A Summary of Housing and Wealth Inequality: Racial-Ethnic Differences in Home Equity in the United States By: B. Stebbins

Home equity is the largest component of wealth for most households. Therefore, persons who “have previously owned a house are able to use the money earned from its sale to invest in and increase the equity of subsequent housing” (Krivo, Kaufman). However, minorities who already face substantial obstacles in buying homes because of residential segregation and other forms of discrimination in housing and mortgage markets are less capable of accumulating equity to bankroll previous purchases into the next one.

For example, minorities face discrimination from brokers, racial-ethnic steering, redlining, and other forms of mortgage-lending discrimination. This in turn limits access to communities with greater status and amenities, such as good quality schools, parks, and shopping which have important ramifications for long-term health and well-being. Since social and historical contexts disadvantage minorities prior to their entrance into the housing market, the inequalities reproduced as a result of their active participation in the housing market only compound existing disparities further in their accumulation of housing wealth.

The microeconomic factors identified above were found to be central determinants of the acquisition and value of housing. The impact being that the social, locational, and financial characteristics of mortgage and housing markets systematically disadvantage minorities in comparison to whites. The social and historical contexts of racial and ethnic groups also strongly influence their ability to obtain more financially and socially advantageous housing. Minority groups were found to be dealt with less favorably throughout each stage of the housing process in comparison to whites, which reduces their overall accumulation of wealth and makes it more difficult to purchase homes, obtain favorable mortgage terms, and break into areas with high home values and levels of appreciation.

Additionally, it was noted that minority groups are more susceptible to FHA, VA, or FMHA loans which have low down payments but high interest rates contributing to their slower accumulation of equity. While low down payments are beneficial and encourage minorities to enter the market, these loans put minority households at risk as they may not be able to afford the house payments over the long run. Lastly, Krivo and Kaufman noted that it is important to recognize that historical and contemporary processes of discrimination in schools, labor markets, and other social institutions help explain the socioeconomic differences among groups and the reproduction of intergenerational inequality.

Citation: Krivo, L., & Kaufman, R. (2004). Housing and Wealth Inequality: Racial-Ethnic Differences in Home Equity in the United States. Demography, 41(3), 585-605. Retrieved from http://www.jstor.org/stable/1515194

The Need for Local Flexibility in U.S. Housing Policy: A Summary. By. B. Stebbins

The point of the article is that national housing programs ignore the diversity of urban housing markets across the U.S. While some communities do well, others suffer from unforeseen and undesirable side effects on a substantial scale as a result. The demand for housing in a metropolitan area is driven by the following trends: price of housing, income growth and distribution, population growth, and household formation. These trends vary dramatically within cities as well as over time which can cause sharp shifts in demand. Since newly built units provide a price ceiling for the rest of the housing market, the poor pay a higher price per unit of housing than others do.

This is problematic because the supply of housing services from existing units is less price-responsive and particular groups can be constrained by resistance to neighborhood change. Additionally, most household consume more than the minimum amount generally accepted as necessary because they can afford it which further impacts lower income households as they will respond little to price changes and devote an increasing portion of their incomes to housing. Since housing demand is responsive to housing pricing, demand will generally shift more quickly than supply; thus, the market will be in a continuous state of disequilibrium. While the four types of government policies (general filtering strategy, local housing code enforcement and urban renewal, housing allowances, and Section 8) seek to address these concerns, they do so inadequately.

Struyk argues that broadening the Section 8 program to include low-income homeowners would help eliminate inequities between communities in which low-income households are predominantly renters. Furthermore, creating a dozen or so market types for HUD to provide general guidance to communities as to the likely consequences of alternative housing strategies that included projections of income and population trends would help each city formulate its own housing and community development plans. In conclusion, Struyk sees this as an opportunity to give more flexibility at the local level to address each community's needs through the combination of supply-augmenting subsidies and demand-increasing subsidies.

Citation: Struyk, Raymond J. “The Need for Local Flexibility in U.S. Housing Policy.” Policy Analysis, vol. 3, no. 4, 1977, pp. 471–483., www.jstor.org/stable/42783231.

Affordable Housing: The Case for Demand-Side Subsidies in Superstar Cities Summary by Radhika Raj

In this article, Adam Zeidel examines locally funded affordable housing programs in what he calls, “superstar cities”. A superstar city “is defined by Gyourko et al.; a superstar city is one ‘[in which] demand exceeds supply and supply growth is limited” (Zeidel, 135). Other characteristics of superstar cities include people wanting to pay a large premium to live there, and a disproportionate distribution of wealth. 

Zeidel studies New York City. This is done because of the large amount of money ($6.4 billion, Zeidel, 136) taken from local resources for affordable housing. Zeidel believes that the academics, policy-makers, and developers have an unclear goal for affording housing policy. It is implied that this is the reason programs do not line up with their policies.

The most common demographic that benefited from affordable housing policies in New York was seniors. “The existence of senior housing programs indicates that a charitable motive underlies some affordable housing programs” (Zeidel, 138). In this paper, the types of programs that are examined are “government-run public housing, regulation, price controls, subsidies, and tax incentives” (Zeidel, 140). Subsidy programs in New York mainly involve the city giving loans to private developers in order to make affordable housing. “…the Housing Development Corporation (“HDC”) reports that it has committed “$578 million dollars of its corporate reserves to finance the preservation and creation of 25,000 apartments for low, moderate, and middle-income New Yorkers” (Zeidel, 140). Supply side subsidies give incentives such as tax benefits, bonuses, and financing assistance for the preservation of affordable housing. Zeidel also examines demand side subsidies in New York City. It was found that very little of their resources were used compared to the supply side subsidies.

Even though supply side subsidies were more likely to be favored and funded by the city, Zeidel found that demand side subsidies were more efficient, effective, flexible, and transparent. It was found that “virtually every empirical study performed over the past twenty-five years has found that demand-oriented subsidies are more efficient than supply side subsidies” (Zeidel, 143). It was also found that the demand side subsidies could help more citizens equally rather than helping few substantially. They also scored high in equity. This means that there was a more equal treatment in similar scenarios. Demand side subsidies also were more beneficial because there was a clear cost and benefit. These characteristics were found to be more beneficial overall to the population.

Zeidel, Adam. “Affordable Housing: The Case for Demand-Side Subsidies in Superstar Cities.” The Urban Lawyer, vol. 42, no. 1, 2010, pp. 135–169., www.jstor.org/stable/27895769.

Eroding the Wealth of Women: Gender and the Subprime Foreclosure Crisis By Amy Castro Baker Summary by Radhika Raj

In this article, Baker talks about how mortgage markets have evolved to create a policy gap which creates new forms of gender inequality in the housing and lending markets. This article seeks to analyze how single women are affected by gender inequality in the lending market where their loans are characterized by high levels of default and foreclosure.

The article begins by defining certain key characteristics between traditional prime mortgages and subprime mortgages. Baker explains that “home owners with a subprime mortgage are six to nine times more likely than those with a traditional prime mortgage to be in foreclosure (Renuart 2004; Schloemer et al. 2006)” (59-60). Subprime mortgages are high cost and high risk because they depend on the state of the market. Baker claims that subprime mortgages “tend to be more prevalent in neighborhoods of color where women are predominately the heads of households” (60). This implies that mostly women, specifically women of color, are the ones affected by the risks associated with subprime mortgages.

Subprime mortgages were not always as prevalent in the market. Baker explains how subprime mortgages only represented a fraction of mortgages until the 1990’s. During this time, there was a shift in focus where a policy window could open and lenders began to create opportunity for the groups that were historically excluded from the mortgage process such as women, people of color, and the elderly.

In Baker’s article, she claims that single women, particularly those of color, are the ones most affected by mortgage strain in the market. Baker states that, “Single women experience higher rates of subprime lending than their male peers, even when controlling for risk factors such as credit, income, and neighborhood location” (61-62). The article talks about how the gender gap within mortgages creates a risky lending market for women, and how despite the problems of mortgage strain, there has not been much research into the sexism involved in the housing market. Baker also goes on to discuss how these risky mortgages sometimes end in homelessness. Even in this situation, it was found that women had a more difficult time with homelessness compared to men.

Overall, Baker’s article seeks to explain the reason why women experience gender inequality in housing markets. These inequalities are characterized by the number of subprime mortgages loaned to women, and the amount of mortgage strain that these women have to endure.

No Renters in My Suburban Backyard: Land Use Regulation and Rental Housing A Summary by Radhika Raj

In this article Schuetz talks about how low and moderate income families are unable to move to more desirable suburban areas because of high cost housing and rental prices. A key point to this article is how certain forms of local zoning and land use regulations are increasing housing prices because of a reduced supply of housing in desirable areas. She uses literature from Anthony Downs to examine how land use, zoning, and rent prices affect equal housing opportunity.

Schuetz introduces this topic by bringing up a point made in Anthony Downs’ book Opening Up the Suburbs. Downs makes a point that the achievement of society cannot go forward without equal opportunity for all social classes. He claims that the exclusion of lower social classes from living in more desirable suburban areas “will eventually undermine achievement of one of our fundamental goals: true equality of opportunity” (Downs, 1973, p. vii). Starting with this idea, Schuetz makes the point that excluding low-income families could lead to a gap in opportunity for less affluent families. For example, she talks about how by being excluded from a neighborhood can lead to poor families living in areas where they have less employment opportunities, less access to good quality schools, and even less access to public services as well as physical environment. While it may be argued that these families may not have access to these resources because of poor employment potential, lack of skills, or financial irresponsibility, Schuetz makes the argument that zoning codes have a large impact on who can afford to live in improved suburban areas.

The article examines these claims by looking at the prices of rent and how they are affected by zoning policies. The results of the analysis state that housing regulations hinder production of multifamily housing. This causes a small decrease in rents, but there was no significant association between the increase of multifamily housing and rent prices. Another zoning regulation that is discussed is the increase of greenbelts correlating with increased housing prices. Growth control policies such as greenbelts increase rent prices because they decrease the amount of land available to zone for housing. Traditional zoning policies such as minimum lot size also have an impact on rent prices. These zoning policies are known to raise rent prices by creating a demand of high income housing, with high income resources. Schuetz examines how the small amount of land is zoned for multifamily housing to restrict rental housing. Municipalities can also restrict rentals by creating barriers to development such as special permits.

Overall, these restrictions suggest that regulations impede the development of new rental housing, which causes housing prices to increase. The effects of zoning are less clear based on the research but it is suggested that the requirement of special permits hinders the ability for multifamily homes to have access to better suburban areas.

The Role of Private Agents in Affordable Housing Policy: A Summary

By: B. Stebbins

In the article, Graddy and Bostic analyze the consequences of our increasing reliance on private agents in the formulation and implementation of affordable housing policy and conclude that these private agents do respond to policy incentives - albeit to varying degrees - mitigating concerns about the loss of public control in this policy area. They state that although the federal government has a set of broad policy goals of providing safe, affordable, and quality housing for all, it has not always been able to implement such policy goals well. The widespread dissatisfaction with public production due to its high cost, often poor design and administration led the federal government to move away from and rely on lower levels of government for implementation. This devolution of affordable housing policy has brought a dispersion of authority across state, regional, and local governments and diffuse accountability. Not only do local governments have little incentive to meet federal or regional goals but to the extent that oversight is left at the local level, accountability and coordination will end up being narrowly focused (Graddy & Bostic).

Compounding these challenges of authority and accountability, Graddy and Bostic state that the primary problem in providing affordable housing is that in the places it is needed most, the rents and sale prices required to make a residence affordable do not support financially feasible projects. Multiple policy instruments like the Low-Income Housing Tax Credit (LIHTC) Program, HOME Investment and Partnership Program, Community Development Block Grant (CDBG) Program, Section 8 housing vouchers, tax-exempt bonds, density bonus permits, and inclusionary zoning practices are used to incentivize private developers to produce affordable housing. However, the response from private developers to these incentives are different based upon the framework in which they operate and lead to varying degrees of power and influence among the various institutions and actors. Adding to this primary problem is what these affordable housing projects will look like and how they align with local community needs (Graddy & Bostic).

According to Graddy and Bostic, in both of their case studies of the Massachusetts and New Jersey frameworks, affordable housing production clearly differs, and degrades, once the jurisdictional threshold, as defined by each state, for acceptable housing performance is achieved. This is obviously problematic because jurisdictional changes do not have to be addressed once the acceptable housing performance is achieved, even though the problem of affordable housing may not have been fully addressed. This is because developers recognize and do not seek out jurisdictions for housing projects that would significantly increase their affordable housing share, leaving little incentives for jurisdictions above the threshold to permit more affordable housing. In sum, the most important consequence of our current affordable housing policy is that private developers take a leading role in deciding when and where affordable housing will be built. Thus, the structure of governance of affordable housing policy is of utmost importance in mitigating these concerns of private agents acting in their own self-interest (Graddy & Bostic).

Citation: Graddy, E., & Bostic, R. (2010). The Role of Private Agents in Affordable Housing Policy. Journal of Public Administration Research and Theory: J-PART, 20, I81-I99. Retrieved from http://www.jstor.org/stable/20627910