Durham's Housing Crisis and the Wise Exhortation of James

Today I heard a sermon based on a passage from the New Testament Letter of James.  It made me think about the current crisis of affordable housing in Durham and strategies to fix this problem.  Addressed as a letter, James looks more like a collection of wisdom teaching and moral exhortations.  Rev. Dr. William C. Turner, Jr., pointed us to the first ten verses of chapter 2.

My brothers and sisters, do you with your acts of favoritism really believe in our glorious Lord Jesus Christ? For if a person with gold rings and in fine clothes comes into your assembly, and if a poor person in dirty clothes also comes in, and if you take notice of the one wearing the fine clothes and say, “Have a seat here, please,” while to the one who is poor you say, “Stand there,” or, “Sit at my feet,” have you not made distinctions among yourselves, and become judges with evil thoughts? Listen, my beloved brothers and sisters. Has not God chosen the poor in the world to be rich in faith and to be heirs of the kingdom that he has promised to those who love him? But you have dishonored the poor. Is it not the rich who oppress you? Is it not they who drag you into court? Is it not they who blaspheme the excellent name that was invoked over you?

You do well if you really fulfill the royal law according to the scripture, “You shall love your neighbor as yourself.” But if you show partiality, you commit sin and are convicted by the law as transgressors. For whoever keeps the whole law but fails in one point has become accountable for all of it.

Housing has been driving economic restructuring for more than a decade.  At first, it was the housing bubble created by overinvestment and irrational exuberance about buying up mortgages.  That led to all kinds of bad risks in writing mortgage loans, misleading people without experience in dealing with real estate markets, repeated selling of a property for inordinate profits, lying about the reliability of mortgage-backed securities, and in general lots of swindling, taking the money, and running.

When that manipulated, false market crashed, more restructuring happened through a foreclosure crisis.  Housing values dropped so far that many business's and investor's paper wealth disappeared overnight.  High-risk securities and credit default swaps were exposed to be the emperor's new clothes.  An economic recession led to massive layoffs and soaring unemployment.  That put millions of people into foreclosure.  Efforts to ease the foreclosure crisis failed as the "bailout" turned out to benefit only the banks, the brokerages, and the very actors who had caused the economic crisis.  Average workers and homeowners were left high and dry, unable to pay for their overpriced mortgages.  The powers of government and financial institutions resisted any serious plan to offer principle reduction or debt forgiveness, which had successfully restored the economy after the Great Depression.

People who did manage to stay in their homes found the new housing market to have very low demand, so that if they needed to move or get more space for a larger family, it was almost impossible to sell their homes.  Slowly, the market started to recover.  First, all the bargain housing sold.  Next, slowly people began to be able to sell near the uninflated prices before the housing bubble.  There are still many pockets of foreclosed neighborhoods, and not all housing prices have recovered.

But now we are seeing what looks to be another bubble emerging.  Cities and municipalities are putting capital into downtowns.  They are trying to bring recovery and prosperity to city centers.  A new generation, facing a long period of high gasoline prices and tired of traffic jams for commuters has regained interest in living downtown.  These trends attract developers, which is something that is good for all of us.  Every city wants to see vibrant businesses and neighborhoods.  However, prices are skyrocketing for central city housing.  As rents and purchase prices rise, speculators begin to look into other nearby streets and communities for more land to buy up.  Lower cost housing gets razed, and the occupants have to look elsewhere, away from their neighborhoods and friends, to find a place to live.

We know this process as gentrification.  Some see it as only good--better housing units replace older, unmodernized, sometimes run-down units.  Property values rise.  More money in the neighborhoods attracts businesses and jobs.  I don't think anyone is against those kinds of things.  But many are bothered by the callousness that some have about displacement of people, relationships, institutions, and communities.  They also wonder why it is that lower income people always get displaced and told to go somewhere else.  Why can't redevelopment create spaces for people to continue in the networks and neighborhoods where their families have lived for years and decades?  Why is redevelopment only targeted to attract new colonizers of old and established communities?

No one is surprised that developers want to maximize their profits on the risk they take in building new housing.  We know they won't take those risks if they can't expect to make a profit.  Building new housing takes big up-front capital investment, so we don't begrudge developers a profit.  On the other hand, part of building a good city to live in means that people of various income levels need to share in the benefits the city has to offer.  If I live in Durham, I will depend on city, county, state, and commercial institutions to help structure schools, fire protection, medical care, and public safety.  Doctors and entrepreneurs, pharmaceutical executives and hi-tech wizards may have six- and seven-figure incomes.  But teachers, firefighters, nurses, and police will live on more meager salaries.  Shop clerks, wait staff, cooks, mechanics, maintenance workers, and cleaning staff--all of these people will contribute to making a city a good place to live.  They are fellow-members of the community, not merely servants to the ones who have more money.  All of us need a place to live.  All of us deserve to enjoy the benefits of a flourishing city.

That's why, in the wisdom of our civic traditions, leaders have seen fit to put in place programs and incentives to make sure there is adequate housing for people of many levels of income.  One such program, the Low-Income Housing Credit, provides tax subsidies for developing affordable housing that enable developers to make a profit.  Durham CAN and Self-Help Credit Union want to use that subsidy to build 80 to 100 units of housing downtown, by the Durham Station Transportation Center and across from the NC Mutual building.  City leaders have expressed a desire to see better affordable housing opportunities, and by donating this land for affordable housing development, they can do their part in helping make Durham affordable to more of its citizens.

These units would be affordable to people who make 40% to 60% of the median income of Durham County.  That means up to $37,000 for a household of one, or $43,000 for a household of two, and slightly more for larger households.  These people, working hard to bring home enough money to feed, clothe, and shelter their families are of equal importance to a flourishing city as those who make the median salary or more.  Durham has had notable success in the recent past with some affordable housing, and we hate to see that only in the past.  We are hoping this project can be the next planting of a seed, the down payment, toward a new strategy and plan for creating more high-quality, affordable housing in neighborhoods all around Durham.

Sadly, there are some who have said that downtown is for the millennials, for entrepreneurs, for people with higher incomes.  They say that Durham can find a way to provide affordable housing for lower incomes somewhere else, somewhere less in demand, somewhere less desirable, somewhere out of the way of the profits a select few desire to make.  Those kinds of arguments sound to me like there is some kind of insider decision-making going on about who gets to live in what neighborhood and who gets pushed out.  It seems that someone has in mind a "certain quality of people" that are acceptable for Durham's nice downtown.  Others need not apply.  If there is no property available for affordable housing downtown, the doughnut hole, then the next step, and we see it happening already, will be no affordable housing in the doughnut ring around downtown.

Moderate- to low-income people get pushed farther and farther away from the neighborhoods with rich heritage.  Will the last remnant of Hayti be a museum surrounded by residents who know and care nothing about the struggle and achievement of families who built a prosperous community when all odds were against them?  Will Walltown go the way of Brookstown, Hickstown, and Crest Street, to be a faint memory of a lost past?  Cities change, and neighborhoods change.  That is inevitable.  But will people of various economic levels have access to the historic neighborhoods of Durham?  Or will the profiteering incentive lead to closing off the central city from people of moderate to low income?

Enter the wise exhortation of James.  James saw a problem in some churches of his time.  He saw that people became overly impressed by the wealth or affluence of some who came to their churches.  They catered to them.  They escorted them to the best seats.  They fawned over them.  But when people whose clothes were plain or even a bit worn came into the church, they directed them to the side or the back, or even suggested they stand by the wall sit on the floor.  The text says they were showing favoritism, based on the apparent affluence of those who came to their churches.

James reminded them of the Lord whom they serve.  He reminded them of the way of Jesus, who was himself from a working class home, born under bad conditions, sympathetic with beggars, outcasts, prostitutes, and others who found themselves on hard times.  His co-workers had mostly made their livings fishing and other hard work.  James, probably from the same family as Jesus, knew what it was to be looked down on by those who thought they were better.  He reminded them that the social dynamic of poverty was exploitation, and that the wealthy gained their affluence often through paying low wages or otherwise mistreating their workers.

James knew showing favoritism was not the way that Jesus had taught and planned for his followers to live.  "Love your neighbor as yourself" was Jesus' motto.  His life and ways had shown he meant every neighbor--Samaritan and Jew, blind and sighted, man and woman, worker and manager.  If it came to a question of injustice, Jesus took the side of the oppressed and stood up to the oppressor.  James said this to remind the churches that Jesus had come to reinstate, to kick-start, God's plan for this world as a good society, "There should be no one in need among you."

So when leaders in our city say that downtown is only for millennials, we wonder which millennials do they mean?  What about millennials who become teachers?  Don't some millennials become firefighters and police officers?  I think that some millennials are nurses, city staffers, cooks, and mechanics.  Aren't they welcome downtown?  Of course, I don't think anyone intends to have only one age group in the neighborhood.  Will there be room for all economic levels, age groups, and other segments of society, or are we back to drawing red lines on our maps to indicate who we will let live in which districts?

Now I understand that James is writing to the churches, and that Durham is not a church.  I also recognize that municipalities may not do everything the way churches do.  Yes, I am familiar with the distinction between church and state.  But I also want to say that the faith of the church is that Jesus came into the world to recall Israel, and all others who would come to join in, to build the kind of beloved community that God made this world to be.  While I would not think it appropriate to ask the city to enforce everything the church believes in, I do think there are many points at which our purposes of building a flourishing community may coincide.  Not cordoning off portions of the community by wealth and class and ethnicity and race and age and family size is one of the goals that the church and the city may have in common.

One theologian said that there are times when the social agenda of the church may appropriately blend with the social agenda of the communities with which the church shares space and time.  He said it is kind of like a "spiritual osmosis."  An idea like "no more shacks" that drove the Christian community of Koinonia Farms in Americus, Georgia, to create the housing model of Habitat for Humanity over time became widely accepted by people who had no connection to Christian churches.  Church or not, most people see that this plan works, and volunteers come from all creeds and no creed to build Habitat houses together.  Making room for affordable housing in the central city, near transit stations, in the doughnut hole and all the surrounding rings of the city is a similarly worthwhile goal.  People don't want to be displaced.  They want to be able to find housing near their jobs, near their schools, near the places they like to go for fellowship, friends, and food.  At all income levels, people want to share in the good things of life.

Durham must not have a housing policy which says to the wealthy and affluent, "Please, as our favorites, take the best places in which we have invested heavily, creating them just for people of your kind," and then turns to the moderate- and low-income citizen and says, "You, who are not our favorites, are on your own, and you'll have to go away from all the good things our city has invested in, because they are for someone else."  I think James's wise exhortation speaks to this issue of urban development.  Let's keep the best, that is all, of Durham available to all of it's citizens, and not show favoritism.

The Housing Bubble Was No Mystery

I've not posted about the economic crash recently, although I've made references to it in other posts along the way.  Today I read a short comment on from Dean Baker at the Center for Economic and Policy Research.  He was responding to the announcement from Federal Reserve Chair Janet Yellen that there will be a new committee in the FED to study and seek to avoid another destabilizing economic crisis like the recent ones, including the Great Recession. 

Reporting on this announcement, the New York Times continues to imply the oft-reported impression that the coming of that crisis was a mystery that no one could see.  Baker's contention is that many people did see it coming, including seeing all the obvious signs of the housing bubble.  Rather than not seeing these foreboding signs, what accounts for the FED's unreadiness and lack of preventive intervention was "an extraordinary level of incompetence."  Former FED Chair Alan Greenspan himself admitted to responding wrongly to danger signs, having been blinded by a false ideology of market economic systems.

Here are Baker's remarks.

September 13, 2014
It Really Wasn't Hard to See the Dangers Posed by the Housing Bubble 

At its peak in 2006, the housing bubble had caused nationwide house prices to rise more than 70 percent above their trend level. This run-up occurred in spite of the fact that rents had not outpaced inflation and there was a record nationwide vacancy rate.

The dangers of the bubble also should have been clear. Residential construction peaked at almost 6.5 percent of GDP compared to long period average of close to 4.0 percent. The housing wealth effect had led to a consumption boom that pushed the saving rate to near zero.

Also, the flood of dubious loans was hardly a secret. The National Association of Realtors reported that nearly half of first-time homebuyers had put down zero or less on their homes in 2005. The spread of NINJA (no income, no job, and no assets) loans was a common joke in the industry.

These points are worth noting in reference to an article discussing the Fed's efforts to increase its ability to detect dangerous asset bubbles. An asset that actually poses a major threat to the economy is not hard to find. It kind of stands out, sort of like an invasion by a foreign army. The failure of the Fed to recognize the housing bubble and the dangers it posed was due to an extraordinary level of incompetence, not the inherent difficulty of the mission.

Narrating the Story of Consumer Debt in the US

An interesting narration of the story of how consumers in the US came to be so heavily in debt appeared recently in the group blog Credit Slips. Kevin Leicht points out that real wages peaked in 1976. Since that time, the economy based on mass consumption has shifted its funding from good wages to open credit. As workers faced the exportation of industry, the decline of wages, and the shift from paying workers to paying executives, the economy depending on consumption had to find a way to keep its engine turning. Credit cards and borrowing were the replacement of a decent wage. Of course, this system ultimately took on the same characteristics of feeding on the very people on whom it depends.

This unsustainable economy has become a smash and grab system that will keep producing bubbles from irrational exuberance. The inevitable crashes will repeat as long as the idiotic assumption remains that a just economy is one in which the few are free to bleed the many until a "market correction" solves the problem. A better economy cannot come without some form of consumer protection which places guardrails and lane markers on the economic highway. Otherwise the behemoths will continue to "take their half in the middle" and push everyone else in the ditch.

Economic Recovery for All 2: Causes and Effects of the Current Crisis

THEOLOGICAL REFLECTION ON THE ECONOMY
A Working Paper for North Carolina United Power
from an Interchange Among Theological Educators
July 2009

I. The Economic Crisis 2008-2009: People are losing their homes. Banks are closing. Businesses are failing. Workers are losing jobs. Families are uprooted.

A. Causes
1. Artificial inflation of housing prices created an illusion of wealth.

2. Greed and irresponsibility made financial institutions eager to sell “creative” and high-risk investment products.

3. Government deregulation of financial markets allowed risky experimentation, gigantic financial conglomerates, and diminished consumer protection.

4. The complexity of financial instruments which divided, bundled, and resold mortgages again and again, led to confusion about their real value and to lack of accountability for following best practices in making loans.

5. Households overextended their debt as consumer acquisitions outpaced income.

6. Overinflated housing prices, the justifiers of high levels of debt and consumption, finally crashed (the "housing bubble" burst).

B. Effects
1. Many households faced foreclosure and the loss of shelter.

a. People owed more than their houses were worth.

b. Many people lost jobs in the weak economy and could not keep up payments.

c. Many households faced increased interest rates from Adjustable-Rate Mortgages (ARMs).

2. Growing numbers of foreclosures led to a crisis of solvency in the financial institutions holding these mortgage-backed securities.

3. The crisis in the financial institutions led to a crash in the stock market.

4. The value of pensions, homes, and investments lost value dramatically, affecting retirees, institutions depending on endowments, homeowners, investors, and the economy in general.

Bailout 16: Thoughts on Describing the Problem

As mentioned earlier, I am working on the problem of analyzing the current economic situation in light of biblical and theological concepts related to Jubilee, the Sabbatical year, the denunciation of usury, etc. Below are a few short paragraphs in which I have tried to describe the problems of the economy in order to begin this sort of analysis. Obviously, this is a work in progress.

1. Hard economic times place people and institutions in jeopardy. In 2009, there is plenty of pain to go around. People are losing their homes. Banks are closing. Businesses are failing. Workers are losing jobs. Families are uprooted.

2. Some call the economic woes a credit crisis. Some focus on the housing price bubble. Others emphasize the irresponsibility of financial institutions eager to sell “creative” investment products. Still others highlight the complexity of financial instruments divided, bundled, and resold again and again so that no one is sure who owns what. Many recognize that consumption had outpaced income, and too much of the economy depended on overextended debt. Others criticized the deregulation of financial institutions which allowed them to take inordinate risks with other people’s money.

3. A major part of the problem had to do with a collapse of home prices. Loans had been written with the assumption that housing values would rise steadily and without interruption. Some people borrowed more than they could afford, but others who could afford their mortgages found that they were making payments on a mortgage for an amount that was up to twice the new value of their home. They could not afford to keep paying double for a house that had originally been priced in an inflated market. In a weak economy, workers losing jobs also could no longer meet their mortgage payments.

4. All these mortgage problems led to a crisis of confidence in the mortgage-based securities and the financial institutions investing in them. As the seriousness of the mortgage problems became apparent, the more people became concerned about many other forms of debt, including credit card debt which has grown exponentially. A crash in the stock market followed up the crash in home prices, and many people who had thought they were in good financial shape now saw their pensions, their homes, and their investments lose value dramatically. People losing health insurance coverage were building mountains of debt for medical care.

5. When the economic situation became too severe to avoid, former Treasury Secretary Paulson and Federal Reserve Chair Bernanke recommended a massive bailout of major financial institutions. With only a bare sketch of a plan, the engines of government shifted into high gear to authorize transferring hundreds of billions of dollars directly to banks and other financial institutions to prop up their endangered portfolios of assets.

6. Their idea was to stabilized the financial system by providing cash to banks and other financial institutions who owned securities based on delinquent loans. They said that this would set things in order so that banks would be willing to lend money to grease the wheels of commerce. However, the banks and financial institutions took the money and held it. It did not slow down the pace of foreclosures of mortgages. It did not pump up the economy. Homeowners kept losing their homes with no relief. Credit card companies pressured small borrowers with tightened terms and higher interest rates.

7. What kind of a solution leaves giant banks standing while the average worker’s life gets harder and harder? That is not a solution. It smells like collusion. Whose money bailed out the banks? Who is an economy supposed to benefit? Who says billions can bail out executive jobs but nothing can bail out labor jobs? Who says tax dollars can pay off banks’ bad debts, but the average taxpaying citizens are on their own? Debt relief for millionaires and homelessness for working people—that’s not the kind of economy we believe in.

Bailout 9: Will Obama's Advisers Learn from Their Own Mistakes?

The New York Times printed a good editorial expressing the reservations I share with many people about the President-Elect's chosen economic advisers. Larry Summers helped to craft the deregulation of derivatives. Timothy Geithner played a role in scheming the strange and problematic bailouts of financial institutions in the past couple of months. Neither one of them gave early warning of the housing bubble that has caused our current crisis. Will they do better next time? We must make sure our representatives know we are concerned, and let Mr. Obama know that he needs to be listening to more than the same people who were architects of a building in ruins.

Obama's critics jumped all over a phrase he used in a conversation with a plumber's assistant in Ohio. He remarked that everyone in financial difficulty, from top to bottom, would benefit together if we "spread the wealth around." Dean Baker points out that Secretary Paulson, Chairman Bernanke, and the Bailout planners are busy with their own plans to "spread the wealth around." Who is using government to transfer wealth from some citizens to others? Wells Fargo, a beneficiary of the bailout (announced that ten top executives of Wachovia) the bank they were able to buy because of the bailout, would be eligible to receive an average of $10 million each for severance. That money is coming from somewhere. I thought the banks were out of funds. Oh, yeah--taxpayers have to pay it. Talk to your representatives.

Bailout 8: Who Needs a Pay Cut?

In discussions of General Motors, Ford, and Chrysler during recent days, many people have sought to name the problem that has brought these automakers into such serious difficulties. Of course, the precipitating events have to do with the decline of wealth among U. S. car buyers because of the drop in home values after the housing bubble deflated. The general economic crisis that includes layoffs and fear of layoffs also led to an unprecedented drop in auto sales.

These immediate and serious causes are part of the picture, but there are other reasons. Many people believe that the next credit crisis will come in consumer debt. People have been living as if they can buy more and more things they can't afford, and lending institutions have allowed it. This is again related to the housing price bubble. If consumer debt got too large, the paper wealth of the ever increasing real estate market was the counterbalance. People could refinance consumer debt with home equity loans. So as credit card debt gets tight, people can't or won't buy a car.

Other people address the environmental and energy-efficiency issues in relation to the Big Three automakers. These companies resisted alternative energy sources, even killing previous progress on electric vehicles. They resisted fuel efficiency standards and majored on building larger gas-guzzler vehicles. Unlike some other automakers, they did not keep up the pace of developing new and better technology for automobiles. They failed to adopt a business model by which they could make strong profits from selling smaller, more efficient cars. When the volatility of gasoline prices struck, driving transportation costs higher and higher, they found themselves stuck with large numbers of vehicles that people were less and less interested in owning.

Among many other reasons given, some people have blamed the automakers' problems on unionized workers. Certainly the benefit plans and retirement plans for these workers are expensive. But most of the attacks on the union workers' wages hid or ignored important facts.

For instance, the highest paid auto workers in the U. S. last year worked for Toyota building Camrys, not for GM. The worker pay differential between companies selling cars in the U. S. is changing. That does not, however, mean that all non-union auto factories in the U. S. are paying comparable wages. It does mean that it is possible to pay high wages, comparable to or greater than the union wages paid to GM workers, and make great profits.

Second, it targets union workers and not other potential candidates for pay cuts in the industry. Who else is getting good pay in the auto industry? Why not cut their pay? As Congressional questioners wondered, why not cut corporate jets for the executives?

Dean Baker makes this point well when he addresses the case of Robert Rubin, an economist who is having a great deal of opportunity to speak about how to solve the current economic crisis. Rubin worked in the Clinton administration, and his allies are being named as Obama advisers. But in January of this year, he said that the economy's struggles would not lead to any serious problems, and certainly no economic meltdown.

Baker points out that Rubin was interim CEO of Citigroup, and that he remains an executive and a director of the corporation that the government bailed out again over the weekend. He was part of the leadership who oversaw the bad loans and the risks of an inflated housing market. Even farther back, he was a central figure in U. S. economic institutions during the dot.com bubble that led to the last recession. Baker asks why with all the hoopla about GM autoworker wages, no one is asking whether Robert Rubin will be taking a pay cut. Who needs a pay cut when corporations are struggling? Why not the executives who helped lead the corporation into their crises?

Bailout 7: Cheering on the Road to Destruction

When we think about the economic situation we find ourselves in, it is amazing that so few people had noticed that it was coming. Certainly there were people concerned about sub-prime mortgages, and now and then someone would suggest there was a "housing bubble." People debated whether the stock market was on a long downward trend or just a temporary decline. Many predicted a rosy future as economic skittishness passed on by and people got back to spending more money than they have.

A viral video showed up this week with clips of business news programs in which various analysts discussed the direction of the economy in 2006 and 2007. The theme of these clips was a certain analyst named Peter Schiff who was predicting a severe recession because of the inflated prices of homes and stocks. He said a long and serious recession was about to come. He said to stay away from financial stocks because these companies were not making any money. He said that people would see their assets dissolving as "paper wealth" went back up into thin air. They would respond by stopping their spending and borrowing and starting to save money to make up for the lost paper wealth they thought they had in their overpriced homes. He said it would not be merely a subprime mortgage problem, but most of the housing market would crash, people would default in record numbers, unemployment would soar, and credit would dry up.

All the while, these clips show business reporters recommending people buy stock in Merrill Lynch ("an astonishingly well-run company"), Washington Mutual, Goldman Sachs, and even Bear Stearns. They continually laughed at Peter Schiff's claims that these companies were terrible investments which would soon crash because they have no real earnings.

Well, we don't know if he got everything right about what was coming, but one thing is clear. There were people who could see this crising coming, and there were people wearing rosy tinted glasses who insisted that every day things would gett better and better. Much like the dot.com bubble and crash, they were operating in what seems now to be a kind of hysteria, mutually reinforcing one another's willful ignorance. They were not reporters, but promoters of borrowing and spending, without concern for saving money. It was very poor wishful thinking, and perhaps even for some, a kind of dissembling.