ALC 2012: The Impact of the Great Recession on Low-Income Communities and Communities of Color

Though the Assets Learning Conference is now more than a week past, one session that has stuck with me dealt with The Great Recession and its Impact on Wealth in Low-Income Communities and Communities of Color. Through deftly interwoven presentations from the Urban Institute, Woodstock Institute, and Ohio State University (moderated by the U.S. Department of Housing & Urban Development), the panel made clear how the recession has had particularly devastating and long-lasting impacts on already disadvantaged communities throughout the US.

To be clear, even before the recession, low-income families had few assets, and the picture was even worse for communities of color. For instance, research shows that in 2007 more than 57 percent of low-income families were “asset poor,” meaning that they did not have enough saved to live for three months at the federal poverty level. In addition, as we have pointed out in earlier posts, the gap between black, Latino and white poverty rate has been a constant presence of the last four decades, despite times of relatively strong economic growth.

On top of this grim reality came the Great Recession. To start the panel, Signe-Mary McKernan from the Urban Institute presented her recent findings on the impact of the recession on low-income neighborhoods in seven different states. The full report is well worth a thorough read, but one finding stuck out to me: even within low-income neighborhoods, lower-income, education, and minority families had fewer assets and disproportionately lost equity as a result of the recession. In other words, the poorer and more excluded one was before the crisis, the worse off you would be after.

Spencer M. Cowan from the Woodstock Institute followed with a discussion of Negative Equity in Communities of Color in Chicago. Also referred to as a house being ‘underwater,’ negative equity occurs when the house’s market value is less than the amount owed on its mortgage. In his analysis of census and mortgage data, Cowan found that in communities of color there was more than double the incidence of negative equity, and three times the risk of foreclosure. Once their houses were underwater, these families were effectively trapped, as they couldn’t afford to pay the mortgage or afford to sell their properties.

Stephanie Moulton from Ohio State University outlined some factors that led low- and moderate-income (LMI) households to take on unsustainable levels of debt. Among other things, her research found that LMI borrowers tend to underestimate their borrowing constraints, and as a correlate took on larger mortgage payments. This is always a dangerous combination, but was especially unfortunate given the prevalence of subprime lending leading up to the Great Recession, especially to African-American and Hispanic borrowers.

Before the Great Recession, the wealth of low-income communities and communities of color was already dangerously low; as a result of the recession, the situation has become disastrous. Our country desperately needs a policy agenda that supports wealth-creating opportunities for all and recognizes the importance of assets for both economic mobility and security. (Financial Security Credits and the elimination of asset limits for public benefit programs are two ideas that the Asset Building Program has promoted recently.) As the Great Recession fades from our collective memory, the kind of research presented by this panel shows that for all too many families, especially within communities of color, its impact will never be forgotten.

Tell us here in the comments or on Twitter: what do you remember most from #ALC2012?