The Market Will Not Fix California’s Housing Crisis

For all the criticism Benjamin Ross throws at anti-gentrification activists in his recent article—groups he brands, echoing real-estate-industry talking points, as the “anti-development left”—his analysis leaves unscathed a capitalist real-estate market that has long produced its profits by segregating and exploiting low-income communities of color. This refusal to engage left critiques and alternatives to market-driven housing policy and the particular legislation at hand, California’s Senate Bill 827, comes as the emerging “Yes In My Backyard” (YIMBY) movement, of which Ross is a partisan, seeks to blow new wind into the fraying sails of “creative class” redevelopment.

Radical anti-gentrification activists nationwide, under the banner of groups like Defend Boyle Heights, Inquilinxs Unidxs Por Justicia, and the national Homes For All campaign, understand that the interests of working-class residents are diametrically opposed to those of the speculators sending waves of investment capital into their neighborhoods. The former want simply to remain in their homes and retain some basic level of self-determination over their communities. The latter, whose profits depend on moving the color line to take full advantage of an influx of affluent, mostly white urban professionals, want the current residents gone.

It’s astonishing that Ross can write 1700 words on this topic and make a mere passing mention of rent control. Unlike the homeowners with whom Ross alleges they are allied, tenant and community groups’ opposition is not to new development in general, but to the rapidly expanding reach of globalized real-estate investment capital with no discernible interest in building housing for the working class. Such groups, both in California and across the United States, are fighting above all to advance policies of decommodification such as expanding rent control and building mass, publicly subsidized housing—not simply opposing individual developments, as Ross claims. Incidentally, in California, both rent control and public housing construction were severely curtailed by state laws supported by the very same real-estate lobbies that have now lined up to back SB 827.

Ross aims to convince readers that the “anti-development left” is a purely defensive movement, trapped in the narrow range between opposition to individual buildings and attempts to squeeze a bare minimum of “community benefits” from new construction. This conveniently ignores the radical, alternative visions of housing provision and community development that today’s grassroots housing movement offers.

T.R.U.S.T. South LA, for example, both actively develops de-commodified land for low-income residents and raises consciousness and community leadership via popular education programs. At Rolland Curtis Gardens, one of three developments now controlled by the organization, T.R.U.S.T. was able to pressure a billionaire owner to sell the land back to them to redevelop with community involvement, thanks to a protracted organizing campaign with the building’s tenants, thereby avoiding its planned conversion to USC student housing. In the Bay Area, groups like Causa Justa :: Just Cause, the Asian-Pacific Environmental Network, and the Housing Rights Committee center their tenant work across lines of environmental, economic, and immigration justice, fighting for the reclamation of a “right to the city” for black and brown communities displaced and dispossessed by Silicon Valley, luxury-housing proponents, and the “progressive” politicians they enable.

These groups have also gone out of their way to criticize SB 827. Yet Ross plays down their objections. While Ross might bemoan the horrors of racism, in dismissing left organizers of color as “junior partners” to a cabal of white homeowners, he sidelines the voices of its victims.

The major critique of SB 827 offered by the anti-gentrification left is that it will, by overriding local zoning regulations and allowing for taller and denser development near transit, accelerate displacement by making it easier and more profitable for investors to build what they want in poor neighborhoods predominantly occupied by people of color, thereby pushing up prices throughout these areas, with disastrous consequences for those who rent. Centrally located, low-income communities will be the primary targets for profit-seeking investors because these areas allow them to buy low and sell high once the built environment is remade to suit the tastes of wealthier, predominantly white incomers. In responding that “Trump Tower is not in the Bronx,” Ross misunderstands this “rent-gap” logic of gentrification identified by Neil Smith nearly forty years ago. Besides, even if significant development does occur in Beverly Hills, there’s plenty enough international capital flooding into California’s urban real estate to go around, meaning South L.A. could still be rapidly gentrified simultaneously. Trump Tower isn’t in the Bronx, but loads of yuppie apartments soon will be.

Furthermore, the claims to progressivism by SB 827 supporters, which rest on the idea that they are reversing the history of exclusionary zoning by wealthy white homeowners, are belied by these supporters’ very own maps. Across California, but especially in Los Angeles, the richest and whitest neighborhoods are untouched by the bill’s upzoning, while low-income communities of color struggling against eviction and displacement are blanketed. The recent amendments simply do not address the threat of indirect displacement caused by rising rents, meaning this bill will lubricate the remaking of large swaths of urban land by global finance capital, both pushing communities of color out of existing housing and shutting out future low-income renters.

Although Ross describes these concerns over displacement as “eminently plausible,” he quickly moves on, uncritically accepting the market-urbanist claim that the way to actually stem rising rents is to deregulate housing construction and leave supply and demand to work their magic. Cities, however, rarely bear out the alluring simplicity of this theory. Berkeley economists Miriam Zuk and Karen Chapple have shown that the filtering process, by which new housing gradually trickles down and lowers rents at the bottom of the market, can take “generations.” There are also different spatial scales and sub-markets to consider. New developments could slightly bring down prices across an entire region, but raise rents in a given neighborhood, bringing more affluent tenants in and pushing the poor into the suburbs. Furthermore, falling rents at the top do not necessarily mean the same for the bottom, as the numbers from New York City make clear. These effects are all compounded by a modern real-estate market in which global investors increasingly see urban buildings as a commodity instead of shelter, and short-term rental services like Airbnb take thousands of would-be housing units off the market.

In short, the real-estate market is designed to produce profits, not shelter. One doesn’t have to be a “neo-Marxist” to recognize this basic tenet of capitalism, or to understand that fundamental human needs cannot be entrusted to the market. From the pre-zoning era of slums and tenements to mid-century redlining and “slum clearance” to modern “creative class” redevelopment, the continued immiseration of the working class by real-estate capital—landlords, developers, captive policymakers, and, yes, wealthy homeowners alike—make clear that this is not a mutually beneficial relationship of supply and demand. Indeed, the crowning irony of YIMBYism is that its “build, baby, build” cheerleaders count on the same interests responsible for instituting redlining and “white flight” in the first place to reverse their effects through a market unleashed by zoning deregulation. What they ignore is that real-estate capital has long profited off of segmentation and segregation without the help of zoning codes, and it now sees an opportunity to dispossess the redlined yet again as affluent whites flock back to urban centers.

Communities of color fighting gentrification understand this history all too well. Far from pushing a “defense of the residential status quo,” as Ross concludes, they fundamentally seek to restrict the power of the market, proposing alternative models for both new and existing housing.

One other omission bears noting. While Ross spends considerable energy lamenting the appropriation of anti-gentrification arguments by wealthy homeowners, he completely ignores the extensive and well-documented ties between the tech and real-estate industries and both the California YIMBYs and State Senator Scott Wiener, SB 827’s sponsor. Equally damning is the support for this bill by organizations like the California Apartment Association, a landlord lobby group; the Los Angeles Chamber of Commerce; the conservative Manhattan Institute; and other market boosters with a material interest in maintaining high rents and land valuations.

Though Ross and his YIMBY compatriots greenwash real-estate interests in Jane Jacobs-ian paeans to density and walkability, their fundamental animosity to the left is best summed up in the pithy, foreboding mantra of Robert Moses: “Those who can, build. Those who can’t, criticize.”

Posted in Uncategorized | Tagged , | Comments Off

How Real Estate Segregated America

In a year of many anniversaries, two in particular stand out with respect to the housing crisis facing the United States today. The first is the passage of Title VIII of the 1968 Civil Rights Act, more commonly known as the Fair Housing Act. In some ways, the legislation bitterly acknowledged the role of housing discrimination in keeping African Americans in a subordinate social position. Excluding Black people from white neighborhoods, while simultaneously disinvesting in Black communities, has kept them out of the best-funded schools and highest-paying jobs. Housing discrimination was a linchpin of Black inequality in American society, and the Fair Housing Act held out the promise of undoing it by banning racial discrimination in the renting, financing, and selling of housing.

The second anniversary is that of the 2008 financial crisis—perhaps the starkest sign of the palpable failure of the Fair Housing Act to fulfill its mandate. Not only did the crisis wipe out decades’ worth of hard-won financial gains for African Americans, but it stole their homes as well. In 2010 almost half a million African Americans were at risk of foreclosure, and by 2014 more than 240,000 had lost their homes. This historic collapse in Black homeownership is an important part of why the wealth gap between Black and white Americans is larger today than it has been in decades. In 2007, right before the crash, the median white family had eight times the wealth of the median Black family. By 2013, that figure had risen to eleven times, and it has tapered off only slightly since.

The subprime mortgage crisis, and the wider housing and economic crisis it produced, was the culmination of a long period of predatory inclusion of African Americans in the housing market, which can be traced back to the era of housing and credit reform in the late 1960s and 1970s. After decades of exclusion, African Americans were finally promised access to the robust housing market that had fueled the ascension of the white middle class in the second half of the twentieth century. Instead, they were subjected to rapacious lending and real-estate practices that extended familiar patterns of discrimination. As the early-2000s housing bubble was peaking, African Americans were 50 percent more likely than their white peers to receive a subprime loan. Those loans, it is widely understood today, were more expensive and carried higher interest rates. The terms of these loans increased the probability of their failure, and their concentration in Black neighborhoods promised not just to ruin an individual’s credit but to undermine the stability of entire communities. The real-estate industry created the idea that Black homeowners posed a risk to the housing market and then profited from financial tools promoted as mitigating that risk.

In the aftermath of the predictable failure of those loans, banks and other mortgage lenders today are using this failure as an excuse to revert back to the exclusionary practices that gave rise to exploitative lending in the first place. This has included the resumption of the use of land-installment contracts, requiring “owners” to pay property taxes, make substantial repairs, and pay usurious interest rates while having no equity in the property. There has also been the revival of rent-to-own schemes that lure poor and working-class people into making expensive payments for substandard properties when they no longer qualify for mortgage loans of any type.

How could “fair housing” fail so spectacularly, forty years after it was signed into law?

Recent scholarship, including lawyer and social scientist Richard Rothstein’s much-heralded book The Color of Law: A Forgotten History of How Our Government Segregated America, has helped to shine a light on the nefarious role played by the government in locking African Americans into substandard housing and under-resourced public services from the early twentieth century on. Rothstein and others, however, fail to answer the question of why this discrimination persists long after the federal government formally renounced its own policies promoting segregation. A common explanation points to the continued resistance of white residents, renters, and owners to the presence of Black people in their communities. White violence and resistance is certainly part of the explanation, but lacks the institutional underpinnings that were so critical to understanding the role of the state in the formative years of residential segregation.

For a fuller picture, we need to look to the one factor that has remained a constant even as administrations, policies, and public attitudes have changed. We need to look at the public-private partnerships that have sutured the federal government to the real-estate industry.

When the Fair Housing Act was passed in 1968, it confronted a history of exploitation and segregation that had physically degraded the communities that African Americans lived in. Black neighborhoods had suffered decades of disinvestment and institutional neglect, yet realtors continued to charge African Americans inflated prices for inferior or substandard properties, knowing they had nowhere else to go. By the 1970s, the landscape of foreclosed and abandoned properties and burned-out hulls of urban residences served as the visual markers of what was popularly described as an “urban crisis.”

Fifty years after the passage of “fair housing,” racial discrimination remains embedded in the operations of the American housing market. The federal government’s failure to enforce its own laws against racial discrimination is a reflection of its institutional racism but not an explanation. One explanation for the failure of federal housing policies to actually produce “fair” housing is found in the state’s continued reliance on the private sector as the sole provider of housing in the United States. The federal government long ago abdicated the responsibility of directly producing affordable housing, instead outsourcing the task to private developers—while continuing to provide vast amounts of assistance in the form of guarantees, subsidies, and tax relief. As a result, it has absorbed the real-estate and banking industries’ historic embrace of racial discrimination.

Indeed, the real-estate industry grew in tandem with and helped to popularize racist, even eugenic ideas about African Americans, including the notions that Black residents negatively impact property values, are undesirable neighbors, and pose an existential risk to communities and neighborhoods. As early as the 1920s, the National Association of Real Estate Boards had threatened professional discipline against any agent who disrupted segregated neighborhood racial patterns.

As the government got more involved in regulating and subsidizing housing, these ideas translated directly into policy. The notorious redlining maps issued by the federal Home Owners’ Loan Corporation in the 1930s, to take one early example, were based on existing maps used by local banks and brokers. It’s not hard to see why: starting in this period, real-estate executives were recruited to develop government housing policies because of their former roles within the private sector. Over time, the real-estate industry, in turn, would seek out former government employees for their valuable connections to the state. With this “revolving door” in place, public and private networks formed an insular feedback loop mostly concerned with maintaining a brisk housing market. The real-estate industry flexed its enormous influence over national policy again and again over the following decades, including when it vociferously—and successfully—lobbied to hobble public housing in the 1940s and 1950s.

But the modern iteration of this destructive public-private apparatus was born with the Housing and Urban Development (HUD) Act of 1968. While the Fair Housing Act is widely recognized as a landmark in U.S. policy, the accompanying HUD Act is virtually unknown today despite its equally seismic shift in American housing policy.

The HUD Act was passed in August 1968, four months after Johnson signed the Fair Housing Act into law. It was a historic piece of legislation that decisively shifted the responsibility to provide housing for poor and working-class people from the federal government to the private sector.

In the years of urban uprisings that roiled the mid-1960s, poor and substandard housing was repeatedly listed as a catalyst of Black rage. For example, a report on the causes of the Black rebellion in Philadelphia in 1964 found that 100 percent of rat bites reported in the city (and the resulting deaths) happened in segregated Black neighborhoods. From lead poisoning to a lack of indoor plumbing to general dilapidation, urban housing occupied by African Americans was overwhelmingly in substandard condition.

The poor quality of Black housing was driven by three factors. It was typically older and used, having filtered down to African Americans who were the newest arrivals in Northern cities. Its already distressed condition was then exacerbated by residential segregation that led to overcrowding, as Black residents were hemmed into a few clustered neighborhoods. Finally, the lack of housing choices available to African Americans removed the pressure from landlords to improve the quality of housing. African Americans were a captured market with nowhere else to turn.

Meanwhile, the government was heavily subsidizing the construction of exclusive suburbs, whose value for upwardly mobile whites was based in large part on their distance from Black neighborhoods and exclusion of Black people. Where white suburban neighborhoods came to be valued as appreciating assets for the households who lived in them, Black urban neighborhoods were prized by the real-estate industry for their extractive value. If the real-estate industry was eager to keep “white neighborhoods” and “black neighborhoods” apart, then, it was not because of prejudice alone—it was because of profit.

The result was African Americans paying more for inferior housing in comparison to whites who were being lured to new suburban developments during this same period. By the mid-1960s, these conditions had reached a breaking point. The 1967–68 urban uprisings—the largest wave of domestic riots in the twentieth century—were the result.

Passed through Congress even as the wreckage of rebellions was still visible, the HUD Act, in tandem with the Fair Housing Act, was intended to transform American cities and suburbs. Unlike Fair Housing, the HUD Act produced no partisan rancor and instead was celebrated by Democrats, Republicans, and of most significance, the real-estate and banking industries. Both parties promoted homeownership as a way to give Black urban residents a stake in society in hopes of quelling the uprisings. But there was also the added motivation of developing a new market. The legislation emphasized “private enterprise” as the cornerstone of urban renewal. The federal government enticed the participation of the real-estate industry and mortgage lenders essentially by paying them to produce housing for low-income people. Its most significant features included a federal mandate to create 26 million units of new and rehabilitated housing within ten years, including 6 million units for low-income residents. It also included a low-income renter program allowing nonprofit organizations to buy residential buildings cheaply with low-interest loans, with the aim of passing the savings onto renters. Finally, Section 235 of the bill created a homeownership program for low-income people through a combination of interest-rate subsidies, a low down payment, and the promise of mortgage insurance from the federal government.

In 1967, a year before the Fair Housing and HUD Acts were signed, a summer of riots had compelled the Federal Housing Administration (FHA) to finally end its three-decade-long practice of redlining urban neighborhoods, while unveiling multiple new initiatives aimed at increasing the rates of homeownership in Black urban areas. A consortium of life insurance companies donated $1 billion to create a mortgage pool for single-family homes and multifamily buildings in areas that would have previously been redlined. This meant that money was finally available, but only to buy within the city—not outside of it. Ending the urban housing crisis required going a step further; it required actively providing African Americans with access to safe, sound, and affordable housing inside and out of cities, especially in areas where they had long been denied it.

The HUD Act’s mandate to produce 6 million units of low-income housing seemed to deliver on this promise, and for this reason was welcomed by many Black buyers and renters. But the legislation also revealed fault lines within the industry. Homebuilders were ecstatic about the new legislation because it put federal muscle behind building new homes, but real-estate brokers demanded a greater percentage of homes be “existing” or used and that more money be allocated toward rehabilitating dilapidated homes in urban neighborhoods. “New” housing was largely located in suburbs and “existing” housing primarily in cities, meaning that a color line would divide the types of housing available. As a result, builders became advocates of fair housing, while real-estate trade groups, hoping to preserve the existing housing in segregated cities, denounced it as “forced integration.” They couched their critique in terms of defending consumer “choice,” including the right to choose one’s own neighbors.

Posted in Uncategorized | Comments Off