As we enter another summer, the goal of affordable housing for all may seem as distant as ever. Expired COVID-related eviction moratoriums and increased inflationary pressure on rents are exacerbating the already precarious existence of low-income renters, disproportionately households of color.

Bold and transformative organizing among low-income renters and the homeless is certainly making headway. But for these gains to be sustained, they must be matched with the development of new, community-driven, democratic institutions to disarm the structures that keep millions on the street or teetering on the edge of homelessness.

Current real estate structures converge around the quest for higher property values. They draw in profit seekers—developers, speculative capitalists, and banks—but also local governments reliant on property taxes and homeowners (though the latter’s political power varies by race and class). Together, these groups have the ingredients for perpetual domination. Developers and financiers fill local campaign coffers, homeowners eager to see their property values rise are more likely to vote than renters and tend to back policies that increase land values, and politicians promise more to these constituencies as increases in property values result in more city tax revenue. Meanwhile, the worlds of renters and homeowners move further apart, and the resultant gap between rates of Black and white homeownership is larger now than it was when the Federal Housing Administration (FHA) was created in 1934.

What can be done about this? A great deal. Over the past decade, activists in Baltimore have fought against the real estate lobby, advancing in its place a principle-based “Fair Development” framework centered on community, not real estate.

The lessons learned from this work form the core of a new report from Partners in Dignity and Rights, where I work. Titled From the Ground Up:  Community Centered Policies to Scale Equitable Development, the report not only names the forces of property-value fetishism, global capital, and racialized lending that impede housing affordability, but offers a roadmap for how to counteract those forces by developing new power centers led by community-driven institutions. These interventions include:

  • Community Land Trusts (CLTs), which can pierce existing political alignments around property value fetishism (where higher land values take precedence over development for human wellbeing) if a certain scale is achieved
  • Non-lapsing, community controlled, affordable Housing Trust Funds that are funded by taxing speculative capital
  • A state or local Public Bank that can shift current lending dynamics, making lending less dependent on property values and profits and thereby expanding the resources available for households and businesses of color

In Baltimore, outstanding organizing and political mobilization were able to establish a network of CLTs and a community-controlled Housing Trust fund financed by a surtax on property sales over $1 million. The work on banking remains to be done.

None of this was low-hanging fruit. Nor are the victories without backlash. The struggle over control of land and the profits derived from it is as old as scripture. The promised land is contested terrain.


Breaking the political alignments around rising property values

City governments are largely dependent on property taxes for revenue; when land prices rise, so do property taxes, increasing city revenues. For example, in the 1990s, the District of Columbia was on the verge of bankruptcy and made subject to a federal “financial control board.” But gentrification over the last 15 years has made surplus budgets common in DC as tax revenues have risen. Cities with hospitals, colleges, and museums exempt from property taxes because of their nonprofit status are under even more pressure to embrace policies that drive up land values and attract high-income households.

In short, our current system incentivizes policies that allow or even fuel land speculation. Community land ownership is one leg of a three-legged stool that can flip this toxic script. CLTs “right size” land values through nonprofit, democratically controlled, resident-led organizations that own land upon which housing, urban agriculture, or commercial development occurs. Property resale values are set, not by the speculative forces of the marketplace, but by community values embodied in ground leases, which can ensure affordability for generations.

Community landowners also become new political players and can change the existing political economy. They form a new political flank—critically, one with an interest in permanent housing affordability, rather than constantly rising land values. As direct agents of community development within a democratically run community-based organization, CLT participants can collectively act to pursue this interest.

In Baltimore City, only one CLT existed at the time of Freddie Gray’s death at the hands of police and the ensuing rebellion. Today, seven CLTs are joined together in a network that is gaining credibility and local government support. History shows that scaling CLTs requires government aid through bonds and the prioritization of public land disposition and funding. Given the politics of land values, public support for CLTs will pay for itself in inclusion and equity.


Harnessing speculative capital for community needs

It took the fixed-income security market—financial instruments that promise regular return on investment—100 years to reach $36 trillion in 2000. Within six years, the security market had practically doubled to $70 trillion. Today, it stands at $123 trillion, roughly 33 percent higher in value than the annual production of the world’s economy. And it just keeps growing.

This surplus capital circles the globe looking for investment returns. Real estate has become a favored landing spot, accounting for two thirds of global net worth in 2020.

This financialization of housing was exposed when the housing bubble burst in 2008, but financial actors like private equity firms simply shifted gears, converting discounted, foreclosed homeownership homes to rentals. Today, corporate entities are transforming entire homeownership developments into rental units, showing a preference for such activities in places like North Carolina’s communities of color, resulting in ever higher rents for already vulnerable renters.

How can communities respond? Private-equity capital can and must be taxed, with revenues placed in community-controlled funds devoted to housing justice. While global investors pool money into various corporate entities that operate below the public radar, corporate subsidiaries such as LLCs and statutory trusts still must “record” their property transactions and deeds at the local level. This is a key intervention point.

Most localities have the power to assess transfer taxes, recordation fees, and other charges relative to these transactions and can direct these monies into local housing trusts or equitable development funds. In Baltimore, an Affordable Housing Trust Fund with a community-dominated governing board was created by citizen charter petition, and the threat of another petition pushed the city to establish a surtax on property transfers over $1 million, which was targeted to the fund.

During that campaign, Baltimore activists joined forces with union activists in fighting land grabs and foreclosures orchestrated by Oaktree Capital. They were surprised to learn that state and local pension funds were invested in the private-equity company. Public money should not be used for private speculation that ultimately displaces the public. Divestment of public pension funds from real estate speculation is a no-brainer.


Ending racialized lending

Development rarely happens without loaned money. For-profit, private lending plays a key role in every type of housing. Mortgages are utilized by homeowners, landlords, and all developers, for-profit or not. The repayment of this debt is built into rents and impacts housing affordability, as well as wealth creation.

It is well established that private, for-profit lenders (with public policy assistance) played a key role in the racial and class disparities that we see in housing and wealth today. This continues today, though financial risk—not race—is cited as the cause. Indeed, the passage of the Fair Housing Act in 1968, the 1974 Equal Credit Opportunity Act (ECOA), and the Community Reinvestment Act of 1977 prohibit overtly racial lending decisions and real estate practices, but for-profit lending still leads to racially disparate outcomes, as evidenced by the disproportionate loss of wealth among households of color during the Great Recession.

After the recession, Congress passed the Dodd-Frank Act to address irresponsible lending practices, requiring residential mortgage loans on terms that “reasonably reflect (consumer’s) ability to repay.” This appeared reasonable enough. But in 2014, the Consumer Financial Protection Bureau (CFPB) finalized Dodd-Frank regulations, prohibiting predatory loans by adopting Ability-to-Repay and Qualified Mortgage Rules (QMR). The final rule allowed only borrowers with a debt-to-income ratio lower than 43 percent to be eligible for qualified mortgages, even though Federal Reserve data indicated that 34 percent of Black mortgage borrowers and 32 percent of Latinx mortgage borrowers would be ineligible for a qualified mortgage under such a rule.

Banks then went further. They shunned those with foreclosure and bankruptcy records and bad credit—the exact characteristics of victims of predatory lending. In short, banks were able to blame their victims as a pretext to redline again. Home Mortgage Disclosure Act (HMDA) data continues to show that Black households and households of color are refused mortgage loans at higher rates than whites. For-profit lending is also the foundation of a system plagued by appraisal gaps, which hinders home renovation in formerly redlined areas because renovation loans are based on anticipated market rate value, limiting the ability to borrow to finance improvements. Similar dynamics are at play with appraisal bias, where homes in neighborhoods of color are more likely than homes in white neighborhoods to be valued below what a buyer has offered to pay.

Again, what can communities do to counter these practices? The time for asking for-profit banks to just do the right thing is long past. While alternative financial institutions like community development financial institutions (CDFIs), credit unions, and even community banks have tried to fill the gap, they need more resources and back-up. But politicians continue to tiptoe around banks when it comes to structural changes.

A public bank is one such change, creating a formidable, resourced competitor to existing lending institutions. Created by a municipality or state, a public bank can hold a portion of city or state tax revenue that is usually deposited into a private, commercial bank. Instead of these public funds being used by the private bank to make profits for private shareholders, the public bank answers to a public governing board and is more likely to make loans in the public interest, such as those for deeply affordable housing, small and cooperative businesses, student loans, or equitable economic development, or for catalyzing green and just transitions. It also can support a “retail bank” sector that is currently shrinking in low-income neighborhoods.

The Bank of North Dakota is the only state or local public bank in operation today, but this landscape is changing. The Philadelphia City Council recently created a public financial authority, establishing what is effectively the first city-owned public bank in the nation. State legislation in California has created a framework by which localities can establish public banks. New Jersey’s governor signed an executive order to create public bank implementation by the end of 2020, which was stalled by COVID, but he recently vowed to fulfill the promise. In addition, legislation is being considered in New York.

Unsurprisingly, the for-profit banking industry largely opposes this effort. It has used its political influence to stop public bank legislation in some places and water down legislative language even when measures pass.

But public bank advocates are taking note, adjusting their frameworks, and building political support for public banks as flexible sources of community-controlled capital. A public bank can be the keystone to a new lending system, depending on how it is structured and governed. For-profit banking has not shown itself to be a willing partner in reversing the harm it has caused in communities of color. It is time to add a new, well-resourced competitor, with different values.


Time for a new approach

For too long, the quest for higher property values, exacerbated by rising global capital and ongoing racialized lending, has dominated urban development, making housing increasingly unaffordable. It is time for a new approach that shifts power by developing new, value-based institutional actors, such as CLTs and public banks. Divesting from speculative capital will help, and taxing private-equity gains can help resource community-controlled funds that further boost these efforts. Taken together, these measures can enable communities to move from the equity of property to a different kind of equity—one centered on fairness—and rooted in inclusion and justice.


A related webinar on this topic will be held on July 19, 2022, at 7 pm eastern time. Register for free here.