Sliding Downhill in America's Divided Cities

Today’s guest post is an excerpt from The Divided City: Poverty and Prosperity in Urban America by Alan Mallach, a much talked-about book that explores the uneven nature and the many contradictions of America’s current urban revival.

And if this excerpt leaves you with more questions, you’re in luck:
on Thursday, March 21st at 12 pm Central Time, we are hosting a live webcast with Alan Mallach, part of our Ask Strong Towns: Celebrity Edition series.

Better yet, every webcast registrant will be entered into a drawing to win one of two free copies of The Divided City—one for long-standing members of the movement, and one for brand new folks—so don’t delay. Members, please check your email for your exclusive invite to the webcast, or email; non-members, join the movement now to join this webcast and enter yourself into the drawing.

To be poor in an American city is to live a life of almost constant instability and uncertainty. Job insecurity, unreliable transportation and child care, unpredictable health costs, and, as Matthew Desmond has brilliantly depicted in his book Evicted, rents that vastly exceed what they can afford even for poor- quality housing, all play their part. “The majority of poor families in America spend over half their income on housing,” Desmond writes, “and at least one in four dedicates over 70 percent to paying the rent and keeping the lights on. Millions of Americans are evicted each year because they can’t make rent. In Milwaukee, a city of fewer than 105,000 renter households, landlords evict roughly 16,000 adults and children each year.”[3] Those numbers don’t even take into account the thousands of “informal evictions,” foreclosures, condemnations, as well as only nominally voluntary moves one step ahead of the landlord or the housing inspector. Not surprisingly, in these cities the average length a renter stays in the same place is barely two years.

Their intense poverty and the tragic instability and insecurity of their lives drastically curtail the role single mothers can play in sustaining the economic vitality or stability of their neighborhood. Their poverty means that most cannot realistically aspire to become homeowners, or if they are homeowners, to stay homeowners. If they are already homeowners, they often lack the money and skills to maintain aging houses that demand regular, expensive repairs and replacement. Their transitory existence, largely against their will, makes it difficult for them to sink roots into a single community, while their continual financial struggles sap their energy, leaving little for any involvement in the life of the neighborhood or their children’s schools. There are exceptions, and they are real and important, but there are not enough of them to fundamentally alter this picture.

Homeownership is an important part of the glue that holds single-family neighborhoods together. Although in recent years there has been something of a tendency to suggest, as one colleague of mine put it, that we “get over homeownership,” that would be a mistake. The evidence is compelling that homeownership matters. For decades, people have been studying the effects of homeownership on everything from home prices to juvenile delinquency. While no single study offers conclusive proof of the connection between homeownership and neighborhood vitality, the sheer accumulation of evidence all points strongly in the same direction.

Homeownership, even after controlling for social and economic differences like family type or household income, matters in many different ways that affect the health and vitality of neighborhoods. Higher levels of homeownership are strongly associated with higher property values, better maintenance and greater investment in properties, greater residential stability, more-positive child outcomes, and greater social capital, including greater involvement in neighborhood activities and greater readiness to become involved in tackling neighborhood problems like crime or disorder. Vital urban neighborhoods typically have high homeownership rates, with well over half of the single-family houses in the neighborhood occupied by their owners. There are exceptions, but not many.

In the past decade, though, traditional homeownership patterns have come undone, profoundly destabilizing many still-intact neighborhoods. The biggest factor in undoing urban homeownership was the insanity that possessed mortgage lending, beginning near the end of the last century, and its aftermath. As I discussed in chapter 4, starting in the 1990s, a dramatic change came over the world of mortgage lending. People were enticed into becoming home buyers by low teaser rates and promises of future refinancing, while older home owners were urged to cash in by refinancing their existing mortgages. Shady products were aggressively marketed to unsophisticated lower-income and minority borrowers, who leapt at the chance to become homeowners or to get money out of their homes to use for their retirement or their dream vacation. With capital available to anyone on any terms, speculators had a field day.

Figure 6-5 Newark’s real estate boom and bust. Data shown relative to 2000, not in absolute numbers. (Source: house price data for Newark from Boxwood Means on PolicyMap, mortgage data from Home Mortgage Disclosure Act, building permit data from US Census Bureau)

Newark, New Jersey, was one epicenter of the subprime mortgage bubble. From 2000 to 2006, the number of mortgages made in Newark nearly tripled, while the median house price soared from $118,000 in 2000 to $307,000 in 2006. With hundreds of acres of vacant land still available in parcels where houses had been demolished in the 1970s and 1980s, the number of building permits for new homes also tripled. None of it made any sense. People weren’t earning any more than before, new jobs weren’t being created, crime was still rampant and the city’s quality of life wasn’t getting any better. The only thing that had changed was that lenders were handing out money for the asking. Of course, it was being handed out on terms that meant that most borrowers would never be able to repay the loans. When the music stopped, the bubble burst.

People stopped making mortgages, house prices collapsed, and building projects were canceled. Nearly a decade later, Newark’s real estate market, outside of a few pockets, is not even close to recovery. In 2014, building permits were half of what they were in 2000, mortgages barely one-third, and sales prices back to the 2000 level—but almost 40 percent below 2000 when adjusted for inflation (fig. 6-5).

The bursting of the subprime bubble devastated neighborhoods that may have been struggling, but still had their heads above water. Foreclosures skyrocketed. Newark has about 50,000 separate parcels of property. The number of foreclosure filings went over 2,000 in 2007, and stayed above 2,000 per year for four years.[4] By 2014, one out of every three homes in the city had received a foreclosure notice. Newark, which has never had a high homeownership rate, has 20 percent fewer homeowners today than ten years ago. Homeowners who managed to save their homes were only slightly better off. Their equity was wiped out and they were now underwater, meaning that their house was worth less than the amount they owed on their mortgage. For the working-class families whose only possession of real value was their home, their entire wealth, modest as it was, had disappeared. In Newark, as elsewhere, the hardest-hit neighborhoods were not the worst areas, but the places people from those areas had moved into, the struggling but still vital middle neighborhoods in the city and its nearby affordable suburbs.

After the collapse, lenders tightened their standards, making it harder than ever before for an average working-class family to get a mortgage. This is particularly true in these middle neighborhoods, where house prices are low compared to reviving neighborhoods, and even more so compared to growing coastal areas; as housing finance expert Ellen Seidman says, “Getting a mortgage loan for less than $50,000 has never been easy, but it’s becoming next to impossible.”[5] This makes it even harder for these areas to recover. Young families who might want to buy a home in the neighborhood end up renting, or going elsewhere. And when houses come on the market, the only buyers are often absentee investors who buy houses to rent out as an investment, and who either pay cash or have informal or nonconventional sources of financing. A few may live in the neighborhood, but most live somewhere else, often far from the houses they are buying. As prices skyrocket in areas like New York or California, investors have started to see legacy cities as bargains; in the fall of 2016, Cleveland real estate agent Anne Callahan said “in the last twelve months, I’ve seen more cash buyers from California than I’ve ever seen in my career, and I’ve been doing this for twenty-five years.”[6]

Since 2011, three out of four single-family house buyers in Trenton, New Jersey, another city hit hard by foreclosures and collapsing house prices, have been investors, including rings of small investors organized by brokers and investment advisors like New Jersey’s Avi Cohen, who calls his business “Outside In.” Asked why in a 2015 radio interview, he responded: “I take people that were either not investors yet, or not in the Trenton market, and I . . . get them in—to become a Trenton investor. For as little as $15K, somebody can be a real estate investor in Trenton.”[7] His deals offer investors annual returns of 12 to 14 percent, sometimes as high as 20 percent. Meanwhile, between 2007 and 2015, Trenton’s homeownership rate dropped from 48 percent to 38 percent. Trenton, a city of fewer than 90,000 people, lost over 2,200 homeowners.

These sudden shifts in a neighborhood, as neighbors see house after house flip to absentee owners, are destabilizing in themselves, even when the buyers are responsible long-term investors. Many, though, are not. Urban neighborhoods, like some parts of Trenton, where one can buy a house for as little as $20,000 draw a different type of investor, who are better called speculators or what I call “milkers.” Milkers aim to get as much money out of the property as they can for a few years while putting virtually nothing into it, and then walk away. Milkers are a disaster for a neighborhood, and in many cases they are aided and abetted by sloppy or nonexistent code enforcement. As graduate student and investor Darin McLeskey puts it about Detroit, a popular target of speculators, “with no code enforcement, it’s the Wild West.”[8] Detroit is now trying to remedy its code enforcement, but progress is slow. Their properties are dying a slow death in front of their neighbors’ eyes, doing more damage in the process than if they were abandoned and left to the elements. And that, of course, is what usually happens in the end anyway.

(Cover photo: Homes along Race Street in Trenton, NJ. From Wikimedia Commons.)

End Notes

3. Matthew Desmond, Evicted: Poverty and Profit in the American City (New York: Crown Publishers, 2016)

4. Foreclosure filing data provided to author by Ralph W. Voorhees Center for Civic Engagement, Rutgers University, New Brunswick, New Jersey

5. Ellen Seidman and Bing Bai, “Where Have All the Small Loans Gone?” Urban Institute, blog post, April 18, 2016.

6. Quoted in “Absentee Landlords Investing in Cheap Rentals Out-of-State,” Newsweek, October 19, 2016,

7. Interviewed on Business Innovators Radio, June 4, 2015, estate-investment-expert/.

8. Quoted in Nick Carey, “Cheap Detroit Houses Scooped Up by Investors Can Be Costly for Communities, Bad News for Buyers,” Huffington Post, July 3, 2013,

Copyright © 2018 Alan Mallach. Reproduced by permission of Island Press, Washington, D.C.


Alan Mallach is a senior fellow at the Center for Community Progress in Washington, DC. A city planner, advocate and writer, he is nationally known for his work on housing, economic development, and urban revitalization, and has worked with local governments and community organizations across the country to develop creative policies and strategies to rebuild their cities and neighborhoods. A former director of housing & economic development in Trenton, New Jersey, he currently teaches in the graduate city planning program at Pratt Institute in New York City.