Page 6
August 2013
The AC Phoenix
A House Divided
By Thomas J. Sugrue
WORID^ HIGHEST STAHPA8D OF I
Why do middle-class Blacks have far less
wealth than Whites at the same income
level? The answer is in real estate and
history.
In 1973, my parents sold their modest
house on Detroit's West Side to Roos
evelt Smith, a Vietnam War veteran and
an assembly-line worker at Ford, and
his wife, Virginia (not their real names).
For the Smiths - African-Americans and
native Mississippians - the neighbor
hood was an appealing place to raise
their two young children, and the price
was within their means: $17,500.
The neighborhood's three-bedroom
colonials and Tudors, mostly built
between the mid-1920s and the late
'40s, were well maintained, the streets
quiet and lined with stately trees.
Nearby was a movie theater, a good gro
cery store, a local department store, and
a decent shopping district. Like many
first-time home buyers, the Smiths had
every reason to expect that their house
would be an appreciating investment.
For their part, my parents moved to a
rapidly growing suburb that would soon
be incorporated as Farmington Flills.
Their new house, on a quiet, curvilinear
street, was a significant step up from
the Detroit place. It had four bedrooms,
a two-car attached garage, and a large
yard. It cost them $43,000. Within a few
years, they had added a family room
and expanded the small rear patio.
Their subdivision, like most in Farm
ington Flills, was carefully zoned. The
public schools were modern and well
funded, with substantial revenues from
the town's mostly middle- and upper-
middle-class taxpayers. All of the crea
ture comforts of the good suburban
life were close at hand; shopping malls,
swim clubs, movie theaters, good res
taurants.
My parefits lived in the Farmington
house for a little over 20 years. When
my.father retired in the mid-1990s, the
property had appreciated by about
$100,000. They did not get rich from
the proceeds of their home sale-indeed,
after adjusting for inflation, the house
was worth slightly less than they paid
for it, not even counting interest costs
and taxes. But it nonetheless allowed
them to walk away with about $80,000.
For the Smiths it was a far different
story. Detroit had been losing popu
lation since the 1950s, and especially
after the 1967 riots there was mas
sive "White flight" from the city. The
neighborhood in which the Smiths
invested went from mostly White to
Black within a few years, along with the
rest of Detroit. For the city as a whole,
those who remained were not as well
off on average as those who left, mean
ing that even as the tax base shrank,
the demand for city services went up,
setting off a vicious death spiral. Soon,
schools and infrastructure groaned
with age, and the city's tax base shrank
further as businesses relocated to sub
urban office parks and shopping cen
ters. By the end of the '70s, the decline
of the auto industry and manufacturing
generally compounded Detroit's woes,
as production shifted to Japan or the
South in search of cheaper labor and
fewer regulations.
As the downward cycle continued,
investors and absentee landlords-
fearful that their property values
would decline as Detroit got poorer
and Blacker-let their properties run
down. Rising crime led to a drop in
pedestrian traffic both downtown and
in neighborhood shopping districts,
and also to increasing demand for addi
tional police protection. As the cost of
city services surged and the tax base
shrank, Detroit came to have among
the highest property tax rates in the
nation, which was another reason for
people to move out if they could.
Meanwhile, places like Farmington
Flills, which were all White in the '70s
and '80s, were direct beneficiaries of
Detroit's decline. The seemingly insa
tiable demand for suburban real estate
raised housing values; well-funded
schools attracted families with chil
dren; local malls had few, if any, vacan
cies; and new shops and office parks
seemed to spring up daily.
The same year that my father retired,
I visited my childhood neighborhood,
and drove past the Smiths' house. The
lawn was lush, the shrubs well tended.
They had built a garage.The old siding
had been replaced and the original win
dows updated. I stopped at a local real
estate broker's office to check out the
housing prices in the area.The Smiths'
home was not for sale, but another
house just two blocks away, almost
Identical to It and In move-ln condi
tion, was on the market for $24,500.
Over two decades, Roosevelt and Vir
ginia Smith's house in my parents'old
neighborhood, despite love and care
and investments, had appreciated by
only about $7,000.
After adjusting for inflation, their house
was worth about 60 percent less than
they had paid for it
In the United States, where real estate is
the single largest source of asset accu
mulation for the middle class, the story
of the Sugrues and the Smiths goes a
long way to explaining the expanding
disparities between White and Black
wealth. The two famIlies-like many
Americans-invested in real estate both
for its use value and as a gamble on the
future. But one family did far, far better
than the other.
Every once in a while, a scholarly book
fundamentally shifts how we under
stand a problem. One of those books
was published in 1995, two years after
my parents sold their house. Soci
ologists Melvin Oliver and Thomas
Shapiro's Black Wealth/White Wealth
stepped into a stale debate about race,
class, and inequality in the United States
with new data and a fresh perspective.
The authors acknowledged the gains of
the civil rights era: Black-White income
gaps had narrowed. Minorities were
better represented at elite institutions
of higher education than could have
been imagined in 1960. And while
in the '60s the most prominent Black
elites were car dealers or owners of
"race businesses" that catered to Black
customers, by the end of the twentieth
century the number of Black engineers,
lawyers, and corporate executives had
grown. Newsmagazines trumpeted
the high incomes of Black sports stars
and celebrities."The New Black Middle
Class"became a tagline. African Ameri
cans might not have wholly overcome
the legacy of centuries of slavery and
segregation, but they had come a long
way.
But Oliver and Shapiro told another
story, a sobering one about the per
sistent gap between Black and White
wealth. They methodically gathered
and analyzed data about household
assets, like real estate holdings, bank
accounts, stocks and bonds, cars, and
other property, that constitute a fam
ily's portfolio. Their findings were stag
gering: despite all of the gains of the
previous quarter century, the median
Black family had only 8 percent of the
household wealth of the median White
family.The asset gap was still strikingly
wide among middle-class and wealthy
Blacks, who, despite their high incomes,
still had about a third the assets of com
parable Whites.
The racial wealth gap has several spe
cific causes beyond the broad legacy
of systematic racial segregation, dis
crimination, and unequal opportunity.
Wealth is passed down from genera
tion to generation-even if only mod
estly. But going back generations.
Blacks had little opportunity to get a
stake hold. Upon emancipation, they
were mostly penniless, without land or
access to credit (see Reid Cramer, "The
American Dream, Redeemed," page 45),
and almost all Blacks were excluded
from the various Flomestead Acts that,
beginning in 1862, allowed so many
poor White families to accumulate land
and, with it, wealth.
Meanwhile, most African-Americans
earned too little to save; most lacked
access to the loans and capital neces
sary to start a business or buy stock or
own their own homes. Lack of financial
assets made African-Americans more
vulnerable to unemployment and
medical emergencies, less likely to be
able to pay for their children's college
education, and more likely to be stuck
with the burden of supporting impov
erished parents or to face poverty
themselves in old age.
Even with the coming of Social Secu
rity and stronger protections for orga
nized labor under the New Deal, most
Blacks were excluded from the ben
efits because they worked as tenant
farmers or domestics who were not
covered by the new plans. Two other
Depression-era federal programs-the
Flome Owners' Loan Corporation and
the Federal Flousing Administration-
encouraged homeownership and
bankrolled suburbanization, but in the
North and South alike, whole neigh
borhoods were redlined, many of them
Black.
Many African-Americans lost out on the
benefits of the post-World War II Gl Bill
as well. As Ira Katznelson points out in
his book When Affirmative Action Was
White, of the 3,229 home, business, and
farm loans made under the Gl Bill in
Mississippi during 1947, Black veterans
received only two. Until 1968, it was
virtually impossible for Blacks to get
access to the kinds of long-term, low-
interest mortgages that made wide-
scale homeownership possible.
Even after the passage of civil rights
laws, dozens of studies showed that
minorities had a harder time getting
access to market-rate mortgages. More
over, Black home buyers were likely to
be steered to neighborhoods of older
housing stock, often in declining cen
tral cities, places where housing values
often depreciated rather than appre
ciated. This meant that Blacks, if they
were lucky enough to be homeowners,
were often trapped in neighborhoods
on the margins, economically and
politically. As it turns out, the Sugrues
and the Smiths were fairly typical of the
Black and White families that Oliver and
Shapiro studied in the mid-'90s. And
what has happened since then is even
more disheartening.
Beginning in the'90s and lasting until
the bursting of the real estate bubble,
some progress was made.The percent
age of Black households that owned
their own homes increased from 43.3
percent in 1994 to 47.2 percent in 2007.
Partly this reflected a still-growing
Black middle class; partly it reflected
important government efforts to end
racial discrimination in mortgage
lending, along with the arrival of new,
responsibly crafted forms of mortgages
for which more people, particularly
African-Americans and Latinos, could
qualify.
But around the turn of the twenty-
first century, there also grew up a
huge new industry of predatory
lenders that targeted members of
minority groups, including those
who already owned their homes and
were persuaded to refinance on what
turned out to be usurious terms. In
2006, more than half of the loans
made to African-Americans were sub
prime, compared to about a quarter
for Whites. And a recent study of data
from the Flome Mortgage Dis