CityLab Daily: Queens’ Housing After Amazon

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What We’re Following

Queens gambit: The arrival of Amazon’s second headquarters in Long Island City, Queens, was supposed to overhaul the area’s real estate scene. A sleepy condo market became the object of bidding wars, even if other New Yorkers greeted the prospect of rising rents with terror. But now that Amazon is breaking off its engagement with New York, the buying frenzy has evaporated. Some residents think Queens dodged a bullet, fearing that Amazon would have driven out longtime residents in favor of moneyed techies. Instead, Long Island City faces a different problem: the status quo.

Before Amazon kicked off a gold rush, Queens was marked by an oversupply of luxury condos and a shortage of affordable housing, while the city as a whole has struggled to keep up with demand for places to live. With the company’s departure, even affordable housing projects tabled for the HQ2 deal may no longer be a possibility. CityLab’s Kriston Capps has the story: Without Amazon HQ2, what happens to housing in Queens?

Andrew Small


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How Natural Disasters Can Spur Gentrification

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The Town Where Retirees Can’t Retire

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Capturing Black Bottom, a Detroit Neighborhood Lost to Urban Renewal

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I Answered Strangers’ Philosophical Questions on the Street

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Check It Out

(Ariel Aberg-Riger)

Public libraries are among the last free places in the U.S. that openly cater to the needs of just about everyone who walks through the doors, whether they’re toddlers, teens, the elderly, new parents, students, and the homeless. But it hasn’t always been this way: They began in the 1700s as clubs accessed almost exclusively by wealthy white men.

By the turn of the 20th century, women’s clubs were the driving force of America’s boom in public libraries. Later, civil rights organizations fought to outlaw discrimination of “public accommodations” like libraries. By the late 20th century, libraries re-examined and expanded their mission, as highlighted in the 1990 quote above from the America Library Association. Today on CityLab, visual storyteller Ariel Aberg-Riger shares the story of how America’s public libraries came to be.


What We’re Reading

American segregation, mapped at day and night (Vox)

Driverless cars will transform cities? One already has: the elevator (Forbes)

Why your apps can find you, but 911 can’t (Wall Street Journal)

The fight for justice takes its toll on Ferguson activists (New York Review of Books)


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A History of the American Public Library

Editor’s note: This month, CityLab’s visual storyteller Ariel Aberg-Riger shares the story of how America’s public libraries came to be, and their uneven history of serving all who need them.

Further Reading:

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There’s a Tile Theft Epidemic in Lisbon

Jorge Costa was looking forward to a lazy Sunday when one of the employees at his Lisbon café called him up, breathlessly breaking terrible news: Much of one of the tile murals that had graced the façade of the Leitaria da Anunciada for the better part of 70 years had been ripped off the wall, leaving a gaping hole of exposed plaster.

Nearly 60 hand-painted tiles depicting a pastoral scene of grazing cows had been stolen, apparently in the early morning hours, when there’s little traffic in this largely commercial neighborhood off of Lisbon’s tony Avenida Liberdade. The tiles had been commissioned by the first owner of the Leitaria—which opened in 1927 as a dairy, with cows and goats living inside the building—after new hygiene rules forced him to move the animals out of the city.

“He was so sad about getting rid of the animals that he invested five whole years-worth of savings in the tile murals,” said Costa, 45, the current owner of the business, which has been passed down through three generations, mutating from a dairy into a café as times, regulations, and fashion changed. “For all these decades, the murals were what set us apart; they were our symbol.”

Such robberies are commonplace in Lisbon, Portugal’s pastel-hued capital, which is also the tile capital of Europe, bar none. The tiles run the gamut in terms of age and style, with the oldest blue-and-white ones painted by hand, and semi-industrial ones, a riotous rainbow of sometimes-dizzying graphic patterns. So many buildings here have tile-covered façades that tiles, or azulejos, as they are known in Portuguese, have become one of the unofficial symbols of the city: The souvenir shops here are brimming with tile-themed chachkas; the National Tile Museum is among the city’s most-visited institutions; and tile collectors from around the world regard Lisbon as their Mecca.

“For centuries now, azulejos have defined what it means to be Portuguese,” said Dr. Vítor Serrão, an art history professor at the University of Lisbon. “From the Middle Ages through today, tilework has been the definitive Portuguese art form.”

But tiles are, of course, a very particular art form—one that, unlike paintings or etchings or sculptures, can’t be securely stored or protected. And with a single azulejo fetching hundreds of euros at the city’s more reputable antique stores, tiles, which are just sitting there out in the open, unprotected, are easy pickings for specialized thieves, as well as drug addicts and others desperate for quick cash. Even tourists have been known to pry tiles off façades to take home as a souvenir.

Removing tiles is a crime, punishable by up to eight years in prison, but the enormous difficulty of prosecuting these kinds of cases make such convictions rare. Under Portuguese law, the onus is on police investigators to prove that the tiles they sometimes manage to recover were ill-gotten, and point to the specific building they were stolen from. Prevention is, of course, no less complicated.

“In order to keep these kinds of crimes from happening, you’d have to place a police officer outside every building with tiles,” said Rita Vieira, who heads the said police task force in that investigate such crimes in Lisbon, the so-called Artwork Brigade. “Obviously that’s unviable.”

It was long thought that the Portuguese predilection for tiles was born out of the centuries-long North African occupation of the Iberian Peninsula, but newer scholarship suggests that the first tiles to grace Portuguese churches and other monuments were, in fact, imported from Sevilla, in neighboring Spain, at the end of 15th century, said Dr. Rosário Salema de Carvalho, of the University of Lisbon’s Tile Research Network. Portuguese artists, including some of the most celebrated painters of the day, would soon try their hands at tile-making as azulejo-covered interiors became all the rage. The fashion would later spread to Portugal’s colonies, particularly Brazil, and migrate from the interiors of buildings to their exteriors, too—tile façades having proven effective at protecting buildings from humidity and aging. 

Tile theft and destruction has long been a problem, but the recent booms in tourism and real estate—which over the past few years have transformed Lisbon from a forgotten backwater into one of Europe’s most coveted destinations for visitors and expats alike—are also helping fuel the destruction of Lisbon’s tile heritage. The demand for tiles as souvenirs has fanned a thriving black market at the city’s flea markets, where stolen tiles fetch but a fraction of the three- or even four-figure prices at antique dealers but still represent quick cash for sellers. (Antiquarians are required to report any tiles they purchase to local authorities and must account for the provenance of each piece, but it’s impossible to apply those rules to the informal sector).

And with property prices spiraling, tile façades can be seen as a burden by homeowners eager to cash in on the real estate boom. A 2017 law aimed at protecting tile façades forces homeowners—even the owners of buildings that don’t have any protective historic status—to get permission before they remove any tiles. This means that developers can no longer simply swoop in and demolish buildings with tile façades—and that tile thefts and vandalism can actually prove a boon to owners looking to downplay the value of their façades.

“We know there are still many cases of tiles conveniently ‘disappearing,’ right as a building is slated to be turned into a hotel, for example,” said Dr. Joana Sousa Monteiro, director of the Lisbon Museum, which has among the country’s premier tile collections. She added that developers are often eager to donate historic tiles to the museum in bid to free themselves of the responsibility of having to maintain them in situ. While the museum does accept some exceptional pieces, their top priority is to make sure tiles are kept in place. “Tiles go beyond just the physical object themselves because many of them were created for a specific site, and we feel strongly that they need to be kept there.” 

Inside buildings, the situation can be even more complicated. While exterior tile façades emerged as a trend only in the mid 19th century, when industrial techniques allowed for tiles to be made on the cheap, tile interiors became popular when Lisbon was rebuilding after the 1755 earthquake and tidal wave that flattened much of the city. Those earlier hand-painted tiles, usually featuring in murals, are much more valuable. And because there are so many abandoned buildings in Lisbon—where longstanding rent controls often made it financially unfeasible for landlords to keep their properties up—vacant homes are often sacked for their historic tiles.

“Those are the worst cases because the thieves just come with a pickaxe and go at the walls, and they usually destroy more than they manage to pry off,” said Domingos Lucas, also an officer with Lisbon’s Artwork Brigade. “It’s heartbreaking, because once that patrimony is gone, it’s gone. There’s no way of bringing it back.”

Recent years have seen a groundswell of initiatives aimed at helping preserve Portugal’s tile heritage, including Lisbon’s tile bank, where owners can go to replace tiles that have fallen off or been stolen; databases, including one, Mapping Our Tiles, that uses crowd-sourced photos to create an interactive online map of tile façades throughout Portugal; and SOS Azulejos, a police initiative aimed at scoring tip about stolen pieces.

But still, incidents like the overnight robbery at the Leitaria da Anunciada keep happening.

Owner Jorge Costa said he’d been warning the landlord for years that the murals’ deteriorating condition could invite theft, with a single missing tile making it easier, both practically and psychologically, for passers by to tear off others. But the landlord—ironically, Portugal’s state-run water utility—not only didn’t make any repairs but also prevented Costa from making the repairs himself.

“Nobody seems to care about tiles until they go missing,” Costa said. “The thing is, these historic tiles aren’t mine, and they aren’t yours—they’re everyone’s, and we all have a duty to protect them.”

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Cape Town Is Food-Rich, so Why Are Some Residents Food Insecure?

Cape Town is foodie heaven. It brims with fancy restaurants, delicatessens, and coffee shops where well-heeled local trendsetters join thousands of tourists in search of gastronomic adventure. The city’s restaurants win accolades every year. In 2016 Cape Town was voted Best Overseas City for Restaurants and Bars in the Conde Nast Traveller Readers’ Travel Awards.

But, says celebrity chef Reuben Riffel, “It feels very wrong. We continue trying to create amazing, expensive food, but our neighbors are going without food.”

In many areas of the city where the spatial planning and economic legacy of apartheid still exists, there are food deserts. Unlike most such deserts—where there is little to no nourishment in sight—this one is surrounded by food. South Africa is just one of 23 nations on the planet to constitutionally guarantee the right to food to its people according to an FAO survey. The country is currently producing enough to feed the entire nation. And Cape Town and its surrounds are major raw food producers.

The city’s poor, however, just can’t seem to get hold of it.

Chef Reuben Riffel (Courtesy Reuben Riffel)

But a number of local leaders in Cape Town’s renowned restaurant industry—people like Riffel whose eponymous restaurant is in the Cape Winelands, a verdant area 40 kilometers east of the city—are working to change that by bringing those on the fringes of the food economy into the mainstream.

At the restaurant House of H in the center of Cape Town you can get your meat cut and grilled in front of you, and topped with mushrooms grown in bags strung across the walls of the restaurant. On arrival you are handed a digital smart card that will let you tap and scan your choices for later payment. It ticks all the boxes for cool among the city’s hipsters.

H (more formally, Heinrich Koen) the burly tattooed chef, says that growing up in the lower-income suburb of Uitsig, only about 10km from Cape Town’s foodie heart, but thanks to history, effectively another country, the struggle to find affordable food was ever present.

“When we were growing up the ‘once-a-month shop’ would turn into ‘once-every-two-months shop’ because everything got so damn expensive. Prices go up and up and they never come down,” he said.

Yet in the heart of the city lies the 3,000 acre Philippi Horticultural Area—known locally as the PHA, the most productive horticultural area per acre in the country, with unique climate factors permitting farmers to produce three to four crops per year, giving the city access to some of the best fresh food abundance in the world. Yet on the borders of the PHA agricultural area, more than 80 percent of residents are food insecure according to a report by the African Food Security Urban Network. Per the study, most poor households in Cape Town are food purchasers not producers, yet they have a difficult time affording the prices at the big-brand supermarkets, even though most shop at them.

As for food producers, on opposite ends of the spectrum sit the big-ticket commercial producers who have technology and scale on their side, and the poorer single-crop or small-scale producers who try to find a way to break into the wider food economy.  And often locally grown produce is shipped to the area where farmers can make their best returns, a report on the Philippi Horticultural Area finds.

Koen sees the retail food monopoly first hand. “We all go to the market: the famers, the chefs, the traders, and the grocery store buyers. The big guys, like Woolworths and Pick n Pay, get their pick first because they have more buying power,” he says. When they sell the produce on, it includes a big mark up. “Only the store benefits,” he says.

For him, one way of addressing the food divide is to bring marginalized producers into the frame by sourcing ingredients fairly. In recent years he has been working with Khulisa Social Solutions, a non-profit that partners businesses with disadvantaged community members to teach them employable skills—in Koen’s case, cooking. In exchange, Koen gets to source produce from Khulisa’s garden, just down the street, which helps him avoid the profit-hungry middle man. Choosing to shop directly from source, he knows, is a privilege that generally only the wealthy or those in the business can afford.

But the explosion of the foodie culture has created demand for niche local, organic production for high-end consumption however, offering the possibility that small-scale urban gardening projects like Khulisa’s can be turned to commercial opportunity and create a route out of poverty. It’s a mission that is not without critics. As Riffel says, growing fruits and vegetables in your own yard is great, but not everyone has that opportunity: “Right now land is just too expensive.” Yet a number of these projects have become economically viable to the extent that they are able to sell excess produce into the higher end market, allowing chefs like Koen and Riffel to use their buying power to make the industry more inclusive.

A few kilometers from the PHA, a non-profit called Philippi Economic Development Initiative, PEDI, that runs the Philippi Urban Agriculture Academy, has just signed an agreement with the City of Cape Town to train a network of emerging growers to become accredited small-scale organic farmers. The PUAA project is housed in a series of growing tunnels that have been the site of two years of research and refinement on the use of vermiculture (worm farming) to provide soil enrichment, and a flush irrigation system that minimizes water use. Its investment in imparting meaningful skills has seen one of the project’s earliest trainees, Zodidi Meke, promoted to the position of farm manager. As part of the PUAA program she will supervise 22 farmers annually as they train and work towards a certification that will enable them to participate in the mainstream economy on their own merits. They will also have access to markets through an PEDI-managed Agri-Hub that the city has mandated to provide a platform for such farmers to reach markets.

Riffel says he witnessed food insecurity and isolation first hand growing up in Groendal, a poor community on the fringes of one of the area’s flagship fine dining centers, Franschhoek in the Cape Winelands—a top destination for food tourists exploring greater Cape Town. It is there, in the heart of the wine district, that Riffel opened Reuben’s, his hugely successful first restaurant, just down the road, but a world away from where he started.

Food was a unifier in Riffel’s family life. Group meals were made from homegrown ingredients that anchored him to the people and the place. “My ma had a way of making food that made us feel not poor,” he told a journalist in 2017. Perhaps more importantly, she also sometimes brought home morsels from the restaurants where she worked, piquing Riffel’s tastebuds and interest in food.

But culinary extravagance was not a feature of life in their part of Franschhoek, and the overall lack of food security in his area divided the community. “The river in the middle of town divided the neighborhood. There were small little pockets of friends, for those who went to church together, but as a whole, there was almost no community force,” he said.

A divided community is an unproductive one, Riffel says. He makes it his business to teach food gardening on community projects, and cooking skills to local school children. He also relies on his celebrity status for his work as a brand ambassador for Fairtrade South Africa, getting his fans involved in and aware of the need for ethical farming and food sourcing.  

Justin Bonello at one of the Neighborhood farms he runs. (Martine Barker)

Chef and filmmaker Justin Bonello has created a Neighborhood Farm project focused on bringing sustainable urban gardens to schools to be used as community centers for learning, growing, and building the local economy. The project has 11 farms in the southern district of the city. The sites employ people from disadvantaged communities with the goal of providing them with the skills to become economically self-reliant small-scale farmers.     

Bonello’s farm project is driven by his belief that the retailer middlemen have widened the gap between farmer and consumer enormously, creating a “forgetting generation” that is disconnected from their food. A new approach would require a value switch that puts ordinary people’s needs above those of big-business. Bonello—known locally as a hero of Ultimate Braai Master, a hugely popular reality TV show featuring his skills on the barbeque—calls this a well-being economy, which he is helping to build one urban farm at a time.

“We need to reconnect people with their food by creating large scale urban farms that allow people to do this, and also pay farmers directly. The second you have a middle man in there it become an extractive process focused on making profit,” Bonello says.

“We’ve increasingly placed our interests in a retail system that doesn’t always have our best interests at heart, and they’re starving us.”

This story was produced in association with Round Earth Media.

  

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Lessons Learned from Age-Friendly Columbus and Franklin County

In Columbus, Ohio, we dedicated ourselves to planning with, not for, our older adults. For us, that meant committees made up of content experts (professionals working in transit, housing, development, aging, and elected officials) and experience experts (older adults and individuals with disabilities) totaling over 125 volunteers that lead our work. Our initiative started at the Mid-Ohio Regional Planning Commission, outside of the typical “aging world” in order to challenge cross-sector leaders to work with an “age-in-everything lens.” In 2016, we completed our assessment through a city-wide random sample survey, focus groups held in six languages, and tabling at various events. In total, we heard from nearly 1,200 older adults over the course of six months.

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How & Why to Create a Culture of Innovation in Transportation Agencies

Though there are many critical factors in creating and sustaining a culture of innovation, leadership has emerged as perhaps the most critical. A change of administration or staff turnover is one of the most common reasons for why these initiatives end. Therefore, it is important to take the politics out of innovation by ensuring that champions are not all political appointees or nearing retirement.

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Without Amazon HQ2, What Happens to Housing in Queens?

After Amazon named Queens one of the winners of its reality-television-style competition to build a second headquarters, real estate in Long Island City flipped upside down. Overnight, a sluggish buyer’s market became a seller’s paradise. Real estate firms reported sales of many times their usual volume. Stories of brokers selling units sight unseen via text tickled developers, even if other New Yorkers greeted the news with terror.

Now that Amazon is breaking off its engagement with the Big Apple, the passion that stoked the HQ2 buying frenzy has evaporated. So what happens next for Long Island City and neighborhoods nearby? Some residents think that Queens dodged a bullet: Jeff Bezos’s prosperity bomb would have terraformed the neighborhood, they say, driving out longtime residents in favor of soul-cycling engineers. Instead, Queens faces a different problem: the status quo, which might be more daunting than the worst-case scenario under Amazon.

Not everyone believes that Amazon’s non-arrival will mark a huge change in course for Queens. Long Island City “is not a neighborhood based on Amazon,” says Brendan Aguayo, a senior managing director at Halstead Property Development Marking, which sold two units in a Long Island City condo building to Amazon employees within a week of the first HQ2 announcement. “For all the reasons they decided on [Long Island City] to begin with, we are confident the neighborhood will thrive well beyond when this fades into the background.”

Neither he nor Lauren Bennett, a Corcoran broker who sold five units in Long Island City after the news of Amazon’s arrival, would say whether their HQ2-connected clients had expressed any buyer’s remorse. One unit in Bennett’s portfolio—a three-bedroom condo on 51st Avenue that had languished on the market for eight months without an offer—became the object of a bidding war after the mere rumor of Amazon’s move to Queens. The New York Post reported that the winning bid was $300,000 over the initial offer and above the $1.49 million asking price. (Bennett declined to answer questions about the status of this sale or others.)

But plenty of brokers feel far less optimistic than Aguayo. One told Bloomberg that Long Island City, which anticipated a transformation into a tech hub, was fated to remain a bedroom community for Manhattan commuters. Nancy Wu, an analyst for StreetEasy, said in an email that the turnabout highlights the risk involved with speculative investment in New York. “Now that the company has decided against setting up their new headquarters in Queens, we expect asking prices and buyer interest to fairly quickly revert back to their pre-announcement levels,” she said.

Before Amazon announced its plans to move into Queens and kicked off a gold rush, local sales were stagnant. Sellers were slashing prices. Inventory was overbuilt: up 62 percent in October 2018 over the same month the year prior. Before the rumor of HQ2, it looked like it would take years for this housing market to return to a point of equilibrium.

Brokers who stood to make a mint in a buoyant market are frustrated by Amazon’s reversal, of course. But so are some of New York’s most vulnerable residents. Presidents of the tenant associations for four New York City Housing Authority public housing developments in Queens issued a statement condemning the leaders who they believe drove Amazon away from the bargaining table.

“New York has now lost 25,000 good-paying jobs,” reads the statement from the presidents of the Astoria, Queensbridge, Ravenswood, and Woodside Houses tenants associations. “The City and State will now lose tens of billions of dollars in revenue that could have been invested in NYCHA, and the tenants we fight for every day.”

Their letter highlights a central tension to the Amazon drama. Tenants of low-income housing broadly supported the move, in the hopes that it would bring higher-paying jobs and spillover effects to the neighborhood. More affluent residents, meanwhile, mounted a NIMBY campaign over the prospect of rising rents. Tyquana Rivers, a Democratic political consultant, told The New York Times that the gentrifiers’ complaints about Amazon mirrored the fight to keep Ikea out of Queens. Indeed, residents in Jackson Heights are going to court to stop a Target from opening.

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Flipping the Script: A Moral and Economic Case for Narrative Change

Where do our values and beliefs come from? Answering this question is important for people committed to social change, because these values and beliefs drive our work.

Over time, the millions of messages we consume from media, our families, communities, schools, and more shape our perception of the world as it is and define what is possible. Narratives result when powerful personal stories and the language we use to describe our experiences roll up into a common frame or story. Narratives help people connect personal stories and local context with their system of values. They are powerful because they help us make sense and meaning of a complex and sometimes unpredictable world.

Problems arise, however, when narratives widely held by Americans perpetuate harmful beliefs about why inequities exist, and what we can or should do about them. Harmful narratives are important to tackle now more than ever, in part, due to their negative impact on our economy and business practices. Leaders working to fight inequity must be cognizant of these narratives and the ways in which they undermine the missions we are working toward.

Rugged individualism– the idea that anyone in America can climb the ranks and succeed through sheer will and determination– is one such narrative. This idea is an essential part of the mythology of the American Dream. Wealth and income gaps are upheld and widened by narratives like rugged individualism, because they shift our focus to individual actions, and away from the pervasive, systemic inequities that remain unsolved.

Some organizations report that they are committed to diversity, but that there are not enough “qualified” people of color available for hire. This harmful narrative perpetuates falsehoods about people of color, hinders their economic outcomes, and allows for the wealth gap to persist. Another narrative is the idea that “rocking the boat” by changing organizational culture to promote equitable practices is risky, especially for organizations accountable to board members and shareholders.

Narratives like these allow people to justify the status quo. Racist hiring practices, marketing campaigns, and other contributors to structural racism go unchecked.

These well-known narratives persist despite their negative impact on business outcomes and the economy. Humans have a well-established bias toward accepting or rejecting data–and interpreting it–based on how well that data fits within an accepted narrative. Narratives are durable; we’re more likely to reject data that challenges an existing narrative than re-evaluate the narrative itself. These dominant, destructive narratives conceal the economic benefits of advancing equity, inclusion and diversity. Multiple reports, cited below, have highlighted the benefits of racial equity and diversity in the business world, and this research can be a foundation for new narratives that are aligned with reality.

Diverse teams are more successful.
In 2015, McKinsey and Company reported that companies with more diverse leadership performed better financially. Companies were significantly more likely to have financial returns above their national industry median when they had leadership in the top quartile of racial and ethnic diversity. A factor contributing to the success of diverse teams is their ability to use lived-experience as a means to interrogate business alternatives and solutions.

Equity in the workplace supports employee satisfaction.
Happier employees are more productive employees. Higher employee engagement aligned with profitability and lower turnover rates. The report also found that the best way to increase employee engagement was to demonstrate a strong commitment to diversity. By committing to diversity, companies can grow their profit, sustain talent and create a workplace environment where employees are satisfied in their work.

Purchasing power of people of color is on the rise.
In 2018, Kellogg released the Business Case for Racial Equity: A Strategy for Growth. The report shared that if the wage gap between white people and people of color was closed by 2050, there would be an additional $2.6 trillion in spending. People of color will soon become the demographic majority in the United States, and creating an equitable work environment will increase capital that is reinvested into the economy.

Additionally, PolicyLink and FSG released the Competitive Advantage of Racial Equity, which highlights how racial equity can support business growth. For example, ShopRite created business value by serving low-income people of color. By placing stores in Philadelphia food deserts, places with little access to groceries, ShopRite generates $250 million in revenue and serves 250,000 people. Committing to racial equity as a core business strategy is crucial to harnessing the purchasing power of people of color.

We know narratives have a powerful influence on our culture and decision-making. Unfortunately, narratives don’t always align with the facts. New narratives need to be constructed and perpetuated to encourage a culture that uplifts racial equity. Leaders in the philanthropic and nonprofit sectors, such as those in the chart below, are modeling this work by telling stories that highlight truths rooted in data and personal experience.

Racial income and wealth gaps in U.S. cities exist, in part, due to the negative attitudes and beliefs that American people hold about poverty and Americans who live below the poverty line.

A change in narrative – and the resulting change in behaviors and decisions – would translate into greater equity in the world. There would be no racial disparities in hiring, promotion or compensation. We would be one step closer to closing income and wealth gaps in America.

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Subprime Auto Loans Are Turning Car Ownership Into a Trap

To live and work in much of the U.S., access to a car is virtually a requirement. Jobs, shops, doctors, and daycare are often unreachable by transit, and too far by foot or bike. Owning a car, the research shows, means your life is likely to be more stable and your bank account more flush.

Unless you’re among the growing number of Americans who own a car that they can’t afford, and who are now drowning in the debt.

A trio of new reports paint an increasingly troubling picture of the auto loan landscape. First up: According to new numbers from the Federal Reserve Bank of New York, a record 7 million Americans are at least three months behind on their car loan payments. That’s about a million more than there were in 2009, the end of the last recession.

As a share of total auto loans, delinquencies aren’t quite as bad as the peak in 2010, when households were feeling the most acute effects of the tanking economy. Their growth is generally commensurate with the expansion of auto loan market in general: By summer 2018, Americans owed $1.26 trillion on their cars, an increase of 75 percent from the end of 2009. (To understand the geography of this issue, see CityLab’s story about mapping auto debt from 2018.)

But a growing number of borrowers defaulting on their car loans is a signal of serious financial duress for those households, experts say: Because cars are so essential, Americans traditionally prioritize paying off these loans ahead of others. Steve Eisman, the hedge fund manager made famous in the book and film The Big Short by cashing in on badly designed mortgages he spotted before the recession, told The Financial Times in 2017 that auto loans generally held up well better than mortgages in those years because consumers “tended to default on their house first, credit card second and car third.”

(New York Fed)

When more households fail to make payments on their vehicle, that implies that they’re not financially healthy enough to maintain a grip on even their most important asset. That, in turn, seems to point to an underlying persistent effect of economic inequality: Too few people are sharing the benefits of an ostensibly healthy economy in which unemployment is low and markets are strong. Wages are stagnant, living costs are rising, and many Americans are digging their way out of still other forms of debt, such as student loans.

Further complicating this scene, a host of new automotive financing options are fundamentally predatory, and many Americans who are now literally driving into debt are the least able to shoulder it. High-interest subprime loans aimed at purchasers with low income and poor credit scores made up as much as 26 percent of all auto loans issued in 2016, up from 14 percent in 2009.

Another new paper by the U.S. Public Interest Research Group explains the history of this familiar-sounding form of lending, which is structurally similar to the subprime home loans that crashed the economy in 2008:

Increasing investor demand for high-yield bonds was among the factors that led lenders to loosen lending standards for car loans. From 2011 through mid-2016, more banks loosened credit standards for auto loans than strengthened them, making it easier for borrowers to qualify for loans.

Some lenders have also engaged in questionable lending practices reminiscent of mortgage lending trends leading up to the 2008 housing market crash, including extending loans to consumers without full consideration of their ability to pay. To find more borrowers whose debt could be bundled into securities and sold on the stock market in high-risk, high-profit bundles, some lending institutions became lax.

Auto finance companies, such as Santander Consumer U.S.A. Holdings Inc., are issuing the bulk of delinquent loans, the Fed notes. Compared to banks and credit unions, they’re less likely to check to make sure a person is in good financial standing when underwriting car purchases. In 2017, Moody’s found that Santander verified the income of borrowers on only 8 percent of the auto loans it wrapped into $1 billion worth of bonds it sold to investors.

In some states, chip technology has streamlined the efficiency of a market that feeds on low-income borrowers: Cars can be equipped with GPS locators to ping repossessors when payments are past due. Meanwhile, it’s getting easier for auto lenders and dealers to shake down vulnerable borrowers. Last April, the Trump administration rolled back Obama-era auto consumer protections aimed at keeping minorities from being charged higher interest rates on loans.

In terms of societal-scale effects, the upswell in auto loans—prime, non-prime, and subprime—don’t worry analysts as much as, say, the badly designed mortgages that triggered the Great Recession. The market for car loans is just a fraction of the size of the one for houses. “This isn’t going to be the next 2008,” said R.J. Cross, a policy analyst at the Frontier Group, a research think tank that co-authored the U.S. PIRG report. But these trends still spell trouble for individuals and families, and point to an enlarged economy pumped full of bad loans.

(U.S. PIRG)

By increasing access to cars, lax financing standards also appear to be contributing to a national rise in driving, and with it, declining public transit ridership. In the latest edition of its biennial survey of who’s riding buses and trains in U.S. cities, Transit Center, a public transportation research and advocacy group out of New York, notes that the share of households without vehicles fell 30 percent between 2000 and 2015, with foreign-born residents, who are more likely to earn lower incomes and ride transit, posting even sharper declines.

In the survey, respondents who reported decreasing their bus and train use overwhelmingly replaced transit with private cars. And almost half of respondents who said they’d purchased a car over the past two years received a loan to finance it. Of those, 56 percent said that getting a loan “was easier than they had expected.”

Of course, improved car access among lower-income groups might look to be a positive trend on its face, since a personal vehicle can equate opportunity. So strong is the historic link between car ownership and household income that a trio of transportation equity scholars recently called for subsidizing access to wheels for poor Americans. But fewer rides made by public transportation and more by private automobile is a trend with consequences that transcend the U.S. economy: It feeds the planet’s existential problem of rising carbon emissions, especially since SUV and truck sales have become particularly popular during this auto-loan boom. “The rise in auto debt is evidence that we’re dependent on cars in an unsustainable way,” said Cross.

The new high-water line of defaulted auto loans also suggests that personal vehicles aren’t always golden tickets. Instead, for Americans living paycheck to paycheck, they’re a catch-22: If you don’t have the money and can’t buy a car, you’ll struggle to make ends meet. And if you don’t have the money, but still buy a car, you’re liable to fall even further behind. Vehicles may be the table stakes for playing in the U.S. economy, but in so many ways, it’s getting harder to win.

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