To Limit Housing Discrimination, Close Affordable Housing Loopholes

House keys(Image: House keys via Shutterstock)This story could not have been published without the support of readers like you. Click here to make a tax-deductible donation to Truthout and fund more stories like it!

Inequities in living conditions contribute to civil strife. That’s one motivation behind President Obama’s recent announcement to reduce racial housing segregation.

The initiative aims to address the lack of opportunity in urban areas that may have contributed to recent unrest in cities such as Baltimore, New York and Ferguson, Missouri – unrest initially triggered, of course, by the killing of unarmed Black people by police.

The effort through the US Department of Housing and Urban Development has the goal to create affordable housing for people of color in more desirable, wealthier areas. This is good news, and admirable, but it is long overdue. With housing policies as they stand now, this effort may be too little, too late – unless such policies are strengthened.

Those housing experts who create and enforce housing policy should look to the US Supreme Court for inspiration in creating more powerful housing strategies to ease discrimination and inequity.

In the recent decision on the Fair Housing Act, the Supreme Court ruled that claims of racial discrimination in housing cases need not be limited by questions of intent, but rather could be supported by claims of disparate impact.

This is a big change; impact is much easier to support than intent, and can be measured through observable outcomes such as low numbers of people of color acquiring housing in certain areas.

As one of the most expensive real estate markets in the country, New York City has instituted policies and programs, most from the late 1970s, to provide affordable housing, such as those overseen by the New York City Department of Housing Preservation and Development.

However, some policies have built-in loopholes that need to be addressed in order to advance progress of the well-being and mobility of impoverished New Yorkers, a large percentage of whom are people of color.

The recent Supreme Court ruling and Obama’s focus on housing gives notice to policy makers that they need to ensure that housing practices do not disadvantage people of color.

However, New York City housing policies in certain instances disadvantage non-white communities that don’t have assets by rewarding those with both low incomes and vast assets in purchasing “affordable housing” condominium or cooperative apartments.

For those seeking to own their homes in New York City, rather than rent, certain classes of buildings offer apartments for purchase at an initial lower-than-market price, such as 50 percent off, to those earning middle incomes or less. For example, if the market value for sale of a condominium apartment is $300,000, a qualified buyer may only have to pay $150,000.

These buyers’ incomes are capped at limits, such as no more than twice that of the neighborhood residents’ average income. So if the average neighborhood income is $40,000, then the income of a home purchaser may not exceed $80,000.

In an effort to keep apartments earmarked for middle- and low-income New Yorkers (generally, those with salaries ranging from approximately $24,000 to $142,000, depending on family size and area of the city in which housing is sought), income ceilings of buyers are then imposed on resale. That refers to subsequent sales of the housing unit after the initial sale. But there is no proviso for resales to be similarly restricted in price. That is, while ceilings are imposed on buyers’ income, they are not imposed on asking prices.

Because the housing departments and related city policies do not place ceilings on asking prices, at times a catch-22 situation is created. Apartments for sale are still nominally “affordable” because of income restrictions, but are, in fact, way out of the price range of impoverished – and actually most – New Yorkers.

For example, there is currently an ad on a New York City real estate website for a duplex apartment in Central Harlem. The asking price for purchase is $775,000, which is not surprising for an apartment of this size. The ad helpfully supplies the estimated monthly payment for mortgage and maintenance – $5,031 – that a homebuyer would have to make after putting down 20 percent of the sales price.

The ad goes on to cite income restrictions related to the sale: A sole individual buyer’s income must not exceed $151,000, while a couple’s income is capped at $172,750. With income capped at $151,000, there is no way that an individual can make monthly payments of $5,031, or even manage to finance a home loan.

That is because lending institutions have set a limit of 43 percent for a household’s debt to income ratio. The ratio represents the percentage of a borrower’s monthly gross income used to pay all monthly debts, not just housing costs.

In the case of someone earning $151,000 seeking to pay over $5,000 a month for housing, the monthly housing debt, alone, would comprise 42 percent of the buyer’s gross monthly income.

Clearly, buyers of this property would need more than the 20 percent down payment of $155,000 to afford payment. And not surprisingly, Manhattan boasts the largest average down payment in the country. Manhattanites in the past year ponied up a down payment of 37 percent of their home’s purchase price. In the case of the $775,000 apartment, that would amount to $286,000.

If this apartment represents “affordability,” the question is, for whom? Asset-poor New Yorkers cannot afford that level of down payment.

As the former board president of a mixed-income cooperative in Harlem, I recall homeowners’ jubilation at initially acquiring a below-market-priced home, and then a few years later selling it at full market price and moving on to a grander living space. Of course that is a good thing, but clearly is not what could happen with policies that worked to create sustained affordable housing.

So what such policies do is to create one-shot-only affordable housing. This housing is not sustainable in the long term, as the “affordability” of the home disappears when it can be priced and sold at a full market rate.

These “loophole” apartments essentially reward those who are lucky enough to possess considerable assets while holding down relatively low-paying jobs. Such homeowners doubtless include a niche group some call “trust-fund babies.” That is perhaps a flip moniker referring to some young adults getting a head start in their lives, with the ability to hold down meaningful but low-paying jobs, and who can fit through the housing loophole with the help of a huge down payment due to family wealth. Not everyone is so lucky.

New York City housing policy needs to make affordable apartments actually affordable for asset-poor New Yorkers. The city must examine policies that permit such practices to exist and close this loophole. One idea is to place price ceilings on apartments earmarked as affordable.

But if in fact the asking price of formerly affordable apartments is going to reflect market value, it makes little sense to restrict buyers to the lucky few who are asset-rich and income-poor. Such a policy rewards those who already have inherited or accumulated considerable wealth, while leaving New Yorkers who are still struggling out in the cold.

Studies have shown that living in economically troubled neighborhoods lowers individuals’ educational attainment, economic prospects and physical health, as well as other markers of well-being.

If President Obama’s initiative is to be successful, then major urban areas with enclaves of impoverished neighborhoods need to take a much more critical view of their housing policies. Along with eradicating the root causes of recent civil unrest – racial profiling and unjustified killings – housing inequities must be addressed.

Until then, the impoverishment of neighborhoods will continue to contribute to a perfect storm of bitter conflict, strife and despair.