DePaul’s Institute for Housing Studies has a really interesting post about the differing paths of Chicago neighborhoods through the recession. Readers will be shocked to hear that in some places, mostly on the North Side, housing values have rebounded quite strongly, while in others, especially south and west of downtown, they haven’t – and as a result have seen barely any appreciation for 15 years.
So what? The report imagines two families in 2000:
The first family buys their house for $320,000, the median value properties in West Town at the time… The second family buys a home for $85,000, the median value of properties in 2000 in Auburn Gresham.
Assuming both families did not take on added mortgage debt, the house in Auburn Gresham today is worth $86,500, only $1,500 more than in 2000, before the rise, bust, and rise of the market, for a rate of return of zero. Any equity in the home was built solely by paying down the mortgage principal.
Meanwhile, the house in West Town has more than doubled in value (a 119 percent increase) and appreciated to nearly $700,000. On top of any principal paid down on the mortgage, the owners have built an additional $380,000 in home equity.
In other words, the Wicker Park family is now several hundred thousand dollars wealthier than they were in 2000; the Auburn-Gresham family is not. And, of course, though both of these families are imaginary, we know that the Wicker Park family is probably white, and the Auburn-Gresham family is almost certainly black.
This is more than a theoretical concern. Though we often talk about racial differences in affluence in terms of income, wealth might actually be a much bigger deal. Wealth is why some people have college funds, and others don’t; why some people can retire comfortably, and others can’t. It’s why an employment or medical crisis is a major problem for some people, and a total catastrophe for others. Wealth is what keeps people in the middle class through rough patches. In sum, wealth can be more determinative of your life chances, and those of your family, than income in any given year.
Since real estate makes up a massive proportion of household wealth – more than half for blacks, and about 40% for whites – it contributes massively to the racial wealth gap. As of 2013, the median white family held $134,000 in net assets, compared to $11,000 for the median black family. And as the Washington Post covered earlier this year, looking at what you might call the Auburn-Gresham problem in the DC suburbs, the failure of homes in black neighborhoods to hold their value and appreciate is a major force for destabilization of entire neighborhoods, not just an economic scourge for individual black households.
What makes this comparison interesting, though, is that from the perspective of the most visible housing policy debates, it’s Wicker Park that has a housing crisis. When housing prices rise quickly, people whose incomes don’t rise accordingly get squeezed. That is, in fact, a big problem, and Wicker Park has become more segregated along class and racial lines as a result.
But if the racial wealth gap is a crisis, then the failure of housing values to rise in places like Auburn-Gresham is a crisis, too. This is especially true when it happens systematically to entire swaths of the city and entire subsections of the population. After all, it’s not a coincidence that black neighborhoods keep seeing the worst home price appreciation: black neighborhoods are systematically undervalued, because virtually no one who isn’t black is willing to live there, which leads to a collapse in demand. Other forms of systematic discrimination, including in the provision of amenities, also creates a kind of push factor, even for black households. (Recall that this is how we get the “racial arbitrage” theory of gentrification.)
It’s tempting here to ask for some sort of goldilocks solution: a moderate but steady increase in housing prices, so that people can build wealth without gentrification-related displacement. The problem, of course, is that displacement happens on a sliding scale. It’s not as if everyone will be priced out if rents increase 10%, but no one if they only increase 5%: every little bit that a neighborhood’s housing gets more expensive (that is, every little bit that homeowners build their wealth) tips someone from being able to afford to stay in their home to not. So it really is quite directly a tradeoff between how many people you want to price out of the neighborhood, and how much you want to allow other (especially black) people to build wealth from their homes the way white people are able to. At least, that will be the case as long as waiting lists for housing vouchers or public/subsidized housing units are years-long, rather than covering everyone who needs them.
* Of course I’m assuming here that owner-occupied home prices and rental prices track each other pretty closely. Obviously there are times where that isn’t the case, but over the long run, it tends to be.