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Two federal policy updates with significant local impacts
Changes to the Housing Choice Voucher (Section 8) program and a long-awaited update to the Community Reinvestment Act can help local efforts to challenge segregation
Federal agencies have recently announced two important policy changes that can help to redress segregation. While they concern national-level changes, they will significantly impact work on the local level to remedy racial inequality, as we describe in Just Action.
1. HUD expands the ability of Housing Choice Voucher (Section 8) recipients to live in higher-cost areas
Section 8 subsidizes over 2 million low-income households to rent in the private market. When designed, the program was intended to give low-income tenants the ability to move from high-poverty areas to neighborhoods deemed ‘high opportunity’ – those with well-resourced schools, clean air, markets selling fresh food, and access to good jobs and transportation. But few recipients are able to rent in such communities, in part because of how voucher amounts are calculated.
In most areas, the maximum rent a voucher will support is set just below the middle of the full range of rents in the region. Over half of apartments are thus too expensive for Section 8 families. It’s not surprising, then, that few can use their vouchers to move to areas that are high opportunity, because these are also often high-cost.
In 2016, the federal Department of Housing and Urban Development (HUD) concluded that this calculation was, in effect, racially discriminatory, because it left Section 8 families with little choice but to rent in segregated low-income neighborhoods. So it required public housing authorities in 24 metropolitan areas to use a different method for calculating the maximum voucher amount – basing it on the going rents in smaller areas, like a zip code or group of codes. In more expensive neighborhoods, vouchers would now pay for higher rents. The policy change has increased the number of voucher-holders in the 24 designated localities who move out of high-poverty places.
Last week, HUD announced that 41 additional metropolitan areas will be required to use this method for calculating maximum voucher amounts. Called the Small Area Fair Market Rent (SAFMR) standard, this change increases the number of households covered by the SAFMR from 370,000 to 800,000, or 45 percent of all those in the program. The newly-covered agencies have until January 2025 to implement the new standard.
This can improve the lives of affected Section 8 families by expanding their choice of where to reside and giving them access to previously-unaffordable areas. Local racial justice groups in these newly-covered regions can ensure that their housing authorities implement the reform faithfully. Activists can then work to recruit landlords in higher-cost areas to rent to voucher-holders. In areas not required to use the SAFMR standard, proponents can advocate that local administrators voluntarily adopt the small area calculation method. Where discrimination against voucher-holders is outlawed, they can volunteer with local fair housing organizations to investigate where it persists. Elsewhere, they can work to pass an anti-discrimination ordinance.
2. Federal regulators update the Community Reinvestment Act
The Community Reinvestment Act (CRA) was enacted in 1977 to address banks’ practice of redlining African American and Hispanic communities, by providing them with fewer financial services and unequal access to credit. To challenge this practice, the CRA requires banks to invest in neighborhoods within their service areas that have been underserved by the financial industry, defined in the law as low- and moderate-income areas.
Banks are rated on how well they achieve this goal and federal regulators must consider these ratings when banks seek approval for mergers and acquisitions. Community advocates can use poor CRA evaluations to oppose approvals and in the process win commitments from banks to increase investments in lower- and moderate-income areas. Called Community Benefit Agreements, these pledges often include increased mortgage originations, small business lending, funding for affordable housing development, and support for local nonprofit organizations in lower-income communities.
In Just Action, we describe a successful campaign by an Indiana fair housing center to illustrate how the CRA can be an important tool for community groups to challenge inequities in their local financial institutions’ lending and investment practices. Last week, federal regulators announced the first update to the CRA since 1995.
To modernize the CRA and respond to how banks’ lending activity now extends far beyond the neighborhoods in which they have branches, the new rule expands assessment areas for CRA analysis. This increases the number of underserved neighborhoods covered by the law, as banks will now get CRA credit for activities in any such area nationwide.
The new rule also expands the community development activities that count towards a CRA score. Support for disaster preparedness and climate resiliency are among those added. It also names Special Purpose Credit Programs (SPCPs) as services to be considered positively in ratings. These are lending plans designed to remedy racial inequities in access to credit. This change may encourage more institutions to implement SPCPs. Banks will also now be required to make mortgage lending data public for each of their assessment areas, allowing local groups to better determine how well financial firms are performing in their communities.
What the new rule does not do is to make CRA performance assessments race-specific. Despite extensive advocacy efforts to change CRA scoring to be based on how well banks are serving African American and Hispanic communities, rather than the euphemism of “low- or moderate-income areas”, the CRA remains a race-neutral tool. This will continue to limit its ability to address the racially-explicit practice of redlining.
The Federal Reserve’s fact sheet on the new CRA rule.
The National Community Reinvestment Coalition’s webinar with federal regulators explaining the new rule.
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