The problem is inequality, not speculation

Need homes? Build homes (even the Communist youth thought so in 1946)

In 1946, even the Communist Party USA agreed that the obvious solution to a housing shortage was to build housing. Why is that controversial now?

In a recent fit of contrarian cutesiness (which I partly responded to earlier, here), Chuck Marohn wrote about out-of-control housing prices: “The simple answer is downzoning.”

That’s as dishonest an answer to the question as Tommy Lasorda, in those vintage Ultra Slim Fast commercials, saying that the secret to out-of-control weight is spaghetti-and-meatball dinners — the daily treat, rather than the three calorie-restricted, high-fiber shakes that you choke down the rest of the day.

Marohn balances his call for downzoning with a casual mention of his previous “floating height limit” idea — allowing, across all zones, somewhat bigger buildings than the norm. This would, in essence, upzone the vast majority of metropolitan American land that’s currently zoned solely for low-rise single-family residential, while lowering allowable heights in the much smaller proportion that’s subject to more-lenient commercial zoning. (Of course, in his contrarian telling, a call for raising allowable building heights for 90% of America is titled “the case for height restrictions.”)

He pins the blame for metro Portland’s housing affordability crisis — and, by extension, the broader housing-affordability crisis afflicting bicoastal Blue America — on property speculation, saying that developers are bidding up residential land prices around transit in hopes of winning rezoning to build multifamily TOD. Thus, his call for downzoning, to frighten off those vile speculators. There certainly exist a few situations where transit-oriented speculation distorts markets — I’ve written about these pretty extensively in GGWash, pointing to why “parking craters” surround Metro stations instead of 8-story high-rises.

But these are fringe situations, affecting only a few square miles across the entire country. Even when I lived in the highly desirable, transit-accessible neighborhood of Bucktown, where zoning was infamously corrupt, the upzones that the local alderman brazenly sold did not result in the dumpy single family houses being replaced with parking-light apartments, as Chuck’s hypothesis holds. In fact, the exact opposite occurred: dumpy, parking-light apartments were replaced with swanky single-family houses! In countless other areas which have been downzoned, housing prices have increased regardless of speculation.

Why? Because the price increases in Bucktown, and on Portland’s east side or Los Angeles’ west side, have little to do with transportation (Chuck’s bailiwick) — and much more to do with rising income and wealth inequality, both within and between regions, combined with a largely static land-regulation regime that hasn’t adapted. The gains accruing to the wealthiest means that the wealthy can bid up housing prices, substantially raising housing prices in high-income regions where both demand and barriers to entry are high. As I wrote earlier, this imbalance has held on for decades in some cities, particularly in coastal California, and the political dynamic that sustains it appears to be utterly implacable.

As I also wrote earlier, the economies in different regions have diverged in a way that has fed this dynamic. Economists Stijn Van Nieuwerburgh and Pierre-Olivier Weill found that “house price dispersion” between regions increased much faster than income inequality between regions (which has also been increasing): their statistical measure of the variation in house prices increased by 38 percentage points, vs. 8.6 points for wages, from 1975-2007. As their paper explains,

The increase in productivity dispersion creates flows of workers towards high-productivity metropolitan areas, driving local house prices up because of limited housing supply. Conversely, households flow out of low-productivity areas, driving local house prices down. This increases house price dispersion.

The situation has gotten even worse since the 2007 crisis, with housing prices in wealthy Census tracts increasing almost twice as fast as those in more modest areas.

Just to be sure, the Harvard Joint Center on Housing Studies examined metro-level data about the uneven recovery in house prices more closely and observed:

a strong case for the gap between recent changes in supply and demand exerting a strong upward pressure on house prices… the overriding importance of the imbalance between population growth and housing stock growth in explaining trends in prices…

Sure, pointing the finger at transit, multifamily, and TOD burnishes Chuck’s prickly-independent bona fides, a long tradition in Upper Midwest politics. But he’s searching only within his narrow sphere of expertise (transportation) to find the cause of problems that have much larger global causes — and which don’t lend themselves to his hyper-local bootstraps approach.

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Globalization and the truthiness sweatshops

A few years ago, American authors like Winnie Wong and Peter Hessler stumbled across a curious phenomenon: Chinese towns that applied the mindless logic of mass production, backed by China’s unparalleled ability to conjure up entire industrial-scale supply chains from thin air, to an improbable export — schlocky oil paintings, often stroke-for-stroke knock-offs of museum treasures. These towns aren’t the colorful and carefree artists’ colonies of our imaginations (such places have largely been gentrified or touristed into oblivion); instead, they’re still dreary factory towns, complete with migrant peasants being worked to the hilt. Wong profiled the village of Dafen, one of the chengzhongcun (urban villages) embedded within the sprawl of metro Shenzhen. There are certainly fascinating original artists working within China, and zero-talent hacks passing off “art” in the West, but frankly I’m not sure what to make of mass-produced creativity.

It’s a through-the-looking-glass version of the idea that cities can structure their growth around cool “creative class” agglomeration economies that turn out stylish, disruptive innovations. Of course, that assumes that customers want tasteful products — a point Barnum disproved.

Now comes word that painting isn’t the only labor-intensive “creative” industry that’s ripe for export, provided the aesthetic qualities get dumbed down along the way. It turns out that the clickbait that passes for social-media “news” has also been dumbed down to the point where it can also thrive inside a sweatshop, rather than a fancy newsroom. For instance, Macedonian child-labor sweatshops churn out truthy clickbait, according to a report from Craig Silverman and Lawrence Alexander in Buzzfeed. A few countries to the east in Russia, a cottage industry of basement-dwelling trolls (backed by an army of bot brethren) intentionally lobs multilingual insults around the globe to sow discord and upset democratic consensus.

Globalization didn’t just flood the world’s markets with cheap (and poorly made) toys, clothes, and electronics. Now it’s flooding the world’s markets with cheap (and poorly made) content, as well.

Idle speculation: Where could Uniqlo fit downtown?

Since the earlier edition of Idle Speculation was so popular, here’s another.

The area’s first Uniqlo will open today at Tysons Corner Center. Even though it’s throttled back its expansion plans in the USA, the Japanese apparel retailer says “it will continue to shutter unprofitable stores located in suburban malls and focus on opening more flagship stores in urban centres.” So now that they’re in this market, where could an urban flagship land?

Uniqlo Army

SF Union Square, by Todd Lappin via Flickr

First, how large would the store be? The flagship on Chestnut Street in Center City Philadelphia has 29,000 square feet, mostly on the lower level. By comparison, the Denver Pavilions store (also opening this week) is only 17,000 square feet on two levels. Finding a space that large within downtown DC is tough, especially given that many of the office buildings there were built with office tenants, not retailers, in mind.

However, two storefront museums have or soon will vacate their spaces in tourist-rich area around Gallery Place. How do these stack up?

The more prominent location is the Spy Museum site at 800 F St NW, owned by Douglas Properties. 27,231 square feet will be available, directly opposite the Portrait Gallery and with a prime F Street address (down the street from J. Crew, Anthropologie, Zara, Ann Taylor, H&M, Banana Republic, and others), once the new spy museum opens in late 2018. However, the Spy Museum space has several strikes against it. Not only is it not possible to open a store until 2019, given construction timelines, but the interior was assembled from several rowhouses and thus has many partitions and level changes. While these are easily hid with a museum buildout, they’d result in a costly and complex renovation for a larger-format retailer who wants to keep sight lines more open. The leasing flyer seems to indicate that Douglas agrees, and would rather lease the space as four spaces ranging from 1,871 to 11,401 square feet.

Slightly less prominent, but perhaps more likely, is Terrell Place, the former Hecht’s department store at 7th and F (with Rosa Mexicano at the corner). The space vacated by the Crime Museum is now available, with up to 8,762 square feet available at street level on 7th St. What’s more important is that there’s at least 11,482 square feet available in the basement — potentially expandable to 52,751 square feet by shifting other stuff around the basement.

Which raises another possibility: there might be other office buildings in the area where vacant or underutilized basements or second floors could be added to small ground-floor spaces to yield 20,000 square feet. It used to be that landlords made all the money on offices, and only retailers selling steaks, sandwiches, sundries, or savings accounts were brought in to serve the worker bees. Now, downtown finally has the foot traffic to support real retail, and the supply is beginning to catch up.

How housing supply/demand imbalance remained for an entire generation

Chuck Marohn puzzled a bit over housing costs over at Strong Towns last week, writing that “You can’t sustain increasing demand while also sustaining increasing prices and increasing supply.”

Wiltberger St NW

Would you pay $700/sq. ft. for this 2-bedroom alley house? Somebody did, paying 170% above its 2006 tax value. Sure, valuation growth like that isn’t sustainable, but what about our cities is?

You can if (1) demand grows just a bit faster than supply, or if (2) incomes are growing, or if (3) slightly more income can go towards housing — and certainly so if all three occur. Indeed, all three of these dynamics have sustained housing price inflation in gateway cities over the past generation.

This inflation has been politically possible because many existing residents (and thus voters) are sheltered from the resulting affordability crisis. Only a minority of people are exposed to housing affordability; most current residents are sheltered from price increases, having purchased or rented their housing at yesterday’s market prices. It’s pretty much only in-migrants who have to pay today’s housing prices, and since they’re migrants, they don’t vote. In-migrants are also a surprisingly small share of Americans: in any given year, fewer than 3% of Americans move across state or national borders.

1. Between job growth, smaller households, and natural growth, housing demand is increasing faster than population (and construction) in many metro areas. This has been the case in California for decades; the LAO’s 2015 paper estimates that since 1980 (my entire lifetime!), California has built 100,000 fewer units every year than it should, and yet (a) demand to live in California continues, although definitely abated; (b) prices have skyrocketed; (c) construction has added some new supply.

2. Median incomes nationally have been flat for the past generation, but incomes in the richest gateway cities have been soaring — especially at the top of the distribution, due to rising inequality. The minority of households that are exposed to high prices may very well be able to afford those prices in these cities, explain Gyourko, Mayer, and Sinai in their paper on ‘superstar cities’: “Recent movers into superstar cities are more likely to have high incomes and less likely to be poor, than recent movers into other cities… In short, residence in superstar cities and towns has become a luxury good. The cities’ increases in housing price appear to outstrip known productivity increases and the value of any additional amenities.”

Since only a small proportion of housing units trade hands each year, cities with rising incomes at the top and relatively few houses available (e.g., the “superstar cities”) see “new money” outbidding others for those few units, pulling prices up. Because house prices are based on comps, prices for other houses also rise. As Matlack and Vigdor write, “In tight housing markets, the poor do worse when the rich get richer.”

I know this seems insane, but income inequality has gotten so far out of hand that in many cities super-luxury housing is under-supplied, with tremendous consequences all the way down the housing ladder. There are over a thousand Bay Area households with million-dollar bank accounts for every single house that came on the market last year in Atherton, the choicest of Bay Area towns. Hence, house prices in Atherton have doubled in four years.*

3. Metro economies have evolved in lots of small ways to cope with higher housing prices at the margin. At first glance, “the poor will always be with us,” but in reality metro areas differ very substantially in terms of their economic makeup. Having moved from low-cost Chicago to high-cost DC, I’ve noticed that this slowly-accumulating, giant gift to high-cost-regions’ landlords has been cobbled together by squeezing a few dollars here and there from other sectors:
– Higher labor costs: the minimum wage here is about 15% higher, and high-labor-input services (like haircuts) cost substantially more here, because the staff earn more.
– A shift towards higher-wage work and reduced labor inputs (see #2 above). There are, of course, lots of well-paid jobs in DC; nearly half of households here earn over $100K. Many dual-income “power couples” who have no problem with the local cost of living. But there are surprisingly few on-site support staff for them, and instead there’s often off-site help. Even in labor-intensive industries like restaurants, on-site prep work can be minimized by relying on commissaries and distributors based in cheaper cities. (You can forget about Jacobsean “import substitution.”) Anecdotally, I’ve heard that employers are willing to make do with thinner staffing here than elsewhere.
– People work more; DC’s female labor force participation rate is 15% higher than Chicago’s.
– Housing itself can’t be substituted (everyone needs somewhere to live), but houses can be. People downgrade their locations or living standards, living in smaller or lower-quality housing units in less desirable neighborhoods than they otherwise would. They also “pay” for housing with long commutes, often from what are technically other metro areas.
– People borrow more. DC has more mortgages and higher student-loan bills than any other metro.
– People spend more on housing, and less on other goods and services. Brookings’ Natalie Holmes notes that the 20th-percentile unit in DC costs 48% of a 20th-percentile income, vs. 38% for a 20th-percentile individual in Denver.

That these coping mechanisms exist by no means implies that high prices are benign. From a local economic development standpoint, high housing prices don’t just deter potential employers, but also vacuum up dollars that could be more useful elsewhere in the local economy. Rent checks, unlike haircuts or restaurant meals, don’t have big job multipliers. As a Global Cities Business Alliance report puts it:

Citizens are spending money on accommodation that they would readily divert to goods and services if their housing costs were lower… the money ‘trapped’ in the housing market runs to billions… Unleashing this spending would in turn boost business revenues and create more jobs. Assuming that businesses were to channel all additional revenue into employment, we estimate that Beijing could generate more than 400,000 new jobs, Mexico City more than 200,000, São Paulo more than 143,000, and Hong Kong nearly 148,000.

* Chuck’s follow-up post posits that property owners are speculating on upzoning. This line of reasoning is beloved by so-called “SF progressives,” who relish pinning the blame for everything upon evil, greedy developers and the obnoxious “kids these days” who inevitably fill their apartments. Yet this densification/speculation theory cannot explain the skyrocketing housing prices that are at the very epicenter of America’s metro affordable housing crisis — in places that have zero multifamily growth and zero transit investment, but LOTS of high-wage jobs, like Atherton, Menlo Park, and Palo Alto in Silicon Valley, or Chevy Chase in Maryland, or the Hamptons. Atherton is the most extreme example: the town banned all multifamily housing and sued to stop transit, and yet house prices have doubled in four years.

Perhaps, instead of transit-oriented speculation, exclusionary, single-family-only snob zoning has left supply and demand imbalanced. Believe it or not, the demand for $3M houses in Atherton vastly exceeds the supply of $3M houses, so the $3M houses have been bid up to become $6M houses. I know this seems insane, but there are over a thousand Bay Area households with million-dollar bank accounts for every single Atherton house that came on the market last year.

There are also many fashionable urban neighborhoods where housing prices have spiraled even while housing unit density is declining: the demand for mansions is so high that humble apartment buildings get demolished for glamorous single-family houses. (Once again, life imitates the Onion.) This was even the case in my onetime home of Bucktown in Chicago, where the ward boss infamously handed out spot rezonings upon “request”; in theory, these could have been used to add units, but in practice the McMansions just got fatter.

Long-timers vs. newcomers: Census-reported rents are meaningless in some places

Earlier, I wrote about how the CNT/HUD Housing + Transportation Affordability index (HTA), while a very worthy addition to discussions around whether households can affordably live in suburban vs. urban areas, has a denominator problem at metropolitan boundaries, or even within metros which have severe income inequality. Yet LocationAffordability also has a numerator problem: For housing costs, it relies upon another Census data point which has One Weird Quirk.

Daniel Kay Hertz wrote an excellent “Definitive Field Guide to Median Rent Statistics” for City Observatory recently, noting that ACS-reported rents “Can’t answer: What is the median rental price facing people on the rental market today?”

 

DeKalb Market, Long Island University

The tract on the left (in downtown Brooklyn) is public housing, with a reported median monthly rent of $768; the tract on the right $2,467. But for someone just moving to town, the only vacancies are in that fancy new building. 

 

The rents that people report paying to the Census ACS are probably true, but in a few cities they have very little relationship to what vacant apartments are renting for. In particular, as Michael Lewyn flagged (and as we wrote up in Streetsblog a while ago) cities with rent control can look amazingly cheap:

[B]y looking at average rents, which in some cities include many rent-stabilized units, the calculation doesn’t necessarily capture what someone searching for shelter is likely to pay. If you’re trying to find an apartment in New York now, getting a place for the average rent would probably be extremely difficult.

Unlike the denominator problem, which shows up at a macro level, this discrepancy only really shows up at the micro level. I just noticed it in the recent “WalkUP equity ranking” from GW’s CREUA, which (based on HTA) found suspiciously low rents reported in some very upscale neighborhoods. I suspect the typical rents found are those paid by a small number of long-term residents in subsidized or rent-controlled units (set years ago), rather than those paid by the residents of the new luxury apartments.

HUD’s new Small Area Fair Market Rents are reported down to the ZIP code level (and have the big problem of not being available everywhere), which is a much larger level of analysis than Census tract, but they’re an attempt at figuring out a systematic answer to this problem.

What Would Jane Jacobs Do about zoning?

Tomorrow would have been Jane Jacobs’ 100th birthday, and so it’s a fine time to reflect upon her magnificent legacy of (empirically correct) ideas. Unbeknownst to many of her fans, she has a significant built legacy. 20 years ago, Toronto asked no less than Jane Jacobs about how to rezone two renewal areas on either side of downtown.

Distillery District

Toronto’s Distillery District, within the King-Parliament area that Jane Jacobs had a hand in rezoning.

The Kings Regeneration Initiative” targeted 400 acres of land along King Street, an east-west arterial with a streetcar. King-Spadina on the west side of downtown and King-Parliament on the east side were both declining CBD-adjacent industrial areas. Then-mayor Barbara Hall invited Jacobs to an advisory group on the regeneration project. “Paul Bedford, Toronto’s chief planner during Mayor Hall’s term, said that Jane kept encouraging him to take risks and to experiment,” writes Barry Wellman. The resulting code was a tremendous departure from how Toronto, and most other North American cities, regulated development:

Jacobs described the process in remarks given at Boston College’ law school:

Yet if the zoning were to be changed to permit dwellings, the developers would be blocked by rules applying to apartments, most especially parking requirements. Land coverage was high and parking couldn’t feasibly go underneath these sturdy but old buildings. Under the guidance of our very intelligent mayor at the time, these and almost all other regulatory controls were removed, except for fire and building safety codes. One rule was added: a ban against destruction of buildings, to prevent aesthetic and environmental waste. You would be amazed at how rapidly those dying districts have come back to life and blossomed. The principle at work here has been the addition of what the previous mixture lacked…

In the case of Toronto’s dying districts of downtown that were revitalized by radically overhauling the regulations, the mayor’s hardest job was goading and re-educating her own planning department, including the youngish man who then headed it.

The results have been breathtaking — and might surprise those for whom Jane is a hero for stopping bulldozers. Not only have the “Two Kings” not lost jobs, as many industrial lands taken out of production have, but the number of jobs has increased by 58%. Even more impressively, 46,000 dwelling units have been permitted in the Two Kings, many of them in very large new high-rises.

Of course, this approach would be much more difficult — if not impossible — to enact in America. It’s not that America over-regulates development per se, it’s that we regulate entirely the wrong things about development. As Jay Wickersham writes in the Boston College Environmental Affairs Law Review, the result is “an extraordinary situation. There is no other area in environmental law where the goals of the regulatory program are not just indifferent, but actively hostile, to the best thinking in the field.” From his introduction:

To paraphrase F. Scott Fitzgerald, Jacobs shows us that Euclidean zoning has been hard where it should be soft and soft where it should be hard. Zoning has been hard, or overly rigid, in dividing our cities and towns into uniform, low-density districts, each dedicated to a single primary use. And zoning has been soft, or overly permissive, in its failure to set design standards for streets, and for how buildings front upon those streets, that would reinforce the fundamental character of streets as public spaces…

Supreme Court rulings restrict municipalities to just two regulatory tools* that can shape development: Euclidean zoning (regulating density and land use) and historic designation (regulating appearance, but only meant for very limited circumstances). Euclidean zoning’s fixation on limiting density and land uses enforces conformity; even when it permits change, it’s only towards a distant, built-out end-state set forth in a comp plan. Jacobs writes:

[T]he greatest flaw in city zoning is that it permits monotony… Perhaps the next greatest flaw is that it ignores scale of use, where this is an important consideration, or confuses it with kind of use, and this leads, on the one hand, to visual (and sometimes functional) disintegration of streets, or on the other hand to indiscriminate attempts to sort out and segregate kinds of uses no matter what their size or empiric effect. Diversity itself is thus unnecessarily suppressed. (D&L, 237-238)…

Instead, Death and Life‘s chapter 13 argues for “zoning for diversity”:

The purpose of zoning for deliberate diversity should not be to freeze conditions and uses as they stand. That would be death. Rather, the point is to insure that changes or replacements, as they do occur, cannot be overwhelmingly of one kind. (D&L, 253, emphasis added)

Jacobs was not against regulation, but as an empiricist she held tremendous regard for the way cities had evolved as complex systems over the centuries — and fought the woefully simplistic (and completely ideological, perhaps even “faith-based”) Modern-era planning regulations and programs then in place. Alas, those regulations remain at the foundation of American planning today. Wickersham again:

According to Jacobs, “[a]ll zoning is suppressive,” an interference with the unfettered movements of the real estate market. But Jacobs is not attacking regulation, per se, or even the notion of government planning… she is attacking the functionalist presumptions shared by many city planners. In this view, a city is a functional, repetitive machine, rather than an ever-evolving organism… Her goal is to strike a middle course: to preserve and enhance diversity by avoiding large-scale, cataclysmic physical and social changes (which can be caused by rapid influxes of private investments, as well as by publicly sponsored urban renewal projects), without permanently freezing a community’s character.

Density-and-use zoning is the metaphorical hammer of urban land use: every potential problem ends up looking like a nail, and gets hammered to smithereens. It doesn’t matter if the problem has nothing to do with density or land use, and it doesn’t matter that density and land use are (as the Kings show) pretty darn incidental to the grand scheme of things. The only tool that we have is the wrong one, but we’re going to use it anyways. Wickersham notes that even the modest attempts to circumvent Euclidean zoning through discretionary approvals, or worse yet to somehow require diversity, are doomed to failure from Jacobs’ perspective:

Because these reforms are project-specific, and not comprehensive, the counter-productive, as-of-right requirements of Euclidean zoning have been sidestepped, not removed. To tempt developers into the project review process, regulatory systems will offer a density or height bonus to offset the increased time and costs that are involved. Such incentives can cause all parties to undervalue small-scale, incremental renovation and infill projects—the incremental reinvestments that Jacobs showed us were so important for the stability of an urban district. Thus, favoring large private investments can cause the same kinds of cataclysmic change that Jacobs decried in the public urban renewal projects of the 1950s.

Update: Shawn Micallef has a fantastic summary of Jane Jacobs’ Toronto legacy on Curbed today. The headline of this post spoofs Spacing Store’s #WWJJD t-shirt.

* Non-regulatory tools, like redevelopment, are also legal but are so difficult and fraught with such complexity that they’re unlikely to have a substantial impact on regional-scale land use challenges. Form-based codes are the most promising alternative to Euclidean zoning in the US, but in practice require such a radical overhaul of the planning-and-zoning process that they have yet to achieve wide adoption; Miami is the notable exception that rewrote its plan and zoning code all at once.

The crisis sharpened the segregation tax, with effects that will reverberate for generations

This sharp illustration of “the segregation tax” comes courtesy of DePaul’s Institute for Housing Studies. Calumet City has a housing stock comparable in age to that in Park Ridge or Des Plaines (areas whose development started in the 1920s, but mostly occurred in the 1950s); Harvey’s is mostly post-war. Similarly, Chatham, Auburn-Gresham, and Avondale all are principally 1920s bungalows and two-flats, with Logan Square having a large fraction of pre-WW1 houses and flats.

Prices in the mid-2000s boom rose substantially in all neighborhoods, fed by ample access to both prime and subprime loans. Even “during one of the hottest housing markets ever, our numbers were showing black buyers still experienced [home equity] losses,” notes Scott Holupka, pointing to disadvantageous subprime loans and inflated prices in segregated neighborhoods.

But the picture in the aftermath of the 2008 crisis has been terrible for majority-Black areas on the South Side, like Calumet City, Harvey, Chatham, and Auburn-Gresham. The “boom” has left huge numbers of Black homeowners underwater, without access to a ready market of creditworthy buyers, and in neighborhoods with sinking home values. On the White or Latino-plurality North Side, values didn’t fall as far during the bust, and have rebounded further since.

These diverging fortunes show that simply achieving milestones like buying a home, or graduating from college, isn’t enough — a deed or diploma’s value is socially constructed, and subsequent policies can do much to determine their future value. A study by Demos finds that the subsequent returns to education and homeownership matter just as much as equalizing access to such wealth-building opportunities:

Eliminating the racial disparity between Blacks and Whites in… would reduce the wealth gap by:
– Homeownership rates: -31%
– Returns on homeownership: -16%
– College graduation rates: -1%
– Returns on college graduation: -10%
– Incomes: -11%
– Returns on income [nil]

Note that equalizing incomes today won’t necessarily have an impact on the wealth that Black families will be able to pass on to future generations: “Even with equal advances in income, education, and other factors, wealth grows at far lower rates for black households because they usually need to use financial gains for everyday needs rather than long-term savings and asset building.”

Mel Jones, in a recent Washington Monthly article, points to how the widening wealth gap presents a particular disadvantage to young Americans of color:

You can’t discuss wealth inequality without talking about race; within the American context, they are inseparable. So the fact that Millennials of color feel the impact of a precarious financial foundation more acutely is not a surprise. For black Millennials in particular, studies point to a legacy of discrimination over several centuries that contributed to less inherited wealth passed down from previous generations. This financial disparity stems from continuous shortfalls in their parents’ net worth and low homeownership rates among blacks, which works to create an unlevel playing field.

Whereas many white Boomers may have used home equity loans to help pay college tuition bills, many black Boomers have negative equity to invest in their children’s education, in their own health, in getting their grandchildren a solid start. The accumulated disparities will cascade down to future generations.

Policies to more equitably distribute the returns on homeownership will have to act on both sides of the crosstown divide — not only lifting up the disadvantaged, but also moderating the outsize gains enjoyed by the “favored quarter.” Economic development should occur more equitably across regions, to help boost demand. However, this difficult task will be easy compared to better integrating the favored quarter, bringing more people closer to high-opportunity places.