Well-intentioned public development efforts in Atlanta have taken Black and White residents in radically different directions -- and shown that it's a bad idea to require banks to partner with public entities.
As part of their proposed changes to the Community Reinvestment Act (CRA) regulation, the federal bank agencies seek to require banks to involve public-sector entities in community development projects for which the banks hope to receive favorable consideration. In response to this proposal, NCRC and several other community-based organizations sounded a loud note of caution: Some notable local public projects were and are harmful and resulted in the displacement of lower income and/or communities of color.
Dan Immergluck’s new book, Red Hot City: Housing, Race and Exclusion in the Twenty-First Century, Atlanta, reinforces the views of NCRC and our allies regarding mandatory inclusion of local government. The involvement of local or state governments should be encouraged for community development projects that clearly benefit people of color and low- and moderate-income (LMI) residents and communities. However, it should not be required. A requirement can lead to CRA credit for projects that harm the intended beneficiaries of CRA. Rewarding government-supported projects that displace long-term residents of color and LMI communities – several of which Immergluck details in the book – would pervert the law’s purpose. The stories Red Hot City tells include a range of harmful projects that uprooted such communities either immediately by demolishing affordable rental housing or in the longer term via increases in property values and rents.
Immergluck reviews the racial history of segregation and urban planning in Atlanta from the early twentieth century to the present. He discusses pivotal moments of local history and projects which had the potential to be inclusive but only ended up furthering segregation and exclusion. Federal agencies would not want to provide CRA consideration for projects exacerbating inequality.
As in metropolitan areas across the country, residential development in the Atlanta metropolitan area during the twentieth century boosted the housing and wealth fortunes of Whites. By 1947, over 90% of new residential development, much of it insured by the Federal Housing Administration (FHA), was targeted to White owners and renters according to Immergluck. During this period, Atlanta’s White power structure struck a deal with the local African American leadership to accommodate the growth of the African American community but in an unequal and separate manner. African American suburbanization was tolerated but expansion only occurred in existing and segregated communities of color. The African American leadership acquiesced to this arrangement in part because they feared White mob violence, Immergluck writes.
The emphasis on expanding suburban segregation had profound impacts for the future prospects of African Americans. The Atlanta metropolitan areas became epitomized by sprawl and job and educational opportunities were disproportionately located in the suburbs. Immergluck states, “Perhaps no metro in the U.S. represented sprawl more vividly than Atlanta.” In 1960, the City accounted for one half of the population in the metropolitan area, but this share declined to 10% by 2000. Exclusionary zoning via minimum lot sizes and other mechanisms reinforced Black-White and poor-rich separation.
The City experienced a resurgence in more recent decades, but exclusionary projects and planning efforts further victimized African Americans. To prepare for the 1996 Olympics, city agencies demolished public housing and dispersed African Americans. Suburban stakeholders also succeeded in blocking expansion of Atlanta’s MARTA transit system, on which the African American community heavily relied.
Originally conceived as an inclusive transportation project connecting the City’s neighborhoods and residents to jobs, the light rail project called the Beltline became an exclusionary force that changed the city demographically and physically. The Beltline is a circular transit line surrounding downtown Atlanta and adjacent neighborhoods. The Beltline strayed from its original intentions as self-interested stakeholders perceived it as a way to line their pockets. For example, real estate interests and speculators salivated over increased property values near the Beltline.
The city used tax increment financing for the project, promising to devote 15% of those incentives to affordable housing – but then allocating considerably less to that purpose in practice. Partly as a result of the Beltline, the college-educated population in the City increased by 60,000 from 1990 to 2007 while those without a college degree decreased by 18,000. Property values appreciated by 22% in neighborhoods near the Beltline, a far greater boost than in neighborhoods two miles away from the Beltline. Moreover, the share of upper-income borrowers increased by 13.4 percentage points, compared to 3.9 percentage points two miles from the Beltline.
Overall, the city’s higher-cost rental housing stock doubled from 2010 to 2019 while lower-cost rental housing stock declined by 20%.
The Beltline exacerbated the loss of affordable homeownership and rental housing, particularly for African Americans. It was designed and funded by local public entities who underperformed their promises on affordable housing. Now, imagine that banks received CRA credit for this transit project because it involved local subsidies in the form of tax increment financing. The signature federal policy for protecting LMI families and communities of color from the harms the Beltline fostered would be perverted into an endorsement of those very same negative outcomes. Immergluck’s book is thus a timely contribution to the discussion regarding regulatory reforms to CRA.
If CRA had favored the Beltline, the adverse impacts would have been multiplied further, diverting bank attention from more meritorious projects such as rescuing victims of the predatory loan crisis. Immergluck documented the damage of subprime and high-cost lending in the years preceding the financial crisis. Predatory lending started in urban and suburban communities of color in Atlanta and then spread. Of the 20 zip codes in the country with the highest percentage of homeowners underwater (more debt owed than equity accumulated), 16 were in Atlanta. These suburban-Atlanta zip codes were 80% African American – and a stunning 65% of homeowners in them were underwater, on average.
Immergluck documents that federal funding and local efforts saved about 1,200 units. However, hundreds of thousands of units went through the foreclosure process, and many of these ended up with private sector investors that rented them out. The institutional investors had an eviction rate of 20% in Atlanta while local “mom and pop” landlords had a rate of 6%. Immergluck does not indicate whether banks were involved in trying to save homes victimized by predatory lending and probably does not do so because banks likely were not involved in the effort to a significant extent.
Imagine, however, another scenario in which the city made a full-throttle effort to save underwater homes and preserve the wealth of modest-income African American homeowners. If banks were hypnotized by the larger dollar amounts in construction loans associated with the Beltline project – and larger dollar figures without detailed local context look better on poorly executed CRA exams – they may have neglected partnering in any effort to save homes.
This is why CRA reform needs to proceed carefully and consider community development financing on a case-by-case basis. CRA reform should not require or automatically award credit to any local or state government project. Instead, CRA examiners should undertake a careful analysis of these projects. They should consult local community-based organizations, local media stories and other resources. They should ask basic questions that reach past the topline dollar figures banks report: How many affordable housing units are being created? How many are being destroyed or lost through rent increases? How many smaller businesses can remain or start in the neighborhood compared to how many are displaced?
Banks, on their part, need to conduct similar due diligence, including by engaging community organizations in a thoughtful manner. They need to do the math of whether there is a net gain in affordable housing, small businesses, jobs and other benefits for long term residents of traditionally underserved communities.
CRA credit should be awarded only if there is a substantial net gain in direct benefits to people of color and modest-income residents. CRA must be employed in a manner that benefits the victims of redlining and discrimination. When possible, CRA projects should foster integration and break up patterns of segregation and barriers to opportunity. By providing historical context, Red Hot City gives us valuable insight into CRA reform done right.
Josh Silver is Senior Fellow at NCRC.