Many missed the home ownership boat (Open:Housing)

In a Q&A with Open: Housing, scholar Thomas Shapiro talks about how low-income people and people of color have been shut out of wealth-building opportunities, and what can be done about it.

By Mark Kirchmeier/Open: Housing | May 9, 2017

Housing insecurity wasn’t something that white, middle-income Portlanders used to have to worry about. Twenty years ago, a modest income, a willing lender and maybe some down payment help from your parents were all you needed to own a spacious Mississippi Avenue bungalow — and with it, a claim on substantial economic and social privileges.

Most white Portland households could jump that bar. Most black and Latino households couldn’t.

A host of factors, including a compounding history of racially discriminatory housing and lending practices, put the basic keys to homeownership out of reach for many Portlanders of color. Those shut out of homeownership began fleeing to cheaper rental markets, as housing-price increases outpaced income and wealth gains. As a result, roughly a third of African-American and Latino Portlanders own their homes, compared to two-thirds of white Portlanders.

We didn’t call it a housing crisis then. Now, we do.

As Portland enters a new phase of growth and economic stratification, a new group of residents — many white, many earning incomes at or above Portland’s median — find that they, too, are priced out of the inner city’s homeownership market.

Visiting the City Club of Portland this Friday, author and scholar Thomas Shapiro brings a timely message to America’s whitest big city, laying out a compelling argument in support of policies that widen, rather than narrow, homeownership access — including greater access for those long ago left behind.

He recently spoke with reporter Mark Kirchmeier, of the Open: Housing Journalism Collaborative, about his research and what lessons it has for the Rose City.

Open: Housing: Society has usually measured poverty by studying someone’s income, but your book emphasizes measuring both “income poverty” and “wealth poverty.” What do you mean by “wealth poverty”?

Thomas Shapiro: The government has long defined the poverty line as an income line, and it’s a very archaic way to accurately measure poverty. When I started to research my book, it became clear that a family’s income did not adequately show a family’s financial capability to buy a home, attend college and get opportunities. I think of income as a stream that passes by you, whereas wealth is more important, a reservoir you can draw upon.

If you lack wealth, you are closer to the cliff. Nearly one-half of low-income families have less than $500 in savings. If your car breaks an axle, you can be wiped out.

OH: “Toxic Inequality” states that many historic liberal achievements, such as Social Security, federal housing programs and the GI Bill, helped create the white middle class, but didn’t create a similarly large black middle class. Why not?

Shapiro: Those programs were and are wonderfully successful in helping many families achieve economically secure middle-class status, but Social Security coverage excluded farm laborers, Pullman porters and domestics who were overwhelming Latinos and blacks.

 

Thomas Shapiro directs the Institute on Assets and Social Policy and is the Pokross Professor of Law and Social Policy at The Heller School for Social Policy and Management, Brandeis University.

One historical interpretation says those exclusions were a very intentional tactic to get Southern senators’ support for passage of the Social Security Act in 1935. That’s a massive act of exclusion that prevented a whole generation of Latinos and blacks from accessing retirement security, disability coverage and all of the things Social Security helps cover. History is really important when we talk about family financial wealth.

OH: What about federal housing loans?

Shapiro: FHA loans were indispensable in helping whites finance their first home but did little for blacks who generally lived in low-income neighborhoods where FHA wouldn’t lend.

The GI Bill was great for veterans with high school degrees and the family support to go to college, but fewer black veterans were in a position to similarly benefit from it.

OH: Your book is a sweeping indictment of the popular federal mortgage interest deduction, which allows the richest homeowners in the country, who are disproportionately white, to deduct their mortgage interest payments from their tax liability. Why is that important?

Shapiro: Over the past six years more than $1.2 trillion in federal money went to subsidizing homeownership, mostly through the mortgage interest tax deduction. That is five times more public money going toward homeownership for families that can afford to buy homes than toward decent, affordable housing for those who cannot.

Homeownership is the key to economic opportunities, because if you can buy a home you will likely access a stronger neighborhood that will have stronger schools, and will further secure your family’s stability.

OH: Have any states begun to cap the mortgage interest deduction for high-end homeowners, who don’t need the deduction?

Shapiro: Oregon is off to a great start in raising the issue at your Legislature. Massachusetts now allows renters to claim a deduction for rent on their state income tax, which brings renters onto a more level field with homeowners.

OH: You point out in recent years that stock and bond indices have grown faster than the Gross National Product. Who benefits? Who loses?

Shapiro: The gap is there. Thomas Piketty’s study, “Capital in the Twenty-First Century” points out that we’ve entered an era in which gains from wealth — whether in the form of stocks, bonds or property — outpace economic growth. This is driving the extremes in wealth. If you dig into the data, most of the wealth gains are going to the top one-tenth of the 1 percent, who tend to be invested in hedge funds and speculation. Speculation is more profitable than building things, and the wealthy have gotten all sorts of tax incentives and favors from recent Congresses.

One of the prices we all pay for that is the black-white racial wealth gap. Low-income people, who are disproportionately black, are losing out.

OH: Donald Trump campaigned as a populist who supported the working class. In what ways will his tax proposals help or hurt the working class and poor?

Shapiro: His proposals are stupendously bad policy. Period. Full stop.

I’m concerned about the Trump administration not enforcing existing laws protecting the working class and the poor.

A lot of American capital is parked offshore. U.S. corporations are not repatriating profits earned in overseas markets, because they would pay a higher corporate income tax here in the United States if they did. A lot of those corporations are now drooling over Trump’s proposal to reduce the corporate income-tax rate from 35 percent to 15 percent.

OH: How do policies at the U.S. Treasury affect this?

Shapiro: I’m concerned about any new Treasury Department regulations that would shift more of Wall Street investors’ risk onto the public and the poor, as well as new Fannie Mae and Freddie Mac regulations that would create more obstacles for homeownership. For example, proposed regulations would require poor families receiving FHA (Federal Housing Administration) loans to make larger down payments, which closes homeownership access for many, and disproportionately affects families of color.

A key is the disposition of Fannie Mae and Freddie Mac. Proposals to make these agencies more “independent,” inducing more private equity and competing companies — all this means less risk for mortgage banking and more risk for private homeowners, a classic shifting of risk from business to families. And again, it chokes off homeownership access for low-income families and families of color. Your U.S. Sen. Ron Wyden, who is on the Senate Finance Committee, needs to be on top of those issues.

OH: It’s hard to save money for a down payment when your rent is rising faster than your income. The Oregon Legislature is currently considering bills to overturn a state ban on rent control. What types of rent control work best in keeping rents down, without inhibiting investment in new apartment construction?

Shapiro: Your rising rents need to be tackled from both the supply and demand side. Landlords want stability. If you guarantee them a minimum stable profit, many landlords will accept limits on how much rent can be raised in a year. If they choose to use it, cities can have lots of leverage over landlords and developers.

OH: In addition to more public investment and subsidies to help lower-income buyers afford homes, what else can be done to curb rising home prices, and bring them within buyers’ reach?

Shapiro: You can invest in better transportation systems that reduce reliance on cars, so that new housing units can reduce parking spaces, thereby lowering costs. That’s hard for me to say because I grew up in southern California loving cars, but to keep costs down in urban areas, our goal ought to be to move toward one car per family.

OH: Any final advice for Portland-area residents?

Shapiro: Independent of the federal Trump administration, your state government and cities can do a lot.