When you are in the business of financing housing construction, generational wealth is foundational to your work whether you recognize it or not. At the Philadelphia Accelerator Fund, we go further – for us, addressing the generational wealth gap for Black and Brown Americans is positively central to our mission and a primary motivating force behind our work. We recognize the outsized role housing plays in American prosperity, and a core tenet of our loan fund is to provide resources designed to address its historic inequities.
For the majority of American families who own their homes, the equity in those homes represents the bulk of their personal wealth. Those who are unable to purchase homes with affordable mortgages are denied the single most effective tool of wealth-building available to American families. We continue to fight major ancestral headwinds – the redlining policies of the Home Owners’ Loan Corporation (HOLC) and discriminatory practices of the Federal Housing Authority (FHA) during the 1930s and onward were straightforward, unapologetic examples of state-sponsored racism which played a major role in the racial wealth gap we see nearly a century later. These policies prevented Black families from purchasing affordable homes in desirable neighborhoods and effectively implemented de jure housing segregation throughout the country. The structure of modern American poverty is a direct descendant of such policies.
Of course, generational wealth isn’t simply a matter of access to quality shelter and the basic necessities of life. Access to generational wealth is a powerful determinant of an individual’s potential for prosperity in their lifetime. Credit analysts and loan underwriters see this every day when we review the personal financials of our borrowers – two individuals with similar personal income will oftentimes have vastly different levels of personal wealth. A Black or Brown doctor, attorney, or small businessperson, for example, is far more likely than his or her Caucasian counterpart to be saddled with high levels of student loan debt and automobile debt. Given that education and transportation are necessities of life in a modern economy, the need to finance these expenses rather than cash flow them often makes it prohibitively expensive to build generational wealth.
Student loans and car loans are a symptom of the inequity crisis we see in housing today. A child benefitting from sufficient generational wealth will have a paid-for education and a vehicle as he or she enters adult life. This is someone positioned to preserve generational wealth. Within two or three years of graduating into full-time work, he or she will have saved fifteen hundred dollars a month that would otherwise go to Sallie Mae and GM Financial. That aggregates to a down payment on a first home, and the cycle continues.
Of course, rising interest rates and other macroeconomic factors have made wealth building even more difficult over the past several years and the challenges have been felt across all communities. Building and preserving generational wealth isn’t the sole responsibility of the individual but requires recalibrating public policy and the socioeconomic structures that undergird American life. Financial support for first-time homebuyers, automatic IRAs, expanded access to tax-advantaged savings accounts, baby bonds and federally subsidized child care are just a few of the promising ideas in the public discourse. Some have been successfully implemented on the margins, but more needs to be done.
Locally, at the Philadelphia Accelerator Fund, we hope to make an impact with our capital and our experience. We feel that housing development can be a kind of bank shot for addressing the racial wealth gap – first, by building affordable housing we provide low and moderate-income families with the opportunity to grow personal equity. But at the same time, we support Black and Brown developers to build this housing and in doing so to improve their own balance sheets. We move as quickly and effectively as we can, with our focus set on raising a $100 million loan fund within the next few years. The problem of the generational wealth gap is immense…the solutions must be correspondingly robust.
If you are interested in reading more about this topic, we recommend the following books:
- W. Edward Orser’s Blockbusting in Baltimore: The Edmonson Village Story – a thorough and compelling account of how predatory real estate agents and FHA lending policy behaved in post-WWII West Baltimore, exploiting racism to enrich a small number of individuals and entrenching the cycle of poverty in the area.
- Brenda Wineapple’s The Impeachers – a fascinating history of the failed impeachment of Andrew Johnson. Both an engaging narrative and a primer on the failures of Reconstruction which were instrumental in perpetuating the racial wealth gap we see today.