Let’s Use This Juneteenth to Focus On Narrowing Racial Housing Gaps
By Katy Knight and Derwin Sisnett June 19, 2023 9:00 am
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Nearly 160 years ago, as Union troops advanced throughout the South, General William T. Sherman announced a plan to help emancipated Black families establish their economic independence by giving them what came to be called “40 acres and a mule” from confiscated Confederate property. This was overturned by then-President Andrew Johnson, and, in all of the years that have since followed, households of color have remained significantly underrepresented in real estate — despite its potential to serve as a powerful engine of economic mobility.
As of September 2022, approximately 75 percent of white households owned their home compared to just 45 percent of Black households. What’s more, in the real estate development industry — which sits at the lucrative crossroads of both property and business ownership — Black developers make up less than 1 percent of the field. To put that into raw numbers, there are over 111,000 white real estate developers in the U.S., but only 446 Black developers.
As Black leaders in real estate and philanthropy, we know all too well — from both personal experience and our work today — that this acute underrepresentation in homeownership and in real estate development are two realities that fuel one and other. Low rates of homeownership mean Black households lack a tremendous source of wealth generation that could allow them to enter competitive fields like real estate. And without enough diverse developers with proximity to the challenges facing urban and low-income neighborhoods, it’s no surprise there continues to be a lack of affordable and accessible housing within these communities.
So, as we commemorate this Juneteenth, we’re reminded that we’re long overdue when it comes to breaking this cycle. It’s time we finally took the steps needed to meaningfully connect Black families and communities with the opportunities in homeownership that they’ve long deserved — steps that can also uplift Hispanic families and communities who’ve faced their fair share of distinct and disproportionate barriers as well. By capitalizing both Black and Hispanic-owned real estate companies and funds, we can infuse the industry with the diverse talent it needs while profoundly addressing widening racial wealth and housing gaps across the country.
A recent report from the Initiative for a Competitive Inner City (ICIC) and Grove Impact with funding from the Siegel Family Endowment demonstrates just this: Investment to diversify the industry could generate over $106 billion in revenue each year and 1.7 million jobs. What’s more, it could lead to over 50,000 new developers of color — an influx of talent that would not only help address ongoing housing shortages, but also with the proximate knowledge to unlock homeownership for diverse communities.
We saw the beginnings of this in June 2020, when financial, corporate and philanthropic institutions made $215 billion in racial equity commitments, with about half of that amount slotted to go to real estate and community development. However, nearly three years later, these investments have yet to catalyze the sweeping change of which they’re capable. For capital to flow to diverse industry professionals sustainably and at the scale required to advance racial equity and economic mobility, the investors driving this work need to re-evaluate the allocation and deployment of their dollars — starting in the following three ways:
Give diverse developers decision rights
The competitive advantage of diverse developers is their proximity to constituencies and data that more distanced investors lack, allowing them to better spot investment-ready neighborhoods and deals. Despite this, many racial equity funds still continue to place decision rights in white hands, with many structured so white managers still approve investments on a deal-by-deal basis.
To advance the field and ensure these commitments are propelling greater outcomes across the board, impact investors should prioritize backing strategies truly led by Black and Hispanic individuals.
Invest in place, not just product
Over the last few decades, impact-oriented investors have developed place-based investment (PBI) strategies that use real estate development in tandem with human capital and wealth creation strategies. And while the success of PBI is well-documented, racial equity funds are often unable to utilize it — as nearly half of them limit participation to a single product or asset class, like hotels or shopping centers.
This condition immensely restricts the ability of Black and Hispanic developers to utilize their proximate knowledge to uplift communities from the ground up. Instead of deploying cohesive solutions that leverage both existing and new construction and harness the support of local networks, these developers are often confined to singular projects with far less ability to make a difference. To unlock the full potential of developers of color — especially to meet the growing housing needs of diverse communities — investors ought to shed the single-asset class requirements that prevent funds from engaging in such a strategy.
Support the human capital opportunities that come with growth
Finally, one of the biggest barriers to scale for developers and fund managers of color is the need for human capital within their organizations. Where many of these growing firms fall short is not in their ability to find and operate promising projects, but in their shortage of back-office support, especially in accounting, compliance and reporting. While small in scale, investors ought to directly — or through an intermediary — provide crucial human capital support that enables developers to grow.
Underlying all of this is a common imperative: to trust leaders of color with decision rights and to provide capital flow that allows them to steward the growth of their companies and communities. The artificial and exclusionary roadblocks facing Black and Hispanic developers only serve to fetter innovative thinking, reduce returns for investors, and prevent progress for diverse communities.
We are at a pivotal moment of reflection on Juneteenth and, while there are hopeful signs emanating from recent efforts, we need all stakeholders — from the investors driving this work at a high level to the philanthropic funders fueling community-led efforts — to do their part to remove the structural barriers inhibiting progress.
Katy Knight is executive director of the Siegel Family Endowment. Derwin Sisnett is the lead partner at Grove Impact.
