There may be many reasons for the erosion of homeownership in middle neighborhoods, beginning with the decline in middle-income demand reflecting the demographic shifts described earlier. That is far from the only factor. Many middle neighborhoods were victimized by subprime lending and foreclosures, a process that as homeowners lost their homes, and lenders subsequently resold them, led to widespread shifts from owner-occupancy to absentee ownership. More recently, impediments to home-buying in the form of the increase in student debt and in the reluctance of lenders to make mortgages for low-value properties, particularly to homebuyers with less than pristine credit, have been recognized, although not addressed.

Since the end of the Great Recession, it has become harder for moderate and middle-income families, particularly those with less-than-stellar credit scores, to get mortgages. While nearly 2 out of 5 American households have credit scores under 660, they accounted for fewer than 10 percent of the mortgages made between 2011 and 2015. This problem is exacerbated by the fact that house prices in many struggling middle neighborhoods are extremely low, under and often well under $50,000. As a 2015 Urban Institute report pointed out, “Getting a mortgage loan for less than $50,000 has never been easy, but it’s becoming next to impossible.”

Although some commentators have argued that a shift from homeownership toward rental tenure is not a problem, and perhaps even salutary, we believe that the loss of homeownership in middle neighborhoods may have many negative consequences. The residential stability as well as community engagement more typical of homeowners than of renters, both of which are critical elements in the vitality of middle neighborhoods, are likely to erode, particularly in light of the extreme economic insecurity of the lower income renters likely to replace homeowners in struggling middle neighborhoods. Moreover, particularly in neighborhoods where house sales prices are severely depressed relative to rent levels, absentee landlords are not only unlikely to make the capital investment necessary to maintain aging housing stocks, but may actively “milk” their properties, disinvesting in them to focus entirely on short-term cash flow.

The decline in homeownership in middle neighborhoods is widely coupled with a decline in sales prices, particularly in communities which experienced a housing bubble during the years prior to 2006. The combination of loss of owners and lower house values has led to a massive loss of wealth on the part of middle-income homeowners, particularly in African-American neighborhoods. A recent study of St Louis middle neighborhoods found that in just one census tract homeowners experienced a loss of over $35 million in home equity between 2008 and 2016.

Predominately African-American neighborhoods on St. Louis' Northside, such as O’Fallon, pictured here, boast handsome houses on tree-lined streets. But their lack of proximity to downtown, with its major universities and medical centers, has made these areas a less attractive housing option, and the neighborhoods have suffered for that disinvestment. (Photo by Michael Allen via Flickr)

Location, Location, Location

Locational assets drive neighborhood change. In fact, the single most important factor in upward market change for a struggling area is proximity — to strong neighborhoods, downtowns, major institutions, or well-maintained parks and bodies of water. Because most middle neighborhoods were built with amenities such as schools, houses of worship, and retail stores within walking distance, these areas are often at a locational disadvantage in today’s cities. Once-high homeownership rates in these neighborhoods have eroded, reflecting demographic shifts as well as the devastating effects of subprime lending and the foreclosure crisis, which hit these neighborhoods disproportionately hard. As housing continues to age, weak demand and low property values make rebuilding and repopulating these neighborhoods increasingly difficult. Even as demand has reemerged, lower sales prices and severe constraints on mortgage access have led to a massive loss of wealth by middle-income families, particularly in the African-American neighborhoods that were hit hardest.

The Disproportionate Burden of African-American Neighborhoods

After the “white flight” of the 1960s and 1970s, many urban middle neighborhoods were repopulated by middle-income African-Americans, and these remained viable communities for decades. Since 2000, however, these neighborhoods have lost disproportionate ground, devastated by the 2008 foreclosure crisis and by rapidly increasing suburban out-migration. Many such neighborhoods have seen homeownership erode and property values collapse. Thousands of homeowners lost most of their wealth, while many fled cities for nearby suburbs. In cities such as Detroit, hundreds of once-vital neighborhoods are in deep decline, with devastating impacts on their residents’ quality of life, the wealth of African-American families, and the social health of their cities.

The trajectories of middle neighborhoods in St. Louis illustrate the range of challenges and opportunities. In recent decades, the number of middle neighborhoods in the city has shrunk; some have revived, some declined, and a few remained stable. These trends, however, have proven uneven. Many racially and ethnically mixed Southside neighborhoods such as Shaw or Fox Park, once struggling, have rebounded with rising property values and an inflow of young home buyers. But middle neighborhoods in the predominately African-American Northside, like O’Fallon or Penrose, have declined. Despite their handsome houses on tree-lined streets, they also lack the proximity that Southside neighborhoods have to the Central Corridor, where the city’s major universities, medical centers, and downtown are located. Unless concerted, immediate action is taken, St. Louis could lose many of its finest neighborhoods — and much of its African-American middle class.

Two additional factors have led to black middle neighborhoods being disproportionately affected by shrinking demand. First, despite some change over recent years, market demand is still strongly racially segmented. While black buyers are willing to buy homes in neighborhoods of all racial configurations, and some white buyers are increasingly willing to buy in racially mixed areas, they continue to avoid areas that are predominately African-American, particularly in those parts of cities that have been defined as distinct racial “territories”. The same appears to be true of suburban areas where black populations are increasing, as well of the likelihood of any individual urban neighborhood seeing market revival in the form of gentrification. Thus, little of the large white demand pool reaches predominately black areas, while the smaller black demand pool is dispersed across all of the region’s neighborhoods.

Leaving aside the powerful implications of that dynamic from the standpoint of social equity, segregation and wealth, it has a distinct market effect: it means that the pool of potential buyers for houses in African-American middle neighborhoods is far smaller than in mixed or predominately white neighborhoods, creating what could be called a ‘segregation tax” that reduces potential demand and depresses sales prices and wealth accumulation. It also means that while market forces may lead to stabilization and upward economic movement in many — although not necessarily all — predominately white middle neighborhoods, they are far less likely to have similar effects in physically or economically similar predominately black neighborhoods.

The second issue piggybacks on the first. For many reasons, the rate of out-migration of middle-income households from urban areas has increased significantly since 2000, a pattern of “black flight” that in some respects parallels the “white flight” of the 1960s and 1970s. The effect of this trend can be seen in the shift in the distribution of middle-class African-American households (defined here as households earning $35,000 to $100,000 in constant 2016 dollars) from the central city to their nearest suburban neighbors since 2000, as shown in the table below.

Out-migration from black middle neighborhoods simultaneously increases housing vacancies while reducing the demand for housing in those neighborhoods. Many of the properties vacated by homeowners are bought by absentee investors or abandoned by their owners, both outcomes potentially hastening the neighborhood’s decline.

From a market perspective, these neighborhoods are at a competitive disadvantage to primarily suburban neighborhoods. While some families moving from black middle neighborhoods may move to other, racially mixed, parts of the same city, the numbers suggest that the great majority moved to the suburbs, or (since in three of the four areas shown suburban growth was much less than urban decline) outside the metropolitan area entirely.

In contrast to high-cost regions such as New York or Seattle, where homes in even relatively modest suburbs tend to be out of reach of most working-class families, inner suburbs around cities such as Detroit, Cleveland, or Cincinnati tend to be reasonably priced, and often accessible to families with incomes as low as $30,000. Many of these suburbs, moreover, appear to offer advantages over central-city neighborhoods, particularly for families with children. Suburban relocation appears to confer significant marginal benefits with respect to both education and crime, at modest incremental cost. For the two-thirds or more of the urban workforce in many cities who already work in the suburbs, the appeal of moving to the suburbs is clear. We stress “appear to,” since those advantages are not always present in reality. While many city residents undoubtedly benefit from moving to the suburbs, many citizens, such as those who moved to Ferguson and other North St Louis County suburbs in the 1990s and 2000s, have found themselves arguably worse off than before.

These cities are losing a critical battle for the people who more than any other have sustained their middle neighborhoods for many decades — the African-American working- and middle-class family. The decline in demand has taken place at a time when black middle neighborhoods were also being hit hard by the foreclosure crisis that followed the subprime lending frenzy of the early years of the millennium. The figure below illustrates the relationship between subprime lending in 2005 and black population share in St Louis; in that year, 74 percent of all mortgage loans made in neighborhoods that were 90 percent or more black were high-cost loans, compared to 20 percent of mortgage loans in areas that were less than 10 percent black.

As a result, black neighborhoods were hit particularly hard by the wave of foreclosures triggered by subprime mortgages as the housing bubble burst. These foreclosures have not only had a severe impact on the lives and wealth of the families losing their homes to foreclosure, including moves to rental housing and often to less-desirable neighborhoods, but also destabilized entire neighborhoods.

The impact of these factors is visible in St Louis. That city is divided between North City, an almost entirely African-American area north of the Central Corridor, the Corridor and South City, a checkerboard of predominately white and racially mixed areas. The trajectories of those areas that were middle neighborhoods (based on median income) in North City in 2000 from 2000 to 2015 were markedly different from those of the middle neighborhoods in the balance of the city, as shows in the figure below.

Nearly 80 percent of the middle neighborhoods in North City moved downward and became lower-income neighborhoods by 2015, while none moved upward. In South City, 40 percent moved upward, 40 percent remained middle neighborhoods, and only 20 percent moved downward. The ability to rebuild homebuyer demand in these neighborhoods is further limited by the constraints on mortgage lending that have emerged since the end of the foreclosure crisis, as described above.

So, What Can Be Done?

Middle neighborhoods face powerful forces of change that threaten their vitality and have already pushed many into decline. While some of these factors (such as national demographic shifts) may be beyond the influence or control of local stakeholders, other factors (such as public policy) call for creative local initiatives. These strategies for the revival of middle neighborhoods can become the framework for specific recommendations for policymakers and practitioners

Prioritize Middle Neighborhoods in Local Planning and Revitalization Strategies. American local governments have often neglected middle neighborhoods, but they are critical to the future health and stability of legacy cities. Addressing them does not mean neglecting seriously disinvested low-income areas, nor does it create a back door to gentrification. Preserving these valuable physical and social assets benefits the entire city.

Increase Access to Capital. When home buyers and owners have difficulty getting mortgages or funds for property upgrades, it further impedes the stability and revival of struggling middle neighborhoods — particularly those with already-low property values. Local and state governments should actively work with lenders and regulators to improve access to capital for middle neighborhoods.

Design Context- and Market- Sensitive Strategies. One size does not fit all. Middle neighborhoods vary widely by location, physical form, demographics, migration and citywide and regional conditions. Strategies and interventions that may be highly effective in one neighborhood or set of conditions may be much less effective in others. Neighborhood-based strategies — in middle neighborhoods and elsewhere — must be grounded in solid data on each neighborhood’s social capital, collective efficacy, and market trends.

Support Bottom-Up Community Efforts. Neighborhoods are social as well as physical entities, and robust social capital can promote stability and stave off decline. Local and state governments should support neighborhood-driven efforts to build and sustain strong communities in conjunction with programs to improve physical conditions and foster homeownership.

Target Research Efforts to Build Greater Understanding. Middle neighborhoods still raise more questions than answers: Why do some thrive while others decline? Which strategies work under what conditions to stabilize or revive them, and why? A systematic research effort should answer these questions and more in ways that add value to the work of practitioners and policymakers.

Excerpted from America’s Middle Neighborhoods: Setting the Stage for Revival, by Alan Mallach. Copyright © 2018 by Lincoln Institute of Land Policy. Reproduced with permission of Lincoln Institute of Land Policy, Cambridge, Massachusetts.