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A For-Profit Housing System Can’t Eliminate Racial Inequality

Keeanga-Yamahtta Taylor’s book Race for Profit reveals a basic truth about homeownership in a for-profit housing system: it can never produce equitable, just outcomes and dignified housing for all.

An abandoned home, location unknown, in 2012. Pixo7000 / Flickr

At least 30 million people haven’t been able to pay rent since the coronavirus pandemic’s start over a year ago. As eviction moratoria across the country end, this public health crisis has forced the federal government to contend with a basic incompatibility between real estate and housing, market-rate rents and social welfare, life and death. Two federal stimulus packages that allocate $46 billion in rent relief still have not made it to struggling tenants and likely won’t before evictions explode across the country.

In 2018, over 19,000 families were evicted in New York City, with a rate of one eviction per every seventy-nine units in the Bronx, the city’s poorest borough. According to the Urban Displacement Project, eviction rates are around 300 percent higher for black renters than for white renters. And for tenants struggling to keep up with rising rents, even rent relief can’t fully address the scale of this crisis in a housing system that values protecting property more than it does housing people.

Keeanga-Yamahtta Taylor’s Race for Profit: How Banks and the Real Estate Industry Undermined Black Homeownership, a 2020 Pulitzer Prize nominee released last month in paperback, details the relationship between the American federal government and the real estate market from the early 1960s to the mid-1970s. Taylor argues that homeownership, enforced by a public-private partnership between the state and real estate, has allowed banks and real estate to extract from poor and working-class black people while preventing the maintenance and expansion of dignified public housing options.

Taylor analyzes this partnership at a pivotal time in US history: the transition from Lyndon B. Johnson’s presidency, marked by urban uprisings and the War on Poverty, to Richard Nixon’s, marked by his revanchist “New Federalism” and the War on Drugs. In the last year of Johnson’s presidency, 1968, the Fair Housing Act was passed, a cornerstone of Civil Rights legislation. For the first time, the federal government was tasked with banning discrimination in housing. A few months later, the Housing and Urban Development (HUD) Act passed. Johnson praised this legislation as the “Magna Carta of the Cities,” describing it as “the most  comprehensive, most massive housing program in all of American history.”

This expansive legislation included federally subsidized mortgage programs, mortgage insurance, lowered interest rates, and the goal to build 26 million units of new housing, with 6 million designated as subsidized housing, within the decade. According to Johnson, these ambitious goals were to be met by bringing “the talents and energies of private enterprise to the task of housing low-income families through the creation of a federally chartered private, profit-making housing partnership.”

The HUD Act’s Section 235, administered by HUD and its subsidiary the Federal Housing Administration (FHA), used federal money to subsidize mortgages in order to expand the housing market to low-income consumers, notably black women receiving Aid to Families with Dependent Children (AFDC). Johnson’s inclusion of poor black women in the real estate market was an act of “racial liberalism,” where progress is indicated by black people’s inclusion in markets. “Given the tumult at the center of urban life through the 1960s, the hope was that property ownership could tame the Black rebellion coursing through cities across the country. It was also hoped that opening homeownership possibilities for African Americans in cities would curtail their demands for entry into white suburban communities.”

Discussions of racial inequality in American housing often focus on how unequal access to homeownership has created a racialized wealth gap and barred black people from full inclusion in upward mobility. The Brookings Institution found that in 2016, white households’ median wealth was nearly ten times greater than black households’. Racial wealth disparities, along with white flight and segregated suburban development, have produced a popular wisdom that granting black people access to home ownership would allow them to build the wealth long denied them and thus achieve a kind of delayed emancipation.

Section 235 should have expanded and improved black consumers’ access to home ownership. Instead, it exposed black people to predatory banks, while the real estate industry sequestered these consumers to a segregated inner city and price gouged them for uninhabitable houses. Taylor calls this racist practice “predatory inclusion,” resulting in “exploitative economic transactions [that] made the Black housing market very lucrative for those positioned to extract capital from Black communities.”

From Predatory Inclusion to Mass Foreclosure

Race For Profit is as meticulous in its details of government policies as it is abundant with the personal stories of those impacted by this predatory inclusion. One example is Sally Fordham in Detroit, who needed a home for her and her nine children. As was common practice in the HUD-FHA mortgage program,  “the real estate agent thrust papers at [Fordham], asking for signatures on the spot, and within moments, Sally Fordham was a homeowner.”

But to Fordham’s dismay, she soon learned that the house she had signed for had no light switches. Defective plumbing discarded sewage into the house’s basement, and the oil furnace did not work, frequently causing Fordham’s children to get sick from the chill.

“I bought gallons of Lysol and stuff last summer and poured it down in the basement but nothing seemed to help,” Fordham said at the time. “We’ve applied for a place in a public housing project. I just don’t know what to do. … All I would like is a good old standard home. Nothing fancy. Just a good home with heat. That’s all.” A Legal Aid lawyer advised Fordham to stop making payments on the house, because her real estate agent conned her into buying an uninhabitable property.

Because poor and working-class black buyers didn’t have the capital for conventional loans, HUD-FHA invested in mortgage banks. Mortgage banks “derived their funds from high-interest-rate loans taken from commercial banks.” FHA incentivized mortgage banks with “discount points” extracted from sellers and other “front end fees,” all paid at the closing of a deal. Commercial mortgage banks didn’t have any incentive to keep people housed, because they cashed in on closing costs, and they benefited from foreclosure, receiving “fee[s] by HUD-FHA to maintain the property until it was sold again.”

Taylor writes, “By 1972, when HUD-FHA’s housing problems were cresting, mortgage banks originated 73 percent of all FHA-insured loans.” Thousands of HUD-FHA mortgaged homes went into foreclosure as homeowners like Sally Fordham refused to pay their mortgage, with no consequence to the lending banks. Rather than regulate HUD because of this failure, Nixon enforced a moratorium on Section 235 and an “indefinite” suspension of all funding and construction of low-income housing across the country.

The HUD-FHA housing program’s corruption was spectacular and at every level of the real estate industry; by 1974, twenty-eight HUD officials had been indicted for corruption. Each case was jaw-dropping in its shamelessly blatant methods of extracting from homeowners:

In Philadelphia, mortgage companies rewarded speculators who brought in new clients, no matter the unscrupulous methods used. One company, the United Brokers Mortgage Company (UBMC), took real estate speculators who met mortgage-bank-determined quotas for recruiting unsuspecting poor homeowners on all expenses-paid-cruises. The UBMC had real estate agents compete with one another for a spot on a cruise based on achieving a predetermined number of sales. … On one of these excursions, Delores Tucker, an African American woman who managed the Pennsylvania state office that investigated complaints about real estate brokers, accompanied forty real estate speculators and officials with the UBMC on an eight-day cruise in the Caribbean.

HUD became a national embarrassment. The mortgage program’s failures were well reported throughout mainstream media — “not for the role of private enterprise and the potential mismatch of attaching market principles to the crucial effort to provide housing for low-income African Americans, but for lending to Black women receiving welfare.”

A Housing Movement for Today

President Nixon used the HUD-FHA crisis to sow distrust of government, dismantle the welfare state, and sell the private sector as a preferable alternative to addressing systemic inequalities. His predecessor Johnson, with bipartisan support, attempted to massively increase low-income housing by investing in the private sector, laying groundwork for Nixon’s New Federalist agenda. Nixon described his plans as offering “more money and less interference” to state and local governments, and “not as a way of avoiding problems but as better ways of solving problems.”

In reality, this amounted to cruel austerity and negligence of the black poor, a predecessor to the neoliberalism that soon found bipartisan support and similarly hid behind deregulation and fiscal responsibility. A government investing in private markets through kickbacks, subsidies, and bailouts is not, in fact, less government. Nixon’s promise of “less interference” meant less intervention in rectifying racial inequality and poverty, and more intervention on behalf of capital. And private enterprise was not the only beneficiary. Police budgets began to soar in response to Nixon’s manufactured “War on Drugs.”

Taylor argues that we must abandon the notion that homeownership will ever be “the cornerstone of political, social, and economic freedom for African Americans,” because it is bound by the dictates of the market:

Discriminatory differentials were embedded in the US housing market based on a combination of historical and continuing practices within the real estate, housing, and banking industries—abetted by the failure of the federal government, in any historical period, to enact rigorous regulatory compliance with civil rights laws. … This reality is even more pronounced when the industries connected to housing have consistently made race a factor in market imperatives. Racial difference and antipathy are not unintended consequences of the market; they helped constitute it.

The path to homeownership has not produced financial success for black people in the US. Black people continue to represent the highest rate of those who lose their homes to foreclosure and who face eviction in major cities. Racial inequalities in housing are just as present today as when the Fair Housing Act promised black families the right to a home in 1968.

Taylor’s work has raised questions that challenge this nation’s long history of prioritizing the ownership of property over human life. Right now, we are faced with an increase in the financialization of property and rental markets saturated with private equity landlords. She writes of her project, “None of this suggests that Black people should be consigned to the rental market; rather it is intended to question a social order that makes the quality of one’s life and the substance of one’s citizenship contingent on the possession of private property.”

Race For Profit’s call to decommodify housing comes as the coming end of eviction bans forces a national conversation on the inhumanity and unsustainability of a housing system controlled by real estate and banks. Legislators are already responding. Alexandria Ocasio-Cortez and Bernie Sanders’ Green New Deal for Public Housing proposes investing $172 billion in improving public housing, putting money into housing as a social good rather than a financial asset.

As we wait for the rent relief to kick in — for those of us lucky enough to get some — tenants and unhoused people are organizing around a basic principle: housing is a human right. Unhoused people in Oakland and Los Angeles have reclaimed city-owned vacant homes. Tenant unions all over the country are organizing trainings on defense against evictions. Tenants rights’ groups have been fighting for the right to counsel for tenants facing eviction and winning, with Louisville, Kentucky becoming the ninth city to pass legislation supporting this since 2017.

Each new month of unpaid rent brings with it an opportunity to build a larger, more powerful housing movement. Taylor’s work recognizes this potential. Race for Profit, like all good history, has rewritten the past so that we can reimagine a future, one in which our housing system is no longer built on profitmaking.