Countering Urban Disinvestment through Community-Building Initiatives

Abstract

Since 1933 housing and community development legislation has been directed at halting the physical deterioration of U.S. cities. Help has come from federally subsidized public housing, the Federal Housing Administration (FHA), urban renewal grants, Model Cities programs, revenue sharing, community development revenue sharing, and housing allowances. More recently, cities have received federal money through tax breaks and direct grants: Urban Development Action Grants of the 1970s, the enterprise zones of the 1980s, the empowerment zones of the 1990s, and the urban revitalization demonstration public housing grants of the 1990s. This article reviews policy approaches to and legislation for community revitalization and discusses how early federal policies contributed to the segregation and isolation of poor neighborhoods. The article describes how new community-based programs and proposed federal initiatives are building on the accumulated expertise of the past 25 years. These initiatives pose challenges for research, policy, and community-level programs by creating policies and programs that transcend people-place dichotomies and recognizing the need for comprehensive community-building strategies. Urban Disinvestment Disinvestment is a series of progressive steps by which area lending institutions extricate themselves from neighborhoods they expect to deteriorate. Among the principal tactics is redlining, thus termed because more blatant disinvestment practice involves drawing red lines around target neighborhoods on area maps. Redlining may consist of outright refusal to accept mortgage or home-improvement loan applications, or it may involve a number of more subtle actions: awarding mortgage loans on inordinately short terms with high down payment requirements, refusing to lend on properties older than a prescribed number of years, stalling on appraisals to discourage potential borrowers, underappraising, refusing to lend in amounts below a fixed minimum figure, and charging inordinately high closing costs. As a policy, disinvestment is defended on the grounds that investment in high-risk areas is equivalent to mismanagement of depositors' funds and is ultimately counterproductive, both for the depositor and for the lending institution. In practice, however, redlining is less a protective action against unnecessary financial risk than a self-fulfilling prophecy of decline for specific neighborhoods. First, the decision to redline is based on a subjective assessment of the likely effects of the race or ethnicity of potential buyers, the age of the housing stock, and the potential for financial loss in a given community. Second, the assessment of decline is often made before evidence of actual decline and without reference to such factors as residents' credit ratings, the current condition of the housing stock regardless of age, and the viability of the community as a whole (including the ability to attract new buyers and the solvency of its businesses) (Naparstek & Cincotta, 1976). Consequently, redlining can undermine healthy communities. And because the immediate result of the decision to redline is the withdrawal of monies required to maintain that community's health, disinvestment ensures that decline will, in fact, occur. Local depositors living in a redlined area find that their savings, instead of being converted to mortgage and home improvement loans for local use, are directed to other, less risky areas, usually new suburban developments. Thus, the residents of redlined neighborhoods are doubly victimized, by the banks' ensuring their neighborhoods' gradual decline and by being deprived of the rightful use of their own savings. Bound inextricably to governing credit policies and to the fiscal well-being of urban centers, redlining has destructive long- and short-term consequences, both for inner-city residents and their communities (Galster, 1996; LaCouer-Little, 1996). …