Laissez Fairness: Making the Housing Market Free and Fair

“A February 1999 report by the U.S. Conference of Mayors found that 49 percent of all households in the nation’s cities owned their homes, compared to 71.5 percent in the suburbs. The U.S. mayors said that mortgage lending discrimination forces many urban home seekers to move to the suburbs to pursue the dream of home ownership. […] One of the most pernicious results of sprawl has been the impact on African-Americans, Latinos, and on the nation’s race relations. Urban disinvestment, white flight, and the concentration of poverty and minorities within city borders may seem like ‘natural’ facts of economic life — tragic but unavoidable. But in fact, the ‘residential apartheid’ that prevails in so many metropolitan regions derives from deliberate policy choices.” – David Bollier

Let’s stop fooling ourselves: the fight for affordable housing in the United States boils down to helping two key groups: the working poor of all shape and color, and urban Blacks and Hispanics. Putting poor urban Black and Latino communities together means socially isolating them from the rest of the city. It’s a phenomenon we’ve all seen and any demographer can show. And it’s a form of racism everyone pretends not to engage in.

But think about how long it takes to make a giant step against racism in general? 100 years after our nation was created? 100 more years until the end of segregation? Ultimately, we’re all guilty of a form of this too, even the poor communities themselves have given up on the possibility of urban economic and racial integration. It’s easy for White people to dismiss a neighborhood as “Black” and just assume that White developers are either unwelcome or wouldn’t be as accepted because they don’t seem to have any interest in “giving back.” The Mexican community in Los Angeles is guilty of this too: when someone rises up, they need to give back. It’s practically money spent based on guilt and not on legitimate investments with vast returns (regardless of the actual market value of these spaces). Not giving back, is seen as selling out.

But consider the hard numbers: there were fewer actual slaves in all of 1860 America than Black people living in cities with poverty rates at 40 percent (or higher) in 1990. That kind of census statistic seems almost impossible to believe unless you’ve seen several generations grow up in one of these poor neighborhoods. Henry Richmond, the founder of 1000 Friends of Oregon, said it best: the fact that poor black neighborhoods still exist at all means that since the year 1970, we have begun another 100-year fight against discrimination. But this fight’s harder to see for many people, since it’s not as explicit as a Jim Crow-style law. Instead, it involves a series of zoning, planning, and housing regulations that have made the suburbs more attractive to developers than the city, and thus dropped the price of slum housing in cities to cheap levels. This meant that if you moved to the city because it was affordable, your investment never paid off. Your families were working poor minorities 50 years ago and they’re working poor minorities today.

Thanks in large part to early 20th century White Flight, these areas were predominantly incoming poor Black, Hispanic and Asian communities. Now, these migrated working poor are grandparents whose kids and grandkids never got a proper community investment. Simply, because these people have always been working poor minorities in slummy neighborhoods, their communities never seemed worth the private investment (unless the government heavy-handedly stepped in to do something).

Over time, a lack of private investment meant forcing these neighborhoods to withstand harder hits. Their school systems began failing, the number of jobs never really grew, and their streets became more violent.

Naturally, instead of addressing the fundamental reasons why these problems arose, our society put band-aids on them by running van pools to get the working poor in and out of areas with jobs, providing buses on corners to take kids away from their communities to schools, or beefing up the prison system to deal with urban dissidents/criminals. And rather than address the urban poor themselves, our answer to renovating their dilapidated communities became gentrification. As far as society was concerned, if urban poor minorities can’t manage the quality of their own land, the free market demands that they shouldn’t be there anymore.

But there is another way. And it might blow your mind to know that it’s a free market solution.

In the late 1970s, the Maryland county of Montgomery decided to change up their building rules; namely, that any new housing complex could get a density bonus if the builder made 15 percent of the units affordable. In other words, when builders pay for 100 units, they get 15 percent more (for a whopping 115 total) if they made those 15 affordable. Then the county coupled that bonus with other incentives to build along main streets, near shops, jobs and other useful stuff, and even the greediest capitalist sleazeball developers couldn’t say no. Intentions aside, the investment seemed worth it: there’s always a market for affordable spaces, but extra cheap units for sale with no added burden from the county government? It was a win-win.

But from a less-logical point of view, the 750,000 relatively wealthy white residents of 1970 Montgomery County were tentative. Cheap units in dense neighborhoods would likely bring in the kind of riff-raff their ancestors came to Montgomery County to avoid. Or enslave. Why would wealthy white people go out of their way to invite development that will bring poorer minorities into their neighborhoods? Why would they offer any kind of subsidized housing project, even if the main units (the other 100 in each development) were luxurious? Suddenly, free market opportunities began to rub up against racial tension.

But we all know who wins that battle in the end, and by 1998 the number of low-income to moderately-affordable units passed the 10,000 mark. Now, a score and a decade later, the Black and Hispanic populations in Montgomery County have gone up dramatically, and (aside from the typical ravages of the economic downturn) the price of units went up as well. It was like a free market miracle: an emotionless, bottom-line-driven housing market found a way to sell units to poorer people in wealthier neighborhoods without affecting the rest of the community’s housing price. In fact, by deliberately targeting minorities in the 1980s, there’s now a sense that Montgomery is one of the most diverse, modern communities in Maryland. It was like Horace Greeley and Milton Freidman built a county together, and somehow everything came up roses.

And prices were all over the board. During the 1980s the average affordable unit sold for $69,900 while and the county average was $208,000 (which is insane for the 1980s). And the best part, I think, is that two-thirds of them were sold and the rest were rented to people whose average household incomes were $26,400. The rest of Montgomery? $62,000. Just check out housing listings today on Redfin; the prices range widely and yet retain pretty good prices in comparison to all of Maryland, which is more segregated per county by income. That’s right: today, not only does it have stronger ties to public transportation, better access to jobs, a more stable housing market, better schools and better services, but it even has racial integration and upward mobility.

Okay, it’s not entirely free market… it’s more business-optimizing. This plan worked because it basically structured government’s goals to a business-friendly strategy: since developers can easily understand the concept of “you scratch my back and I’ll scratch yours,” Montgomery county planning officials combined their requirements with a set of bonuses developers just couldn’t deny. And here’s the thing about market-driven economies on the right development track: they find ways to make stuff work, and if you’re a smart economist/urban planner you can already predict some of the positive outcomes. For example, since developers needed to add units (and knew it would make their developments more dense), they had to strategically hunt through Montgomery County for the most effective locations. Since the middle of the woods isn’t exactly an attractive community, developers chose to build up areas that were already dense with businesses and restaurants. Many even had transit stops, which freed up more possible land for development. And even if poorer people were in smaller units and scattered through the entire upper-middle class landscape, they still benefited from access to services while keeping from being a financial burden on the community. Even with their introduction throughout the 1980s, the dropout rates in Montgomery County schools remained a consistent 2 percent. That’s some serious service integration.

And it turned out that opening the gates to that tiny amount of low-income people had the surprise benefit of saving Montgomery county’s farmland also. Just consider the reverse outcome: that the county, instead, required developers to build separate low-income developments in a corner of Montgomery county. This level of poverty, concentrated into one area of Montgomery county, would be a real estate sinkhole and turn the middle class county into a class-based apartheid that divided people by income and race. In turn, Montgomery-ites, regardless of racial purity or economic reasons, would move further and further away from that sinkhole and deeper into pristine countryside to avoid a drop in their home values. Likewise, private investors would move away from this dense, poor area to make money, adding a new tax burden on residents who need new sewage piping, roads, schools, police and fire services, and all kinds of other things; all the while, slowly eliminating acres of charming landscape.

To me, the fact that this project was implemented in the late 1970s and still hasn’t caught on nationwide is mind-numbing. Montgomery County’s only 496 square miles; nothing compared to a 4,060 square mile county like Los Angeles. Imagine if this strategy had been implemented 40 years ago in L.A. Or across the nation, in all urban and suburban areas. How much could it have affected us and the way we live our lives? Could it have stabilized our economy during this downturn? How easy could it have been to buy a home today? How many amazing neighborhoods could there have been?

And how much further along would we have been into our third 100-year fight against discrimination? We’re almost 40 years into it now, so we need to step up our game and take the free market along for the ride. It’s the only way to compel society to truly level the playing field.