Housing bubble pushed more whites to leave mixed-race neighborhoods

A recent study suggests that American housing bubble influenced racial segregation:

In a paper released earlier this year, researchers Amine Ouazad and Romain Rancière show how the credit boom affected the racial makeup of U.S. neighborhoods. Expanded credit led some black households to leave mostly black neighborhoods for more racially mixed neighborhoods, a move consistent with buying larger or newer homes in areas with better schools or more amenities. Yet at the same time, their report finds that the credit boom led still more white households to leave racially mixed neighborhoods for mostly white neighborhoods—meaning greater isolation for black households…

Given easier access to credit, black households moved into more mixed neighborhoods—but not at the rates that whites households were leaving them. And black households found little purchase in mostly white neighborhoods, Ouazad explains…

“Empirically, what we observe is that black households tend to become homeowners in their own neighborhoods or in mixed neighborhoods,” Ouazad says, “whereas white households used their mortgage credit to move into mostly white neighborhoods.”

The researchers say they were surprised by these findings. Yet, this fits the longer-term patterns in American life: when they are able to, whites tend to move away from blacks. While we may not be in the era of racial covenants, restricted deeds, and redlining (early 1900s) or blockbusting and white flight (post-World War II), whites still express their preference to live in mostly white neighborhoods rather than live with blacks.

It would be worthwhile to then track these neighborhoods that have experienced significant racial change just before and after the housing bubble. What happens in the long-term? Once whites leave, do the neighborhoods (often suburbs) become majority black or do they also offer space for other non-whites? And do those attractive amenities blacks sought continue to exist, thrive, or decline over time?

More rural residents, businesses don’t have local banks to borrow from

A new study suggests fewer rural Americans have local banks who they can interact with and borrow from:

Increasingly, bank branches are headquartered in distant urban areas – and in some cases, financial “deserts” exist in towns with few or no traditional financial institutions such as banks and credit unions. That means that local lending to individuals based on “relational” banking—with lenders being aware of borrowers’ reputation, credit history and trustworthiness in the community—has dropped, according to a Baylor study published in the journals Rural Sociology and International Innovation.

Instead, more individuals launching small businesses are relying on relatives, remortgaging their homes and even drawing from their pensions—all of which are risky approaches, said lead researcher Charles M. Tolbert, Ph.D., professor and chair of the department of sociology in Baylor’s College of Arts & Sciences.

But for the 30 percent who obtain loans through the traditional lending method, that approach also can be very challenging, according to the research article, “Restructuring of the Financial Industry: The Disappearance of Locally Owned Traditional Financial Services in Rural America.”

Federal Deposit Insurance Corporation statistics showed that from 1984 to 2011, the number of banking firms in the United States fell by more than 50 percent—to just under 6,300—while the number of branches almost doubled, to more than 83,000, according to researchers’ analysis of data from the FDIC’s national business register. For the study, Baylor researchers partnered with the U.S. Census Bureau Center for Economic Studies.

I’m sure financial institutions would argue it is not as profitable to locate in more rural areas that do not generate as much business as denser areas. It would be interesting to look at the exact figures from financial institutions in rural areas: are they not profitable at all or are they just less profitable?

However, how essential are financial institutions to local economies? The same argument might be made about hospitals: they provide essential services even as they are not as profitable in rural areas. (I would guess people would probably rate health care as more important than credit access but both are important for communities.)

The article hints at another aspect of this change: fewer banks in rural areas means fewer relationships between lenders and residents. While forming relationships may take time, couldn’t they be better for business in the long run? Prioritizing efficiency and profits over people may be good for the bottom line and shareholders but it is the sort of approach that seems to have turned off a good number of Americans to large banks.