Do Historic Opportunities in Home ownership reflect modern day wealth inequity?

To find out let’s start with Levittown. Beginning in the 1930s and continuing into the 1960s, the Federal Housing Administration (FHA) recruited mass production builders to create single-family residential subdivisions across the country. One of which was Levittown (a suburban community mainly for returning WWII veterans) east of New York City. The builder, William Levitt, unable to obtain financing through the bank, found the FHA to be a suitable solution. Among other things, here were a few conditions of the approved loan, making Levittown a reality:

• A commitment to the FHA never to sell a home to an African American
• A requirement for William Levitt & builders of the community to place a clause in the deed of every home for resale or lease to ensure it was not sold or leased to an African American.
• With all FHA loans, the enforcement of a manual which called for the denial of building application proposals for subdivisions close to African-American neighborhoods under the fear that they ran the risk of what the FHA manual called “infiltration of incompatible racial elements.”

White veterans interested in purchasing a Levittown home were offered beneficial financing- no money down (similar to the VA loans issued today), while working class white families living in public housing had the opportunity to receive subsidies from the FHA to relocate from central cities to theses single-family developments in the suburbs. To give an idea of the weight of this opportunity, Richard Rothstein, a leading expert on U.S. housing policy and the author of The Color of Law explains,

    The subsidy was so powerful that a white family who lived in public housing could move into a FHA sponsored single-family home and pay less in their monthly housing charges than they would for rent in public housing. This subdivision model went nationwide.

And of course, by law African Americans were barred from participation.

So, why does it matter?

Well, these homes, built in the mid 20th century originally sold for $8,000-$9,000 (around $100,000 in modern currency), meaning at commencement, when African Americans were barred from purchase, most working class families of all races could afford to purchase a Levittown home. These same homes now sell for $300,000-$500,000, and although the 1968 Fair Housing Act finally allowed African Americans to participate in ownership, without the incentives and pricing offered at entry level, the suburbs became available but no longer affordable for working class families (of any race). By the time African Americans were allowed to purchase, the economic damage to black families had already been done. The act made an effort to enforce future equality, without addressing or correcting the systematic wealth inequity it created.

The white families who were incentivized to invest in Levittown increased their net worth from the continued equity appreciation of their homes ($200,000-$400,000 in wealth appreciation over the last few generations with minimal additional financial investment in the homes themselves), their communities appreciating alongside their homes, this privilege only available to those allowed entry at the birth of the community.  Richard Rothstein explains,

White families who participated in this program were now financially equipped to send their children to college, to be able to handle medical emergencies, and to manage unemployment. Further, white families in the program often bequeathed their wealth to children who could then spend it on their own homes, education and children’s wellbeing. It created generational wealth .

The generational wealth these families accumulated freed them from survival mode and scarcity mindset, allowing them to provide opportunities, reduce financial stress and scale Maslow’s Hierarchy, while those left behind continued the poverty cycle.

Levittown is not an isolated incident. In fact, one of the first government-backed developments of the postwar segregated suburban landscape was actually Houston's Oak Forest, Frank Sharp's largest development prior to Sharpstown. Similar to Levittown, the community (which grew to 5,000 homes) was also marketed to returning veterans. Again, the FHA offered incentives, and agreed to back the development and loans under the stipulation that the homes could not be sold to African Americans. They also sold the homes for a fraction of their value today, and (you guessed it), this and similar developments serves as vehicle for white wealth accumulation.

So, if only select groups are given opportunities for advancement, how are others supposed to get ahead?

Overtime these communities and similar policies (at federal, state, and local levels) continued to enforce inequity and gradually reduced the perception of equity while systematically increasing the wealth gap. Here a few additional examples:

• As early as the 1850s and as recent as 30 years ago, lawmakers used eminent domain to demolish thriving predominately Black Communities and displace residents to create Central  Park and Centennial Olympic Park. The trend continued with the subsidized development of highways – often through communities of color, the reasoning remains the same: to benefit the greater good. The irony here is that the displaced rarely, if ever, saw long-term benefits from these revitalization efforts. Are they not included in the definition of greater good?
•  From 1910-1917 economic incentives were offered to segregate neighborhoods, one of which was race-based zoning, placing formal provisions on African Americans purchasing properties on majority white blocks and vice versa.
• In 1920, this is exercised here in Houston at the local level with “Race Restriction Area”, and although unofficial, intentions were supported by the local school board, pushing Black learners into predominately Black schools in the Third Ward (most notably Jack Yates Senior High School).  
• In 1933 and 1934, amidst of the Great Depression is the birth of The Home Owners’ Loan Act and the National Housing Act. The goal was to prevent foreclosures and make rental housing and homeownership more affordable.. The Home Owners Loan Corporation (HOLC) created risk assessment maps for mortgage refinancing and set new standards for federal underwriting. The maps included racial composition as an assessment parameter, classifying nonwhite neighborhoods as hazardous. The maps then used the color red to indicate such territories. The FHA used these maps to determine where it would guarantee mortgages, and the process, known as redlining, denied people of color—especially Black people—access to mortgage refinancing and federal underwriting opportunities while perpetuating the notion that residents of color were financially risky and a threat to local property values.
• In 1944 the GI Bill was signed into law, providing a range of benefits to WWII Veterans while simultaneously deliberately accommodating Jim Crow according to historian Ira Katznelson. While paving the way for millions of predominantly white veterans to enter the middle class through advantageous financing, it also continued to solidify the existing racial hierarchy, permitting banks to discriminate against Black veterans, denying their home loans even though the federal government guaranteed their mortgage. Sarah Turner and John Bound, authors of “Closing the Gap or Widening the Divide: The Effects of the G.I. Bill and World War II on the Educational Outcomes of Black Americans” claim,

In Mississippi, just 2 of the 3,000 mortgages that the Veteran’s Administration guaranteed in 1947 went to African Americans, despite the fact that African Americans constituted half of the state’s population

• Realtors stepped in, as these policies led white families to believe the presence of Black residents posed a threat to their property values. They exercised blockbusting, leveraging ignorance and fear as means for their personal profit. Real Estate agents who participated in blockbusting marketed to white neighborhoods, and convinced residents to sell their properties to the agent at deeply discounted rates because Black families were moving in nearby. These same agents would turn around and resell the property to a Black family at marked-up prices and interest rates. As mentioned above, Black families government policies severely limited their financing options, so these homes were often purchased on contracts, rather than traditional mortgages, allowing real estate agents to evict Black families if they missed even one payment and then repeat the process with other Black families.
• In the 1990s The Clinton & Bush administrations actively sot to improve home ownership for Blacks. This led to the birth of creative financing products including subprime mortgages. As the product itself held benefits, Subprime refinancing was far more common in black neighborhoods. It took a left turn with manipulation and misuse from the private sector, as a method to enriched themselves & exposed others to risk they otherwise might not needed to take on. We all saw the result of this in 2008.

Although the current climate is a reflection of a variety of factors, these policies and programs allowed households—the majority of which white—to build and transfer assets across generations, contributing to glaring racial disparities in homeownership and wealth. Today, 32% of net worth for white Americans is in their home equity, for Blacks 37% but average housing wealth for whites is $215,000, for blacks $94,000. In fact, college educated Black Americans are less likely to own their own homes than white Americans who never finished high school. Today, Blacks are a majority renter population.

Although the Fair Housing Act banned a number of discriminatory housing practices, A recent CAP report, “Racial Disparities in Home Appreciation,” “Long Island Divided” and personal experiences highlight trends in discriminatory housing ongoing today including lenders targeting people of color to disproportionately issue speculative loans even when buyers qualify for options of less risk, sellers of color risking obtaining fair offers if their race is discovered, and buyers of color with reflective names concern of offer acceptance and fair terms based on their race alone.

There is clearly work to be done, and although we’ve continuously worked to establish equality, EQUITY has been holistically ignored.

So, for those who are willing, were left with the concern of how to make amends for past and present harm while reinforcing structural equity moving forward?

• Demonize & guilt those whose ancestors benefitted from these policies? I’d say not. Although we hold no responsibility for the past, we are in control of the world we create, and the example we set for those who come after us.
• Reparations have been thrown around as a viable, controversial (and very complicated) solution

 Senator Elizabeth Warren has outlined a proposal to create a fund for down payment assistance for residents of previously redlined communities, an indirect way to get at the wealth disparities created by policies that undervalued black communities and propped up the values of white enclaves. 

• Push for lawmakers to make amends for past and present harms inflicted on communities of color by significantly expanding the supply of affordable units and dismantling existing exclusionary zoning practices (many refer to this in the context of incentivizing builders)…could be helpful in part
• Push lawmakers to support the Affirmatively Furthering Fair Housing rule and reexamine current Federal Emergency Management Agency and disaster relief regulations…maybe
• Hold realtors, builders, lenders, and developers accountable for their actions…absolutely

Truthfully, I don’t have a direct, fix all solution. My vote is to find our role in contribution to and correcting the issue. Become well versed in this history, ask thoughtful questions to those involved and learn to find comfort in calling out harmful behavior. While this will look different for the lender, home buyer, renter, developer, bank, home seller, etc., what’s important is that we act.

Rothstein says it best, "The civil rights movement decided and the country agreed for the most part that segregation was wrong," he said, "that it was immoral, that it was harmful to both African Americans and whites...how could it be that we left untouched the biggest segregation of all?"

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Want to Learn more?

·      Listen to Freakonomics Radio Podcast on Apple or Spotify- Should America and FIFA Pay Reparations

·      Read The Color or Law by Richard Rothstein

·     Check out Housing and Wealth Inequality: Racial-Ethnic Differences in Home Equity in the United States, a study by Lauren J. Krivo; Robert L. Kaufman linked here

Sources:

• Freakonomics Podcast. Should America (and FIFA) Pay Reparations. 06-15-20
• https://www.habitatwake.org/richard-rothstein-explains-fair-housing-act (Habitat for Humanity Wake County)
• https://www.americanprogress.org/issues/race/reports/2019/08/07/472617/systemic-inequality-displacement-exclusion-segregation/
•  https://kinder.rice.edu/urbanedge/2019/02/14/addressing-last-remaining-and-biggest-form-segregation