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It may seem counterintuitive, but in order to close the wealth gap, we must shift our focus from the gap itself to the policies, conditions, and systems that spawned it.

By Anne Price -September 15, 2020

racial wealth gap
Photo courtesy of wp paarz via Flickr. CC BY-SA 2.0
[The following is an excerpt from the Roosevelt Institute | Don’t Fixate on the Racial Wealth Gap: Focus on Undoing Its Root Causes]

If we are committed to tackling racial wealth inequities, we must focus squarely and unapologetically on their root causes. Whether you call it the racial wealth gap or the racial wealth divide, it’s time to go beyond the supreme goal of closing it altogether if we want to actually start making progress toward a more economically equitable society. It may seem counterintuitive, but we can’t tackle racial wealth inequality by predominantly focusing on closing the gap.

There are several key reasons this framework is not useful today.

First, describing the problem as a racial wealth gap doesn’t help us clearly articulate a vision that is based on the values we hold most dear. We could simply narrow the Black-white racial wealth gap if white families lost their wealth and became poorer without providing any gains to Black families. This is not what we want for either community or our society more broadly. What we really want is liberation and dignity for all people; however, fixating on closing racial wealth gaps does not guarantee that we can deliver that.

Second, focusing on closing the racial wealth gap keeps us locked into the status quo—and often reflects a neoliberal discourse—by upholding personal responsibility narratives and strategies of entrepreneurial liberation and other fallacies. Solutions born from the racial wealth gap framework have traditionally included individual-based approaches.

Utilizing these approaches—such as helping families open a bank account, encouraging savings, seeding young children with $50, or opening businesses with little capital—without changing structural barriers gives us a false notion that class-based solutions will solve racial inequities and deep-seated racism. In other words, while there is a growing recognition that slavery, Jim Crow, redlining, segregation, and discrimination have deeply impacted Black families, solutions written to close the racial wealth gap are still very much predicated by communities of color and specifically Black Americans making better financial decisions and taking personal responsibility. If we think that well-off white individuals and households acquired their wealth only through individual ability and effort—ignoring the role of social and economic policies in driving wealth accumulation for white families—then we will continue to urge Black people to work harder and “play by the rules.” This neoliberal language of individualism and personal responsibility operates to intentionally ignore structural factors and hold everyone accountable to the rules of a colorblind, seemingly fair playing field.

Research from the Groundwork Collaborative shows just how pervasive these narratives are: When asked to identify a single factor that has most contributed to their economic situation, Black people most commonly pointed to “personal drive and persistence” (27 percent) and the way that they were raised by their family (26 percent).

The dominant gap-focused framework distracts us from reckoning with the systemic economic decisions that are actually driving racial wealth inequality and addressing their root causes. Far too often, we promote policies that address the symptoms of racial wealth inequality and not its root causes. Mehrsa Baradaran, a law professor specializing in banking law at the University of Georgia, notes that Black people have often been urged to engage in capitalism with no capital and suggests that over the last 50 years, nearly every legislative response to separate and unequal credit markets has been centered on symptoms and not the root cause of racial credit inequality. She asserts that by focusing on small community banking, minority-owned banks, and mission-oriented institutions, which are viewed as “community-empowerment” approaches, we looked past the larger structural forces and shifted the responsibility of a solution to marginalized communities themselves. The sheer magnitude and enduring legacy of discrimination, segregation, and intentional theft require a suite of policies and strategies that are far-reaching and structural. Anything less will prevent us from enacting meaningful change to the rules and structures that uphold wealth inequality and cement Black Americans in a disadvantaged place.

Getting to the Root of the Racial Wealth Gap and Why Power Matters: Housing

The 2008 foreclosure crisis provides a chilling illustration of how outsized corporate power and distorted public power created the greatest confiscation of economic assets from Black people in modern American history. The deregulation of the financial sector allowed politicians to dismantle the protections created after the stock market crash of 1929 that launched the Great Depression, encouraging financial institutions to take unproven risks. Housing brokers invented and reinvented loan terms at their whim while politicians looked on from the sidelines. Bankers deliberately issued mortgages to families who could not afford them with the intention of taking their homes, so they could turn a handsome additional profit from reselling them. The toxic mix of irresponsible financial deregulation, bankers’ exploitative practices and reckless gambling and borrowing, and too little transparency resulted in an estimated $7 trillion in home equity stripped from American families; Black people had nearly half (47.6 percent) of their wealth removed from their grasp. This was a white-collar heist of epic proportions.

And the same corporations that were responsible for the foreclosure crisis in 2008 continue to profit off of and extract wealth from Black Americans today. Investors have erected a shadow housing market in which traditional mortgage foreclosure protections don’t apply through new predatory arrangements like land installment contract sales. This built-to-fail arrangement largely targets Black people and other communities of color who do not qualify for conventional loans, and it uses methods to find ways to cancel the contract so as to churn over as many would-be homeowners as possible. This type of contract was historically used to sell homes to friends and family, but the use of land installment contracts attracted predatory investors because they can reap massive profits by quickly evicting defaulting borrowers.

There is little wonder as to why homeownership rates among Black Americans have declined to levels not experienced since racial discrimination was legal in the 1960s. The Great Recession, for instance, slowed early Black Gen Xers’ ability to purchase homes from 2000 to 2010 (when they were in their 30s and early 40s) and resulted in more of this generation having their homes taken than becoming homeowners after 2010. Homeownership is often mischaracterized as a prime driver of racial wealth inequality and has been an ongoing focus of efforts to close the racial wealth gap. Although most Black people with some wealth are more likely than white people to hold a greater share of wealth in their homes, the evidence simply does not support the claim that racial homeownership differences explain racial wealth inequality.

Moreover, an emphasis on increasing Black homeownership as a means to close a racial wealth gap derails us from addressing the root causes of discrimination, exploitation, and predation in our nation’s housing markets. It also obscures who has the power in our economy by promoting a neoliberal frame of inclusion and colorblindness. Historically, homeownership programs allowed the real estate industry outsized influence and control over residences that intended to serve a high share of Black people. In turn, Black Americans are at the whims of an industry whose wealth has been largely generated through racial discrimination and segregation as a business model. Moving beyond the goal of closing a racial wealth gap means addressing the compounding effects of structural racism, residential segregation, and extractive corporate practices that ensure that the gains of the economy flow to powerful corporations and white elites. Residential segregation is a mechanism that maintains white supremacy and has been upheld by private interests through the public sector. Although governments at all levels have been complicit in practices that promote segregation and discrimination, they must lead the way in dismantling racial oppression.

To improve the lives of Black people and all Americans, a greater public provision that attends to both market dynamics and structural racism is critical. We must use the power of government to weaken the stronghold that private equity firms and the real estate industry have over Black people. A proposal from Mehrsa Baradaran, for example, would create a federally funded program that places investment dollars and equity directly in the hands of community members. It calls for purchasing abandoned properties and granting them to families who are struggling to get by or to those who experienced direct harm from redlining and disinvestment.

A massive boom in new construction would create countless jobs and help finally end the legacy of racist housing policies.

By Matthew Yglesias@mattyglesiasmatt@vox.com  Updated Sep 23, 2020, 7:15am EDT

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Part of The Great Rebuild Issue of The Highlight, our home for ambitious stories that explain our world.


As America’s generals were plotting the final moves of World War II, its economists had another concern: the potentially dire economic consequences of victory.

The war, of course, had been preceded by a severe and prolonged depression. And many thought its end would bring back mass unemployment; after all, the demobilization of soldiers in the wake of World War I created a severe recession. In 1939, Alvin Hansen, a leading American Keynesian economist, published a famous analysis suggesting that with the frontier closed, the United States was now due to become a country with slow population growth and structurally deficient demand for investment. In other words: It was destined to be a country mired in frequent recessions.

The war had solved the problem, providing employment for millions both as soldiers and as workers in war production industries. But after the war, what would they all do?

America found its answer in what historian Kenneth Jackson memorably dubbed “the crabgrass frontier” — suburbs opened by the automobile and the construction of the Interstate Highway System — which became the engine for a new era of growth. The ability to construct vast tracts of new, larger homes — homes that ex-soldiers could purchase thanks to subsidized loans via the GI Bill of Rights — became the source of investment demand that Hansen feared America would lack.

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The new homes would have to be filled with durable goods, including appliances, furniture, and cars, that factories no longer busy serving as the arsenal of democracy could churn out. Along the way, the debt-financed purchase of homes became an engine of wealth accumulation that America’s growing families could pass on to their children.

This story has become well known lately for its role in widening the racial wealth gap. Black neighborhoods and mortgage applicants were largely excluded from federal largesse even as the civil rights movement was winning victories in the courts and, eventually, in Congress.

An equivalent policy approach today must be racially inclusive and more mindful of environmental sustainability, but house-building as the cornerstone of rebuilding the economy remains a solid idea. The United States is currently both underhoused and underemployed but possessed of plenty of capacityto build more. A combination of rental assistance for consumers, capital funding for affordable housing, and regulatory relief for builders of all kinds could unleash a massive boom in new construction, creating countless blue-collar jobs and laying the foundation for a new era of inclusive prosperity.

It only needs to direct money to those in need and provide regulatory relief to those inclined to build.


Before there was Covid-19, there was the Great Recession. And before that, the great housing price bubble of the mid-aughts.

Despite the enormous price increases in some metro areas during the bubble, the number of houses built then was modest — extremely modest compared to the scale of the housing slump that followed. The perception of a George W. Bush-era house-building boom is largely an illusion, wrote Mercatus Center researchers Kevin Erdmann and Scott Sumner, “based on the fact that construction of new single-family homes did reach record levels in 2005–2006.” But it did not result in a sky-high quantity of total housing. Instead, they wrote, the single-family boom was a “shift of market share out of manufactured and multi-unit homes.”

So after more than a decade of post-boom slump, the United States is significantly short of houses. Even before the pandemic — i.e., during a time of economic growth — the number of young adults living with their parents was rising, according to the Pew Research Center, while the Urban Institute found an increase in the share of Americans with crowded housing arrangements. This overcrowding was a policy failure on its own terms, but also proved to be tinder for the spread of the virus.

Unlike in the 1940s, we don’t really need to do much now to get people subsidized loans. Mortgage interest rates are at record lows, so families with the means to make a down payment can easily buy. But then there’s everyone else.AFTER MORE THAN A DECADE OF POST-BOOM SLUMP, THE UNITED STATES IS SIGNIFICANTLY SHORT OF HOUSES

“We certainly need a renters’ policy in America right now,” says Darrick Hamilton, the executive director of the Kirwan Institute for the Study of Race and Ethnicity at Ohio State, who’ll soon be rejoining the economics faculty at the New School in New York. Policies that focus on cheap credit, such as what the Federal Reserve has delivered, or the Trump administration’s emphasis on tax cuts, can help boost a severely depressed economy. But Hamilton cautions that they also exacerbate gaps between people who already have the money necessary to take advantage and “the existing residents who aren’t positioned to benefit from those incentives.”

Democratic presidential candidate Joe Biden has already proposed fully funding the Section 8 housing voucher program. The program helps millions of low-income families by putting housing assistance directly in their hands — and creates a huge new market opportunity in building homes for them to rent. But pre-pandemic, Section 8 excluded about 75 percent of eligible households, and it will only exclude more as joblessness grows. Mary Cunningham, the vice president for metropolitan housing and communities policy at Urban Institute, says making it universal “will go a long way in making sure every American has a home.”

While Biden has endorsed the idea, he has not really foregrounded it in his campaign rhetoric, nor has he indicated that he sees it as part of an economic recovery program. But it’s extremely well targeted as economic stimulus to give money to families who are sure to spend it. If paired with smart regulatory ideas, it could unleash a real boom in house-building that creates jobs and lays the foundation for future prosperity.


A big difference between the housing problems of today and those of two generations ago is where the demand is. Sprawling construction of new homes continues to take place on the crabgrass frontier, but in most cities of any size, that frontier is now located far from the most convenient commuting routes. And in the geographically constrained cities of the Pacific Coast and the Northeast Corridor, and in cities like Denver and Miami, the frontier is essentially closed. A healthy dose of the future of construction has to be “infill” — new development in already developed neighborhoods. That happens today to an extent in low-income or formerly industrial neighborhoods, but it’s often blocked by local homeowners in the priciest areas where new building would be most desirable.

“Those that are better positioned politically, economically, and even racially are able to use state apparatus, including zoning laws, to enrich themselves at the expense of others,” Hamilton says.

Until relatively recently, the Trump administration agreed with this diagnosis, arguing that exclusionary zoning laws were hurting the economy and contributing to the rising homelessness problem of pre-Covid-19 America. Housing Secretary Ben Carson even tweeted in 2018 that “we must look at increasing the supply of affordable housing by reducing onerous zoning regulations.”

But more recently, Trump has been trying to counteract poor polling results among upscale whites by promising to uphold the “suburban lifestyle dream” by excluding apartments from upscale neighborhoods. The St. Louis couple made famous for waving guns at protesters, the McCloskeys, warned at the Republican National Convention that progressives have an agenda for “ending single-family home zoning,” which would “bring crime, lawlessness, and low-quality apartments into thriving suburban neighborhoods.”

There is nothing wrong with single-family homes. But a regulatory requirement that only single-family homes be built across vast swaths of land is a recipe for housing scarcity, and it explains why decent housing has slid out of reach for so many middle-class families in some American cities. Equipping the lowest-income residents with financial assistance will be a big boost to them, but no amount of cheap credit and vouchers can compensate for an objective shortfall of dwellings.

Most Democrats aren’t actually seeking to abolish single-family zoning. A visionary effort in California to force high-income and transit-proximate communities to accept apartment buildings died in the overwhelmingly Democratic state legislature last year on a vote that scrambled party allegiances and saw many Southern California liberals take the McCloskey family view.

But the city of Portland offers an alternate vision of reform.


Last summer, the Oregon state legislature took action to allow two-unit structures across almost the entire state and three-unit ones in its larger towns. This doesn’t “abolish the suburbs,” but it does ensure that a wider variety of house types are available in a wider range of communities.

And this summer, the city of Portland went even further, enacting what the Sightline Institute’s Michael Andersen calls “the best low-density zoning reform in the US.”

The details are a bit complicated, resulting from a coalition-building process that doesn’t lend itself to easy single-sentence description. But the urbanist and illustrator Alfred Twu produced a graphic for Sightline that shows the breadth and scope of changes, including an easier path to build accessory dwelling units, relaxed parking rules, legalization of four-unit “cottage clusters,” and a structure for building small, six-unit apartment buildings if half the units are provided at deeply subsidized rates to poor families.

This should allow nonprofit builders to create mixed-income buildings that generate enough rent from market-rate tenants to cover operating costs.

Madeline Kovacs, who helped organize the coalition that secured the historic reform, says it took a combination of determination and open-mindedness to build an alliance between skeptics of overweening regulation and advocates for low-income communities. The bill’s contents are hard to summarize cleanly because it was a question of “getting those people around the table and hashing it out, over and over and over again.” But ultimately it worked, and it mobilized enough citizen enthusiasm to match the notorious status quo bias of the community meeting process.

“We matched anti-housing testimony and even outstripped it by a couple of people,” she said.

But just because you can build new types of housing doesn’t mean you will. That’s where money comes in.


The genius of policy that allows more market-rate construction — whether that’s zoning for duplexes in the suburbs or taller apartments in central cities — is that the Federal Reserve has already acted to make the financing easy. If there’s a project that pencils out as profitable, and the regulatory climate allows it to be completed in a reasonable time frame, loans are cheap these days. But more jurisdictions should pay attention to that time frame issue. With state and local tax bases hard-hit by the pandemic and study after study after study after study confirming that more market-rate house-building improves affordability, every jurisdiction should look at how it can ease off on anti-housing rules.

But there is more to life than the profit motive.

“There’s practically nothing in the American political or economic system that doesn’t run straight into housing,” says Felicia Wong, the president and CEO of the progressive Roosevelt Institute. Whether you’re talking about education, policing, transportation, climate, or access to jobs, the nature of the building environment is critical. Subsidizing low-income renters on the demand side can be extremely helpful. But constructing non-market housing to deliberately promote integration or expand access, as envisioned in Portland, should also be on the table.

“We would also argue at Roosevelt that the federal government has a role in providing more affordable housing,” Wong says.

As Portland’s example shows, funding non-market housing is not in tension with regulatory reform. Instead, if we want affordable housing to exist in any quantity outside of the most depressed areas, we need regulatory reforms to allow its construction.

Matthew Yglesias is a senior correspondent focused on politics and economic policy. He is one of the co-founders of Vox. He’s a host of TheWeeds podcast, and the author of One Billion Americans: The Case for Thinking Bigger.

This story is part of The Great Rebuild, a project made possible thanks to support from Omidyar Network, a social impact venture that works to reimagine critical systems and the ideas that govern them, and to build more inclusive and equitable societies. All Great Rebuild coverage is editorially independent and produced by our journalists.


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California Community Builders (CCB) has reviewed federal and California state housing policies to see if they uphold their intent to provide affordable homeownership opportunities and rentals for all, including people of color and low-income populations. We discovered that most homeowner-related benefits and opportunities are heavily weighted towards white and higherincome people, as well as those who already own a home. Even with rental subsidies— especially in California—it is increasingly difficult for minorities, millennials, and students to find affordable housing.

Overall, these policies as they stand are sustaining and exacerbating the racial and generational wealth gap. Low-income families and people of color can receive help with rentals, but even that is insufficient in the current economic climate. Since homeownership is the primary avenue of wealth creation in the United States, current policies keep these populations at an economic disadvantage.

Since the 1930s, both federal and state programs have supported constructing and providing affordable housing for low-income families. But the federal government has shifted away from overseeing the majority of these programs, giving state and local governments more control. As a result, housing nationwide has become increasingly unaffordable and homeownership rates for low-income families and people of color have fallen behind. The Great Recession of 2007-2009 hit families of color particularly hard. It resulted in less aid aimed at increasing homeownership rates. More direct aid goes to renters to alleviate lowincome families’ cost of living. But the majority of overall federal housing-related expenditures still goes to current owners in the form of deductions for real estate tax and mortgage interest, and capital gains exclusions. In fact, owners receive over 70 percent of federal housing subsidies, despite making up less than 40 percent of those with severe housing cost burdens.

These trends are exacerbated in California. Rapid job and population growth in the state has inflated the cost of homes, and housing construction has not kept up. California lacks affordable housing, so families throughout the state struggle to make ends meet. This is especially the case for low-income families, minorities, millennials, and students.

In this report, we show how programs that may have started out to benefit all those in need have mainly benefited white, better off homeowners. We begin with a synopsis of our key findings, a comparison of the benefits of homeownership over renting, and some background on the policies in question. Next we move to a more detailed look at how homeownership rates fall across racial and income lines, both nationally and in California. We then take a look at how currently funded California programs fit into the nexus. We finish up with a discussion of what these findings mean for minorities, millennials, and students. In our conclusion, we make recommendations as to how federal and state funding allocations could be distributed in order to help alleviate the current wealth gap.

March 28, 2018

Read the full article at Urbanize Los Angeles

Homeownership has long been considered a part of the American dream, and the government has spent decades developing laws to promote and incentivize it as a practice. As so many Californians are housing insecure during our current affordability crisis, ownership is a way to create stable, predictable household housing costs at all income levels.

Homeownership provides the predictability of fixed housing costs. The most common form of a home mortgage, the 30-year fixed mortgage, is 360 monthly payments of the same amount. If you secured a fixed-rate mortgage today, what you pay this month is the exact same amount that you would pay in 2048. To go further, government-sponsored entities like Fannie Mae, Freddie Mac, and the Federal Housing Administration provide robust, liquid markets that ensure the cost of originated mortgages are as low as possible.  This situation is completely different for renters.  In this rising market, renters are always at risk to rent hikes, even those living in rent-controlled units.

Californians also have fixed property taxes under Proposition 13.  If you bought your home in 1980 for $50,000 and today it is worth $750,000 (not uncommon in California), you pay property taxes based on the original $50,000 purchase price.

To make the deal even better, the interest portion of your mortgage payment and property tax payments are often tax-deductible. Say a person is in the 30% state and local tax bracket. If their rent is $2,500 per month, they pay $2,500 per month. But if the sum of their monthly property tax and mortgage payment is $2,500, generally speaking, their actual payment after tax benefits is often under $2,000 a month.

Historically, California residential real estate has been an excellent long-term wealth creator. In today’s world, home equity comprises a substantial part of the net worth of many California homeowners. As the Los Angeles County median home price hits record highs, most homeowners have materially increased their net worth by simply owning a home. This home equity provides certain levels of flexibility. If your income has risen in the years since you purchased your home, you can refinance to take cash out to pay for things like your children’s college tuition or business investments. If you died today, assuming you are worth less than approximately $11,200,000 (not a typo), you can typically give your house to your heirs estate-tax-free.  

Ownership doesn’t need to come from single-family homes. In infill settings, condominiums and townhomes provide the same benefits listed above. The units can be small too. As of this writing – March 24, 2018 – there are 2,325 units for sale in New York City under 750 square feet.

Homeownership provides upward mobility, home security, and long-term wealth creation opportunities to Californians.  But despite all of these benefits, housing developers in California infill locations overwhelmingly chose to build rental apartment buildings. In 2017, well over 90% of the completed multifamily units in the City of Los Angeles were rentals.

Why are we depriving so many Californians of this terrific deal? There are four main reasons, and unfortunately, they are not easy fixes.

It Often Takes Much Longer and Is Riskier To Get For Sale Housing Approved

The Subdivision Map Act is a California state law that determines how new for-sale housing is approved. Anytime you take a piece of property and plan to sell it to more than one individual you must go through this process.

In many jurisdictions, the process is often much simpler for rental developments. In the City of Los Angeles for example, if your apartment building is under 50 units, not located in a specific plan area, and conforms to existing zoning, there is no planning case. You can take your building plans straight to the Department of Building and Safety for building permit plan check.

Let’s walk through the process of what the approval process is for a simple two-unit, zone conforming duplex in Los Angeles for rent, then compare it to an otherwise identical project that will be marketed for sale.

As mentioned, if the duplex is for rent in Los Angeles there is no planning case. You take your plans straight to Building and Safety for a permit, then you start construction.

If the duplex was for sale, under state law you need a planning case for a parcel map. Neighbors within a 500-foot radius and the local neighborhood council are notified. There is a public hearing and the parcel map case can be appealed. You also need an environmental clearance under the California Environmental Quality Act – which can also be appealed. After it clears appeal at the local level, it can still be challenged in the California courts both at the Superior level and then the Appellate level. Once the parcel map is approved, it is only a tentative approval. You still must go through the next process of recording your final map. Many jurisdictions in California do not allow construction to begin while you are recording your final map. All of this because of a state law that guides how to make your duplex for sale.

Understandably, you can see why many builders are incentivized to go the for-rent route for approvals rather than for-sale. Especially in jurisdictions that have by-right processing for non-subdivision cases. The California Legislature has their hands full at the moment with housing. But eventually, some common-sense reform of the Subdivision Map Act is warranted.

It is Much More Difficult To Obtain a Mortgage For a New Condominium than a New Home

Most mortgages are affiliated with one of three major government-sponsored entities: Fannie Mae, Freddie Mac, or the Federal Housing Administration. Say you have a new development of 40 single-family homes. These three entities would have no problem providing a mortgage for a qualified buyer of that project.

The same is not the case for a brand new 40-unit condominium or townhome project. These organizations consider condominium projects riskier. The rules are always changing, but they generally require that a significant portion of the project be pre-sold (usually about half) before issuing the first mortgage. In the case of the 40-unit townhome project, you would need to pre-sell about 20 of the homes before closing on a single one.

Frankly, this process is a giant pain for the builder. It also adds a certain element of risk. It can take months to pre-sell half of a project. Some of the first buyers can, and often do, find other places to buy and drop out before the first half is sold. Condominium mortgages can also be more expensive than those for single-family homes.

This process was put in place to protect lenders from getting hurt on risky projects. I understand why lenders would want to be careful on luxury skyscraper condo developments, but wood-constructed townhomes and condominiums from three-to-five stories are much less risky. Washington is always adjusting Freddie and Fannie. The next time they do, it would be great if they lowered the pre-sale requirements on these less risky projects.

Our Tax System Favors the Construction of For-Rent Over For-Sale Housing

As I described above, a homeowner generally enjoys significant tax benefits over a renter. As far as the development of for-rent housing versus for-sale housing, the complete opposite is the case. There are often significant tax advantages to building a rental project over a for-sale project.

For-sale projects are taxed as ordinary income, which is our highest level of taxation.

Unlike a for-sale project, an apartment developer has the option to keep the apartment building. Assuming the project was done properly, lenders like Fannie Mae have mortgage products available to refinance out a significant portion of the developer’s invested capital upon building completion. Once tenants move in, the developer can often take depreciation losses against new rents. This is a much more favorable tax situation than paying ordinary income the day your project is complete. These favorable tax advantages are a major reason why developers take the for-rent route over the for-sale route.

I’m confident that neither Paul Ryan nor Nancy Pelosi are Urbanize LA readers. They should be though. If the country is as serious about promoting homeownership as they say they are, they need to look at reforming how they tax various forms of new residential construction.

Development Insurance is Much Higher for For-Sale Projects than for Rental Projects

Senate Bill 800, passed in 2002, guides the process of construction defect litigation in California. Existing laws provide that owners of new residential construction have ten years from building completion to file a lawsuit for defects. These lawsuits are very common for new condominium projects.

Because of this, insurance for new condominium projects is more expensive than that of other residential projects. As a result, many reputable California architects, engineers, and subcontractors simply refuse to work on condominium projects.

In 2005, the City of Los Angeles established the Small Lot Subdivision Ordinance. This ordinance allowed a new hybrid housing typology that looked and functioned like row townhomes but where each unit was built independently on individual “small lots”.  A major consideration in this ordinance was insurance. Small lots are technically single-family homes and have lower development insurance than condominiums. I wrote earlier this year that the California Legislature should consider a statewide small lot ordinance as a way to address some of these insurance issues and promote home ownership.

So why are most new developments rental apartments? Because the developer does not want to deal with the longer approval periods, the often less favorable tax treatment, and the increased risk.

Increasing homeownership opportunities for new housing is very important. California residential real estate will almost certainly appreciate in the future. I want as much of that appreciation to go to the California worker as possible over a landlord. Promoting for-sale housing is a way to bridge the large wealth inequality gap we have in the state.

I often write that land use supply decisions must be addressed at the state level because it so difficult to fix at the local level. The ownership dilemma is different. It is not a local issue and must be addressed at the state and federal level. For decades in California, homeownership was often an attainable choice for many that wanted it. Today, especially in our urban centers, that is no longer the case. As we look for ways to create stable housing costs for Californians, addressing the issues that incentivize the construction of for-sale housing needs to be part of the conversation.

https://urbanize.la/post/if-homeownership-american-dream-why-do-we-mostly-build-rental-apartments

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