May 30, 2019; Next City
“Patterns of racial and economic segregation in Chicago have been reinforced over the last half-decade by the flow of investment in housing, commercial real estate, and small business,” writes Jared Brey in Next City. Mission-driven investments reduce disparities some, but these are dwarfed by larger market-based investments.
For example, in Chicago, market-based investment from 2011 to 2017 totaled $67 billion, while versus mission-based investment—a term that the report authors use to represent both public lending sources and lending by nonprofit community development financial institutions (CDFIs)—was only $4 billion. This data comes from a report, released by the Urban Institute this month, called Neighborhood Disparities in Investment Flows in Chicago. Written by a research team constituted by Brett Theodos, Eric Hangen, Brady Meixell, and Prasanna Rajasekaran, the report builds on prior Urban Institute research in Detroit and Baltimore.
The research team, led by Theodos, examines the differential impact of mission-driven investors and for-profit lenders. The team does uncover some good news: “Public and mission-driven actors,” they report, “have invested 10 times more per household in high-poverty neighborhoods than they have in low-poverty neighborhoods when comparing median neighborhoods.” These sources of capital have, in short, fulfilled their mission.
But because such mission-based investment is only 5.6 percent of total lending capital, all told, “majority-white neighborhoods still receive 2.9 times as much investment per household as majority-black neighborhoods, and low-poverty neighborhoods receive 2.6 times the investment of high-poverty neighborhoods.” Worse, “when investment does reach neighborhoods of color, the data suggest that such investment usually co-occurs with gentrification of the neighborhood.” This is especially the case with CDFI lending.
That said, while the correlation is clear, the casualty of the relationship between CDFI lending and gentrification is murky. “Our data are insufficient,” the report authors note, “to answer the question of which happens first (do mission investments drive gentrification, or do mission lenders invest in neighborhoods after they have begun to gentrify). Perhaps more important, our data are also insufficient to address the question of whether that dynamic is good or bad—for example, whether mission lenders are helping incumbent residents and businesses remain in place versus not.”
Both in Chicago and nationally, the impacts of capital disparity are plain to see. Nationally, “Black homeownership rates have regressed to the level of the 1960s, so we are back to the level we were at before the civil rights movement,” Theodos remarks. Indeed, national figures show that as of the end of 2018, the black homeownership rate was 42.9 percent, compared to 73.6 percent for white households.
Kristin Faust, who is president of Neighborhood Housing Services of Chicago, part of the national NeighborWorks America network, underlines the shortage of capital, which perpetuates inequality. Faust hopes the report will reinforce the need for more neighborhood investment by Chicago’s new mayor, Lori Lightfoot. Lightfoot has embraced equity and neighborhood reinvestment as a core part of her agenda.
As for the report’s findings, Theodos explains, “We have been motivated to understand how communities function—how they develop—and…how they’re able to access capital to invest in real estate and infrastructure and the residents that are living there. What we ended up finding, and we’ve found this in Baltimore as well, and Detroit, and a few other older industrial cities, is deep inequalities in how able neighborhoods are to access investment.”
Theodos adds, “Chicago has in many ways an incredible community development infrastructure, and yet it needs to be five times if not ten times in size to be able to really ameliorate the challenges we see around capital access spread through the city.”—Steve Dubb