July 23, 2007
More on Detroit Posted by Joshua Zeitz at 06:10 PM EST Over the weekend, Fred Schwarz posed several questions about today’s lead feature (which I wrote) on the 1967 Detroit riots. Fred’s questions are excellent, and with his permission, I’ll copy and answer them here on the blog: 1) Fred wrote: “In consecutive paragraphs [Josh] talks about landlords who abandoned their properties in black neighborhoods. In one case he says this was true because ‘they housed far too many tenants.’ So landlords have a captive group of tenants who are paying above market rates since they can’t live anywhere else, and the landlords respond to this effective monopoly by shutting down their buildings? It may be true that they tore down the buildings to avoid property taxes, but in that case, the housing crisis was caused by high taxes as much as by racism.” Fred is absolutely right about motive. Landlords in many cities like Detroit often abandoned their properties to avoid paying property taxes and maintenance on them. Worse still, they sometimes hired arsonists to torch these properties, thus allowing them to default on their property taxes and (fraudulently) collect insurance money. Though it’s tempting to blame the housing crisis on high taxes, in fact the shortage owed to an artificially manipulated housing market. Since African-Americans had no choice but to rent in certain neighborhoods, a landlord with, say, two houses, each containing three apartments, could torch one property (thereby collecting the insurance money and avoiding future maintenance and tax costs), subdivide the second property into six units, and charge the exact same rent for these substantially smaller apartments. With nowhere else to go, black renters had little choice but to pay the same rents for ever-smaller and more deficient housing stock. If taxes were the key problem, landlords in other sections of the city would have attempted the same strategy. But they didn’t. This strategy made sense only in majority-minority neighborhoods. 2) Fred asked me to explain how the FHA “insured the vast portion of home mortgages.” This is also a very good question. Before the 1930s, most Americans were not homeowners. In a volatile employment market, the average worker and his family posed a default risk for mortgage providers. Thus, banks reduced their risk by demanding prohibitively high down payments, keeping the terms of their loans short (say, five or ten years), and requiring clients to pay the interest up front, thus ensuring that the bank would realize an early profit. The Federal Housing Authority, a New Deal innovation, sought to boost employment in the building trades by freeing up capital for new home construction. In simple terms, the FHA insured mortgages, thus eliminating much of the risk for banks and other mortgage providers. In turn, it demanded that participating lenders make mortgages more accessible by lengthening the terms of their loans, allowing for smaller down payments, and spreading interest payments over the course of the loan so that homeowners would accrue equity in their property with each monthly payment. Thanks largely to the FHA, by 1960 about 60 percent of homes in America were owner-occupied. 3) Fred’s final question followed on this last point. “As far back as 1948, covenants under which homeowners agreed not to sell their homes to blacks were declared unenforceable because enforcing them would require the government to participate in an unconstitutional act of discrimination. These were private agreements, and they were declared unconstitutional. How, then, was it possible for a government agency to have an explicit racial prohibition in its regulations?” Fred is exactly right that the Supreme Court invalidated restrictive covenants in 1948 (Shelley v. Kraemer). That case simply made restrictive covenants unenforceable; it wasn’t until 1968, when Congress passed (and Lyndon Johnson signed into law) an open-housing act that such practices also carried penalties. But the FHA was not technically invoking restrictive covenants. People were free to sell their homes to black buyers; the government simply refused to insure mortgages in such cases. Using maps that were drawn up by another government agency, the Home Owners Loan Corporation, the FHA assessed every census tract in America for the stability of its housing market. Assuming that houses lost value in neighborhoods that were racially mixed or primarily black or Latino, the FHA assigned such areas lower scores or “redlined” them altogether; in other words, it refused to insure mortgages in these neighborhoods or insured them on unfavorable terms. This meant that black Americans could not secure mortgages, as their mere presence in a neighborhood would choke off affordable credit. On one hand, the FHA could claim it was simply following the logic of the free market. When African-Americans moved into a neighborhood, white homeowners tended to flee en masse, thus glutting the local real estate market and collectively driving down the prices of their homes. In this sense, it was white racism, not government policy, that was to blame. On the other hand, the logic was circular. White homeowners understood on some level that when black families moved into their neighborhoods, home prices dropped. Prices dropped in part because the FHA stopped insuring mortgages for prospective buyers in these newly heterogeneous neighborhoods, thus making loans more expensive and driving down the amount of money that buyers could reasonably offer. It was a vicious circle, and one that kept the majority of black urbanites trapped in a rapidly depleting and deteriorating universe of old housing stock. It was a recipe for disaster.
|
