«1. Racial and Ethnic Employment Disparities: How have recent employment and workforce conditions for racial and ethnic minority groups differed from ...»
Asians, Latinos, and African Americans are three times as likely as whites to start businesses. Given this fact, it is particularly concerning that businesses owned by people of color have a significantly lower participation in government-supported loan programs (e.g., Small Business Administration (SBA) 504 and 7(a) loans) than that for whites. This is a fact that is largely unaddressed by SBA and its lending partners. The cause of this disparity needs to be explored and the trend turned around. The American Recovery and Reinvestment Act (ARRA) of 2009 provided for an increase in SBA 7(a) loan limits that have resulted in the increase of average size SBA loans of almost $500,000; those limits could be revised down to pre-ARRA levels to encourage smaller business loans.
b. Home Mortgage Lending
Mortgages appear increasingly accessible for those with good credit and adequate cash for a down payment. In early 2014, nonbank lenders became the primary source of new mortgages, and in the time since have increased their lead over credit unions, large banks, and smaller traditional loan providers. Council members have shared concerns over less regulated lenders as they are increasing activities. While the larger share of home lending by non-CRA-covered lenders does not seem to have caused problems in the current market environment, the lack of oversight could put vulnerable populations at risk in the event of another economic crisis.
Racial disparities persist in home lending. With home prices going up and credit remaining somewhat tight, more LMI buyers have been excluded and relegated to renting. In New York City, African Americans and Hispanics received comparatively high rates of home-purchase loan denials: while only 13.7 percent of white applicants were denied citywide, 21.5 percent of African American and
20.3 percent of Hispanic applicants were denied.
Addressing disparities will require increasing the inventory of affordable housing for purchase, making credit available equitably and responsibly, and increasing financial assistance and access to prepurchase counseling. For instance, Minnesota Housing, the state’s housing finance agency,
continues to fund mortgages, largely for first-time homebuyers at roughly the same pace as in 2015:
90 percent of first-time borrowers are receiving some type of down payment/closing cost assistance. 7 In addition, Federal Housing Administration (FHA) loan products are safe and critically important tools for allowing access to homeownership for borrowers of color. The very high rate of FHA utilization among borrowers of color, however, may be an indication that the market is not serving borrowers of color with the same variety of borrowing opportunities as the rest of the market. For example, in New York City, non-CRA-covered lenders are growing in their share of lending in communities of color, even though many CRA-covered lenders have a superior and lower-cost product.
c. Multifamily and Affordable Housing Lending The multifamily market remains strong. There is tremendous need for more multifamily lending, but making the deals feasible continues to be a challenge. The Association for Neighborhood and Housing Minnesota Housing Project, “MN Housing Discusses Senior Housing Pilot, Homeless Prevention Plan,” MHP Connect blog, February 2, 2016, http://mhponline.org/blog/connect/655-mn-housing-board-minutes-january-2016.
May 13, 2016 Record of Meeting, CAC and Board of Governors Development (ANHD) studies 25 of the largest banks in New York City, and after a few years of increases, the number of multifamily affordable housing loans among the retail banks that ANHD studied declined in 2014 by 20 percent and by 13.5 percent in lower-income neighborhoods.
Community development loans for affordable housing are available for some, but occasionally, local community development corporations (CDCs) face challenges accessing capital, particularly for smaller deals.
In many communities, affordable housing development remains overly restricted due to limitations in the supply of Low Income Housing Tax Credit financing. The availability of tax-exempt bond caps will also limit new affordable housing development. And, the severe shortage of Section 8 vouchers is a further factor limiting affordability in almost all markets. As much as more Section 8 support is desperately needed, there is also concern that there is a growing pattern of neighborhoods where landlords don’t accept Section 8 vouchers, which raises concentrations of poverty and potential Fair Housing Act violations.
d. Consumer Lending Topics are covered under question 2.
5. Housing Markets: How have house prices and rental rates changed since the November 2015 meeting? Have there been any new developments in housing activity for low- and moderate-income communities in Council members’ regions?
Affordability is a fundamental driver of where people choose to live, and where we live plays an important role in shaping our economic opportunities. As the Council observed in the November 2015 meeting record, America is in the midst of a profound demographic shift that will alter the racial and ethnic composition of our population. Importantly, this shift is bringing many more households into the prime first-time-homebuying age cohort, but they are more likely to be unemployed, live in poverty, earn low wages, and lack sufficient savings to invest in long-term assets. These dynamics cause concerns that current market conditions are presenting even higher barriers to households being able to build wealth and gain economic mobility through buying homes and moving to communities with higher opportunities.
Both housing prices and rental rates have generally increased since November 2015, to the detriment of LMI households. Of increasing concern in certain markets is the growing gap between housing costs and wages. For example, between 2005 and 2013, the median rent in New York City increased by nearly 12 percent, while the median income of renter households increased by only 2.3 percent.
The upward pressure on housing and real estate through the winter of 2015 has led to high rental occupancy rates and increased prices. Although the production of new rental units continues to be strong in many urban markets, the production and preservation of affordable rental housing is an increasing challenge, particularly in areas of high opportunity. Meanwhile, single-family new production is beginning to pick up in some markets, but there is virtually no new production of homes at the lower end of the price spectrum. And in many markets, the inventories of lower-priced existing homes are at historic low levels, with heavy competition for available units—making it difficult for
first-time homebuyers to find properties to buy, just when they are beginning to return to the market in greater numbers.
Moreover, the National Association of Homebuilders/Wells Fargo Housing Opportunity Index (HOI) dropped from 77.5 percent in 2012 to 63.2 percent in 2015. HOI measures the percentage of homes sold that would have been affordable to a household earning the median income in 220 metro areas. In rural areas and metro areas, substandard conditions are one of the biggest housing challenges. The cost of living, in terms of rent and utilities, has increased but quality of living has not been maintained or improved. Compared to metro areas, rural housing prices have been more level.
With many local real estate markets heating up, affordable housing developers are finding it more difficult to compete with private investors to acquire properties and land. There are also concerns in certain markets that there may be a bubble developing in high-end residential and commercial markets, with residential vacancy rates actually starting to rise in some of the hottest markets. Further, while financing structures for large multifamily affordable developments are well defined (tax credits, bond financing, federally guaranteed loans, etc.), there are far fewer options for financing singlefamily and small multifamily development. On the other hand, private capital is available in hot markets for market-rate developers to acquire existing unsubsidized rental properties, with a business model that depends on high rates of turnover to quickly raise rents. This often results in the eviction of tenants paying lower rents as the properties are repositioned and higher-income tenants move in. Some of these properties have historically accepted Housing Choice Vouchers but are changing their policies to cease accepting vouchers after the properties are rehabilitated, thus displacing low-income tenants. Also, tenant screening criteria are often modified to completely exclude those with barriers such as a weak credit history or a criminal record of any kind.
6. Labor Markets: How have the labor markets in which Council members operate changed since the November 2015 meeting? In particular, assess the degree of job loss or gain (how much and in which industries). What changes to wages for low- and moderate-income earners have Council members observed?
As the Council noted in November 2015, workforce characteristics and labor market conditions in communities of color diverge significantly from aggregated indices. Thus, expanding on disaggregated data that detail conditions of workers within those communities is important to our understanding of labor markets. These disparities cannot be footnotes; rather, they need to be included as headlines (see data provided under question 1). Promoting and sustaining wage growth for lowwage workers should be a key indicator of broad-based strengthening of labor markets.
Labor unions have finally “emptied the bench” and begun hiring apprentices in some markets. While unemployment remains at a steady 5 percent, the wages for many in a gradually improving national economy since 2008 have been flat. Even in New York City and other large markets, wages have remained steady or have risen only very slightly across all growth industries. Within particular growth industries, such as technology, Council members are concerned about extreme compensation disparities by race and job type.
At the same time, new research demonstrates an increase in all-cause mortality among U.S. middleaged non-Hispanic whites between 1999 and 2013. The increase was largely attributable to drug and May 13, 2016 Record of Meeting, CAC and Board of Governors alcohol poisoning, suicide, and chronic liver diseases and cirrhosis, raising the possibility that many whites are feeling a sense of hopelessness about the future.8 Indeed, the adjusted median hourly wage for white men with no more than a high school diploma declined from $19.76 in 1979 to $17.50 in 2014. And although whites make up 42 percent of the overall poverty population, they represent 63 percent of the rural poor. For example, nationally, real earnings of those in the lowest 10 percent of workers were unchanged between 1979 and 2014.9 Underemployment is a growing concern in markets of all sizes and areas of the country. The nature of work is rapidly changing—from the growth in “fissured workplaces” that demand “just-in-time” work schedules, to “1099 workers” or independent contractors. In July 2015, according to the Bureau of Labor Statistics, there were 9.6 million unincorporated self-employed workers and 5.5 million incorporated self-employed workers in the United States, which together represent approximately 10 percent of all workers.10 The Bureau of Labor Statistics projects that over the next decade occupations requiring no more than a high school diploma will add 8.8 million jobs—56 percent of all new jobs.11 These occupations— retail sales, home health aides, food service, landscapers, security guards, and childcare workers—will constitute the largest growth in the coming decade. These high-growth jobs, like those in high demand in large markets like New York City, are not only low-wage, they are often characterized by irregular and erratic hours, few employment benefits, and limited advancement possibilities. Employers are actively limiting frontline workers’ hours to 30 per week to avoid payment of overtime, retirement, and other benefits due full-time employees.
7. Additional Matters: Have any other matters affecting consumers and communities emerged from the work of the Council members that they want to present at this time?
The Council has not identified any other matters for discussion at this particular convening, but would like to offer suggestions for topics that we believe might be appropriate for discussion at a future
FinTech – Short for “Financial Technology” companies, they constitute a rapidly growing sector of the industry that uses technology to offer products to consumers that historically had been offered by regulated financial institutions or at a point-of-sale location. There are concerns regarding the application of existing regulations in a consistent manner to FinTech companies, so it may be worthwhile for the Federal Reserve to undertake some kind of evaluation of these institutions and their practices.
Anne Case and Angus Deaton, “Rising Morbidity and Mortality in Midlife among White Non-Hispanic Americans in the 21st Century,” PNAS 110 (49): 15,078–15,083.
Bureau of Labor Statistics, “A Look at Pay at the Top, the Bottom, and in Between,” Spotlight on Statistics, May 2015, www.bls.gov/spotlight/2015/a-look-at-pay-at-the-top-the-bottom-and-in-between/home.htm.
David G. Blanchflower, flexibility@work 2015: Self-Employment across Countries in the Great Recession of 2008-2014 (Amsterdam: Randstad, May 2015); see also Bureau of Labor Statistics, “The Employment Situation—July 2015,” Table A-9, www.bls.gov/news.release/empsit.htm.
Emily Richards and David Terkanian, “Occupational Employment Projections to 2022,” Monthly Labor Review, December 2013, www.bls.gov/opub/mlr/2013/article/occupational-employment-projections-to-2022.htm.
May 13, 2016 Record of Meeting, CAC and Board of Governors Pension plans – It might be desirable to have a discussion regarding the underfunded and defaulting pension plans that are here now or on the immediate horizon, as these might threaten to overwhelm the Pension Benefits Guarantee Corporation and may have ripple effects across the economy.