workers create. “We can’t force the people that help run the city to live far outside of it. When people get mad that their services are not available on snow days, that is why,” he said.
To help these communities, Mitchell decided to dedicate his career to acquiring older multifamily properties, renovating them extensively, and restricting the rents to between 60-80 percent of AMI. Sometimes he seeks property tax abatements from local governments in exchange for preserving affordable rent levels. Other times they will self-impose rent control by implementing deed restrictions prior to closing. “Every deal is different,” he says, “but I am looking to buy properties that need an injection of capital from owners that have not kept up with the deferred maintenance.” His firm is vertically integrated along with their management company Faria Management. They work with black-owned vendors whenever possible because that spend translates into racial equity across service providers. To date, they have spent nearly $50 million with Black and Brown vendors since 2019.
Across the firm, they like to use the term “luxury affordable housing” to instill the idea of a high standard of quality and service for their residents, no matter how much they might be paying in rent. The team thinks long and hard about the ways that they can not only make the property better but make the lives of the residents better as well. Often this means foregoing popular amenities like yoga studios and coffee shops in leu of more useful ones for current residents like bar-be-que areas and basketball courts. They also provide robust resident services like after-school programs, computer labs, and common area wifi. The connection that people get with these properties, thanks to the improvements and newly added resident services, contributes to greater resident satisfaction. During the pandemic, many multifamily properties, particularly luxury ones, struggled. The average rent collection rate for the industry was around 79 percent this last year, the Dantes’ portfolio averaged 95 percent.
Mitchell says that one of the repercussions of the relative success of affordable housing during the pandemic is that more investors are interested in the asset type. This puts pressure on his firm to have to compete when buying buildings. “Most of the investors see opportunity in buying properties and bringing them upstream,” he said. “That puts pressure on firms like us that want to preserve this product.” His ask is that sellers of these properties consider the ramifications to the neighborhood of the buyer’s plans. While it might seem like the highest and best use for a property is to appeal to a higher-paying renter, the loss of affordable housing can create displacement and inequality that can have lasting detrimental effects on the neighborhood.
The more I talked to people about this issue the more I heard one word: trust. There is a general lack of trust from people of color, particularly African Americans, for many American institutions, including the property industry. This distrust is not unfounded. When the Federal Housing Administration created The Federal National Mortgage Association, now known as Fannie Mae, to standardize and commoditize home mortgages, they sold an Underwriting Manual to help local lenders understand their default risks. It used a red line to separate each metro in the country into different risk categories (hence the term “redlining”). The disastrous effect of that document can be boiled down into one damning line:
“The borrower who acquires property for occupancy in a location inhabited by a class or race of people that may impair his interest in the property-and thereby affect his motivation-should be ascribed a lower rating in this feature to reflect the diminishing importance of the property to the borrower.”
It is no surprise that neighborhoods specifically designed by city planners like Bartholomew for a lower “class or race of people” became perceived as less valuable, a perception that has affected many minority areas even to this day. In fact, there have been settlements between advocacy groups and many of the nation’s biggest home mortgage lenders for their ongoing redlining efforts, pushing higher interest rate loans to borrowers from black neighborhoods.
“When we talk about how we look at growth and development, we have to understand that there is a tremendous lack of trust when it comes to development,” said John Jones, former Chief of Staff for U.S. Congressman Emanual Cleaver. “The actors who have intersected with black homeownership have not acted in good faith, deliberately and subconsciously. All that has led many people of color to oppose development in their neighborhoods and turn away from homeownership as a path to wealth.” Homes sold in black neighborhoods are estimated to be undervalued by an average of $46,000 compared to similar ones in white areas; the gap between black and white homeownership is the biggest it has been in 50 years.
The pushback by residents of minority neighborhoods against redevelopment is evidence that NIMBYism comes from both sides of the political and economic spectrums. “There are financial incentives we can apply to help stimulate black communities, but if there is no buy-in from the people, the policies will fail,” said Jones. He said that public engagement from the start of any development is the only way to make sure that real estate investments have the desired social impact.
But redevelopment is just the start of what needs to happen to close the racial wealth gap. In order to help locals participate in the wealth creation that comes with development, there needs to be more representation by people of color in the property industry, both as owners and professionals. “There needs to be more financial education about the property community to low-income and minority citizens and it needs to happen earlier in their lives,” Jones explained. Since homeownership is one of the main ways that Americans create wealth, the path towards homeownership needs to be better paved for people of color. Bringing more locals into the pool of owners and having them feel represented by those making the development decisions is critical to overcoming the growing opposition to inner-city development.
One of the uplifting things that came out of researching this rather depressing topic is the desire for many in the property industry to help make our cities and our country more equitable. There are a surprising amount of property professionals that want to see this wealth gap close. But doing so will take effort. The property industry needs to change the way it thinks about affordable housing, the way it appraises properties, and the way it sources talent.
It will also take a concerted political effort. “Malcolm X wrote an article about entrenched racism where he explained well the fact that most decisions in the government are made by committees and committees are run by politicians with seniority,” Jones told me. “All of us need to do a better job of not only knowing who are your local representatives, but who are the committee chairs that deal with development. They need to hear from concerned citizens that inequality like this is not acceptable.” He explained that tagging a politician on social media was too easy, what politicians take note of is when people take the time to write them a letter—or better yet schedule a call with them. We can no longer expect that our elected officials will act in a way that helps make our cities more equitable, we need to take action in order to reverse the transgressions of the past.
We know much more about the nature of housing and its effects on poverty and race than we did when Harland Bartholomew and his cronies started dividing up our cities. But many of us are still not sure of a path forward. It is this silence that has led us down the crippling path of unaffordability that our country has been on. While it might be an uncomfortable topic, it is only by ending our silence about racial inequality that we can hope to protect housing, develop neighborhoods, and help lift an entire population of our country out of poverty. As Jones put it, “The problem is that people are scared to speak up because they think they are going to be shamed, they think that by talking about race they are going to be called a racist. If we keep operating in this way, nothing will ever change.”