In Defense of Neighborhood Trusts

Two women prepare food in the Dirt Palace feminist art collective in Olneyville, a neighborhood of Providence, Rhode Island. (Photo by Margaret Killjoy/Creative Commons)

After my article “Communities Need Neighborhood Trusts” appeared in the Spring 2019 issue of Stanford Social Innovation Review, a number of readers had questions about my idea for neighborhood trusts. To begin with, some readers doubted whether the residents of a distressed neighborhood had the institutional and organizational skills needed to manage a trust and its accompanying endowment. This, in fact, is what I heard when I presented my research to members of the congenial partnership at a meeting in Olneyville, Rhode Island. “Great idea, but they’re just not ready,” the general sentiment suggested.

I foresaw this objection in my article, but did not treat it at length. Respectfully, I am not persuaded. It treats the residents of a low-income neighborhood as part of the problem rather than part of the solution, and therefore exposes the stewardship mentality of the conventional approach to community revitalization. If residents of a distressed community lack skills, they can acquire them like anyone else. Many people are unskilled when they start a job; what matters is whether training can close the gap.

Even more importantly, those who level this objection appear to suppose that an employee must be qualified to fill every position within an organization. But that is not remotely true. The trustees at Cornell University, where I teach, obviously do not manage the university’s endowment, and would probably fail miserably if they were asked to do so. The same holds for the president, the provost, and pretty nearly everyone else who works here, including me. We rely on outside investment advisors who manage the endowment according to parameters set by the trustees. No less than university presidents and professors, residents of a distressed neighborhood can hire advisors and outside experts, and make informed judgments based on their input.

Furthermore, when I hear objections like this, I cannot help but think of the long history of neighborhoods like Olneyville. Even if we assume that its residents cannot manage their own affairs—an assumption I am very much inclined to doubt—that deficit was caused in no small measure by two generations of neglect and mismanagement by those with greater resources and power. We cannot in good conscience create a system that impoverishes members of a neighborhood, drains their social capital, and then point to their poverty as an excuse to keep the system in place. The history of distressed neighborhoods like Olneyville militates in favor of local control, not against it. Finally, the great success of programs like the Harlem Children’s Zone and the Dudley Street Neighborhood Initiative, which I discuss in my article, shows that any supposed deficits within distressed communities are probably more imagined than real, and certainly not irreversible.

Other concerns raised by readers are more substantial. Some argue, for instance, that shared equity arrangements of the sort I have endorsed deprive low-income residents of what has historically been the surest path in this country to the accumulation of wealth: home equity. Because owners in a shared equity agreement own only the structure and not the plot of earth beneath it, when they sell their home they miss out on the great windfall that can result from dramatic increases in the value of the land. The size of the windfall can be enormous, especially in rapidly gentrifying areas. By the time the owner wants to sell, the home and land may be worth several times more than it was when she purchased it. To lose the chance for this wealth is no small thing.

This argument becomes even more urgent when we recognize that access to this wealth has never been colorblind. Throughout American history, blacks and Latinos have been systematically denied access to mortgages and ownership in areas where property values were increasing, which has made them far less likely to reap the financial benefit of home ownership. White homeowners, by contrast, have been more able to live in areas where property values were increasing, sometimes exponentially, and have relied on this increase to fund a more privileged lifestyle. In fact, scholars have shown that a large percentage of the so-called “wealth gap” between whites and blacks can be traced to differential access to home ownership. How can we justify a financial instrument like a neighborhood trust that perpetuates this inequity? Why shouldn’t people of color have the same opportunities from home ownership as whites?

This argument has great moral and economic urgency, but it is ultimately not convincing for four reasons. First, and most obviously, the existence of a neighborhood trust does not prevent a qualified purchaser from buying any home she can afford, including a home on the open market. No one, in other words, is forced to buy a home in the trust. Second, homes in the trust are available only to those who cannot afford to buy a home at market rates. Without the trust, these low-income buyers would be priced out of ownership. The trust allows them to move to and remain in a neighborhood that would otherwise quickly become unaffordable. In that way, the trust increases the number of low-income residents who can become homeowners in desirable places, albeit without the full bundle of rights enjoyed by residents who can buy a home outright.

Third, the argument against shared equity misses the point of the trust, which is to create and sustain long-term affordability of the neighborhood as a whole. The trust protects the shared wealth of the neighborhood by stepping away from our obsessive focus on individual profit. The person who buys a home in the trust makes a commitment to the enduring sustainability of a thriving, diverse, and affordable neighborhood. In exchange for that commitment, she relinquishes—at least for the time she owns a home in the trust—the right to cash in on gentrification, which would make her home unaffordable to the next generation of low-income buyers. The trust, in short, is an investment in the community at the expense of the individual. Those who want to make that investment and be part of such a community will pay the price, and those who do not are free to buy elsewhere.

Fourth, since trust rules are meant to be flexible, the terms of the shared equity arrangement can be adapted to fit the changing needs of the neighborhood. The neighborhood may decide, for instance, to alter the terms of the trust by allowing homeowners to purchase full ownership rights from the trust at a below market rate, or acquire them outright after a certain period of uninterrupted residency, or some combination thereof. All of these options can be written into the trust agreement, permitting a homeowner to buy the rights after, say, 15 years in the neighborhood. This would give the owner an incentive to stay in the neighborhood, maintain the house, and contribute to the community as a way to increase the value of her investment. The point here is that, as with everything else, the decision should be left to the community. One community may want to write its trust rules to eliminate all chance for the owner to acquire the land rights; another community may want to provide such an opportunity. The great virtue of a neighborhood trust is its flexibility, and a community can, if it wants, even vote the trust out of existence and liquidate its assets. The trust, like the neighborhood it is meant to protect, can last forever, but it can also have a lifespan.

Another objection concerns the availability of land. Some cities are now so built out that there is little real estate that could be acquired cheaply and transferred to a neighborhood trust. Obviously, the resources of a distressed neighborhood cannot compete with the combined wealth of unrestrained capital in the bidding for increasingly precious parcels of land. How does a neighborhood trust operate when there is no cheap land?

There are several answers to this question. To begin with, I grant that in some locations—such as the Carnegie Hill area of Manhattan—the tsunami of unrestrained capital has raised the cost of land so much that it is oxymoronic to speak of maintaining affordability for low-income residents. But these are not the neighborhoods we are trying to preserve. In those places, capital has already thoroughly displaced the great majority of low-income residents, and it is at least open to debate whether there are enough remaining to create a vibrant, diverse, mixed-income community. In short, in some places, the damage is done. The neighborhood trust is meant for low-income neighborhoods that can still be saved. And in those neighborhoods, there is still available land. As the Lincoln Institute of Land Policy reported in 2018, vacancies remain at “epidemic levels” in our older, industrial cities. In 2017, for instance, Detroit had more than 120,000 vacant lots. To put it mildly, in these cities, want for land is not the problem.

Finally, one reader expressed the concern that shared equity arrangements principally benefit would-be buyers rather than renters, and that most residents in a distressed neighborhood are not in a position to buy. But that, of course, is precisely the condition that shared equity arrangements could change. The only difference between an otherwise qualified renter and an otherwise qualified buyer is a down payment. If shared equity reduced the cost of ownership, at least some of the renters in the neighborhood would become owners.

Read more stories by Joseph Margulies.