Poverty in NYC

photo by Salvation Army USA West

NYU’s Furman Center has released its annual State of New York City’s Housing and Neighborhoods along with a focus on Poverty in New York City. The State of the City report is always of great value but each year’s focus is where we get to see the City in a new light. This year is no different:

In New York City in recent years, rents have risen much faster than incomes. The pressures of rising housing costs may be greatest on those with the fewest resources—people living in poverty. New York City has a larger number of people living in poverty today than it has since at least 1970. This sparks a range of questions about the experience of poverty in New York City that we address in this year’s State of New York City’s Housing and Neighborhoods Focus. Who in New York City is poor today? Where do they live? What are the characteristics of the neighborhoods where poor New Yorkers live? Are poor New Yorkers more likely to be living in areas of concentrated poverty than they were in the past? How, if at all, do the answers to each of these questions differ by the race, ethnicity, and other characteristics of poor households?

Though the share of New Yorkers living in poverty has been relatively constant over the past few decades, there was a drop at the end of the last decade and then an increase in 2011–2015. Poverty concentration—the extent to which poor New Yorkers are living in neighborhoods with other poor New Yorkers—followed a similar trend, dropping in 2006–2010 and increasing again since then. The neighborhood of the typical poor New Yorker varies substantially from that of the typical non-poor New Yorker, but those disparities are largely experienced by black and Hispanic New Yorkers living in poverty. The typical poor Asian and white New Yorkers live in neighborhoods that do better on the measures we examine than the neighborhoods of the typical non-poor New Yorker. We also find that neighborhood conditions vary significantly based on the level of poverty in a neighborhood. Higher poverty neighborhoods have higher violent crime rates, poorer performing schools, and fewer adults who are college educated or working. And, poor New Yorkers are not all equally likely to live in these neighborhoods. Poor black and Hispanic New Yorkers are much more likely to live in higher poverty neighborhoods than poor white and Asian New Yorkers. Children make up a higher share of the population in higher poverty neighborhoods than adults or seniors. (1, footnotes omitted)

Policymakers should have a lot to chew over in this report. Let’s hope they give it a read.

Minority Homeownership During the Great Recession

photo by Daniel X. O'Neil

Print by Andy Kane

Carlos Garriga et al. have posted The Homeownership Experience of Minorities During the Great Recession to SSRN. The paper concludes,

The Great Recession wiped out much of the homeownership gains attained during the housing boom. However, the homeownership experience was very different across racial and ethnic groups. Black and Hispanic borrowers experienced substantial repayment difficulties that ultimately led to a greater share of homes in foreclosure.

Given that home equity often represents a substantial share of household wealth, these foreclosure events severely damaged the balance sheets of minority families. The dynamics of delinquency and foreclosure functioned differently across the income distribution within racial and ethnic groups.

For the majority, higher income was associated with lower delinquency rates and fewer foreclosures as a group. However, for Hispanic families this relationship was surprisingly reversed. Hispanics with the highest incomes fared worse than those with the lowest incomes. This counterintuitive finding suggests how college-educated Hispanic families may have had worse wealth outcomes than their non-college-educated peers: Hispanic families with high income (potentially the result of high educational attainment) had a greater share of home equity lost in foreclosure than lower-income Hispanic families.

Logit regressions suggest that underwriting standards and loan structure explain a significant amount of the greater likelihood of foreclosure among Black and Hispanic borrowers. However, underwriting standards explained more of the gap for Black borrowers, while loan structure was a stronger factor among Hispanic borrowers. Regional concentration and variation in housing markets explained more of the Hispanic-White foreclosure gap than any other group. This is understandable given that Hispanic borrowers in our sample were heavily concentrated in housing markets that experienced some of the largest volatility. Despite accounting for these important factors, sizable gaps remain in foreclosures among Blacks and Hispanics relative to Whites. Incorporating measures of labor market outcomes into the analysis may offer further insights.

In sum, the homeownership experience during the Great Recession proved to be inimical for many families, but far more so for Black and Hispanic families. For these families, financially destructive foreclosure events delayed and potentially derailed the dream of homeownership. (164-65)

I am not sure what this all means for housing finance policy other than the obvious: consumer protection in the mortgage market is a good thing as it ensures that underwriting standards evaluate ability-to-repay and loan structures exclude abusive terms like teaser rates (thanks to the ATR and QM rules and the Consumer Financial Protection Bureau). There are probably other policies that we should consider to reduce the depths of our busts, but they do not seem likely to gain traction in the current political environment.