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.

A Summary on Urban Growth and Housing Affordability: The Conflict

By: B. Stebbins

The premise of the article is that when cities are in decline, they experience decreasing density and an excess supply of housing which keeps housing prices low. However, when cities grow their density increases resulting in higher housing prices and rents because urban land is in limited supply (Voith & Wachter, p. 113).

The article points out several different factors that can enable some cities to stabilize, grow, and emerge from a cycle of decline by reinventing themselves as knowledge centers. Voith & Wachter attributed the shift away from manufacturing as a considerable drive in city decline. The gap in cost competitiveness between city and suburban locations was also a contributing factor. However, today there is little manufacturing left to lose with the development of the white-collar economy as any remaining manufacturing is specialized and dependent on the knowledge- and market-related agglomerations provided by cities (Voith & Wachter, p. 119).

The article examined about thirty different “comeback” cities for rental versus housing affordability by analyzing trends in the capitalization rates, which is the ratio of rents to housing prices. These differences in “capitalization rates across cities can be thought of as a result of different forecasts of supply and demand in the housing market, as well as different forecasts of risks in investing in these markets.” They noted that “cities with high capitalization rates reflect higher risks, lower forecasted population growth, and low future rental growth” (Voith & wachter, p. 120).

Another important factor that they noted was the elasticity of supply or a city’s ability to grow. Geographical constraints like peninsulas or islands have low elasticity because demand can increase but supply is simply unable to do the same resulting in price increases. Additionally, they noted that very little affordable housing is constructed in the United States that isn’t subsidized directly through government programs, supported by nonprofit initiatives, or required through regulation like inclusionary zoning laws. Therefore, any new market rate housing that is affordable is often produced where the land costs are cheap and distant from economic opportunity, which often leads to higher transportation costs.

Voith & Wachter argue that this is problematic because if left to the market alone, these growing cities are unlikely to provide any significant amount of new affordable housing units because the cost of such projects do not justify their moderate pricing. Consequently, this is why you often see housing passed down or filtered from higher-income groups to lower-income groups in the United States as the housing ages, depreciates, and becomes increasingly obsolescent (Voith & Wachter, p. 124). They suggest that because rental increases are not as volatile as housing prices, slowing decline in the older neighborhoods should provide some housing affordability relief as fewer units will be allowed to deteriorate to the point of abandonment which will manage to stave off disinvestment in the near term.

Citation: Voith, R., & Wachter, S. (2009). Urban Growth and Housing Affordability: The Conflict. The Annals of the American Academy of Political and Social Science, 626, 112-131. Retrieved from http://www.jstor.org/stable/40375927

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