Need For National Urban Policy

The Need for a National Urban Policy

Our local policy toolkit is designed to react to particular experiences and particular policy constraints and opportunities. In other words, it helps determine what policies are needed for your gentrifying neighborhood.  However, several aspects of gentrification, displacement, and homelessness were constant across the cities and neighborhoods we studied.

Housing as a financial asset

First, increasing wealth among some members of the population combined with the importance of housing as a financial asset plays a distinct role in displacement. Areas that are close to downtown or had cultural assets were attractive to increasingly wealthy residents in all our case study cities, causing landlords to charge increasingly high rents. As rents increase, so do property values, increasing the desire for investors to purchase and build in the area. As demand increases, property values and prices rise even further. Higher prices, loss of existing fabric, and coerced buy-outs can all push existing residents out.

Systemic inequalities

Second, existing residents are far less able to shape change, push back against coercion, afford price increases, or easily find alternative housing because of systemic inequalities. The residents that are most vulnerable to gentrification have been shown to have less wealth and political clout than residents who move in when a neighborhood gentrifies. This inequity has been caused by a history of segregation, disinvestment, and displacement from urban renewal. Most gentrifying or gentrified neighborhoods that we studied, for instance, correlate exactly with areas that were redlined, preventing homeownership and wealth building. Inequalities in political clout are exacerbated today as local governments frequently put the desire of wealthy neighborhoods to avoid growth and change and the desires of new residents in gentrifying neighborhoods above the needs of existing residents.

Limited city funding

Finally, cities have limited funding at their disposal to address these inequities. The federal government has divested from public housing and mental health institutions since the 1980s. All cities reported that there are not nearly enough Housing Choice Vouchers, Low Income Housing Tax Credits, or other subsidies available from the federal government to meet rising demand from families facing displacement. Nationally, only one in four families eligible for vouchers receives one; other families are left to try to find new housing on their own, often resulting in episodic homelessness. Even when families receive vouchers, caps on applicable rents mean that they cannot use them in their own neighborhoods if prices are dramatically increasing.

Sources
  • Ellen, Ingrid Gould and Gerard Torrats-Espinosa. “High-Cost Cities, Gentrification, and Voucher Use.” From Research Symposium on Gentrification and Neighborhood Change, Federal Reserve Bank of Philadelphia: May 25th, 2016.
  • Fischer, Will and Barbara Sand. "Chart Book: Federal Housing Spending Poorly Matched to Need." Center on Budget and Policy Priorities: March 8, 2017.
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These aspects point to policies needed by every gentrifying neighborhood. These can and should be addressed at the national level, not only because of their universal nature, but because current and past federal policy, particularly around raising and spending revenue, creates and exacerbates these problems.

Federal tax policy promotes real estate as an asset

When a homeowner sells, their revenue is viewed as capital gains, Capital gains from selling land, art, or other assets are, as a rule, taxed at a lower rate than other forms of income. The practice of taxing capital gains at lower rates disproportionately benefits higher-income households, who are more likely to have such assets. In 2016, 76% of benefit from lower rates went to households with incomes over $1 million. In home sales, households can exclude capital gains of up to $500,000 from any tax. By increasing the possible return on owning a home, this exclusion has been shown to increase home sales as people seek to profit from selling homes. The practice is also a sizeable investment from the federal government, making up roughly $24 billion in federal housing expenditures in 2015.

Federal housing policy subsidizes high-income households

While it is often argued that the mortgage interest deduction (MID) provides access to homeownership, households that use the program are higher income households who are likely able to afford a home without the deduction. Sixty-four percent of all households claiming MID make more than $100,000 per year. Additionally, benefits are disproportionately concentrated among the highest income households; though only 21% of households claiming the deduction make more than $200,000 per year, these households claim 46% of benefits allocated through MID.

There's not enough federal spending on subsidized housing

The federal dollars spent on MID and the capital gains exemption prevent funding needed to meet demand for subsidized housing. The mortgage interest deduction alone, with a 2015 expenditure of just over $70 billion, uses more than the $55 billion spent by most major affordable housing programs combined. This means that we spend more subsidizing homes for the 7 million households with incomes greater than $200,000 than we spend on the 55 million households with incomes of $50,000 or less. Indeed, a typical one of these higher income households receives an estimated $6,076 per year in housing assistance compared to the $1,529 received on average by those with incomes below $20,000.

Federal policy has been shaped by historic prejudices

Federal policy has played a major role in creating inequities between downtown and wealthier areas in urban regions. In the 1930s, the Federal Housing Administration indicated that it would not insure mortgages in neighborhoods it deemed to be risky, which often correlated with downtown neighborhoods with primarily African American residents. Suburban areas, on the other hand, were much more likely to receive insurance. With the Housing Act of 1949, the federal government laid out a process by which cities could identify “blighted” areas, clear them of existing residents and buildings using federal subsidies, and redevelop them into commercial districts that white policy-makers thought were necessary to revitalize cities in the age of the suburb. The policy scattered the low-income communities that had made their homes there and offered little compensation in return, creating a further loss of wealth.

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1.1. Will Fischer and Barbara Sand, Chart Book: Federal Housing Spending Poorly Matched to Need, Center on Budget and Policy Priorities, March 8, 2017. https://www.cbpp.org/research/housing/chart-book-federal-housing-spending-is-poorly-matched-to-need 2. Ingrid Gould Ellen and Gerard Torrats-Espinosa, “High-Cost Cities, Gentrification, and Voucher Use,” Research Symposium on Gentrification and Neighborhood Change, Federal Reserve Bank of Philadelphia, May 25th, 2016. 3. Reforming the Mortgage Interest Deduction: How Tax Reform Can Help end Homelessness and Housing Poverty, National Low Income Housing Coalition, August 2017. 4. "How are capital gains taxed?” Tax Policy Center Briefing Book: Key Elements of the U.S. Tax System, Tax Policy Center, http://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed 5. “What is the effect of a lower tax rate for capital gains?” Tax Policy Center Briefing Book: Key Elements of the U.S. Tax System, Tax Policy Center, http://www.taxpolicycenter.org/briefing-book/what-effect-lower-tax-rate-capital-gains 6. Hui Shan, "The Effect of Capital Gains Taxation on Home Sales: Evidence from the Taxpayer Relief Act of 1997," In HHS Public Access, U.S. National Library of Medicine, 2011, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3002430/ 7. Will Fischer and Barbara Sand, Chart Book: Federal Housing Spending Poorly Matched to Need, Center on Budget and Policy Priorities, March 8, 2017. https://www.cbpp.org/research/housing/chart-book-federal-housing-spending-is-poorly-matched-to-need 8. Will Fischer and Barbara Sand, Chart Book: Federal Housing Spending Poorly Matched to Need, Center on Budget and Policy Priorities, March 8, 2017. https://www.cbpp.org/research/housing/chart-book-federal-housing-spending-is-poorly-matched-to-need 9. Reforming the Mortgage Interest Deduction: How Tax Reform Can Help end Homelessness and Housing Poverty, National Low Income Housing Coalition, August 2017. 10. Alex F. Schwartz, Housing Policy in the United States (New York: Routledge, 2015), 73-74. 11. Mindy Thompson Fullilove, Root Shock: How Tearing Up City Neighborhoods Hurts America, and What We Can Do About It (New York: Ballantine Books, 2004), 57-60.