The blog of the Urban Institute
June 5, 2019

In Chicago, Access to Capital Depends on Your Neighborhood

The fact that Chicago is highly segregated isn’t news to its residents. The racial fault lines embedded in the city’s residential patterns have been heavily documented—from Robert Sampson, Stephen Raudenbush, and Felton Earls’s seminal work to the Urban Institute and Metropolitan Planning Council’s Cost of Segregation research report. But what is surprising and troubling is the magnitude to which historic (PDF) racial inequities persist in capital markets.

In our work on Chicago neighborhood investment flows, we’ve found this story across single-family, multifamily, commercial, industrial, and small business asset classes. We’ve found this same story across capital sources, such as loans, and capital uses, such as property purchases and construction and rehabilitation activity.

We found that the typical (i.e., median) low-poverty Chicago neighborhood receives 4.3 times as much market investment per household as a high-poverty neighborhood. Moreover, the typical majority-white neighborhood receives 4.6 times as much market investment per household as the typical majority-black neighborhood and 2.6 times as much investment as the typical majority-Latino neighborhood.

But we did uncover some good news. Public and mission-driven investment flows more equitably. The typical high-poverty neighborhood gets 10 times more investment per household of these sources than the typical low-poverty neighborhood. But these sources make up a small piece of the pie, so they can’t address the entire problem.

After all investments are considered, majority-white neighborhoods still receive 2.9 times as much investment as majority-black neighborhoods, and low-poverty neighborhoods receive 2.6 times the investment of high-poverty neighborhoods. In practice, this leaves residents with fewer amenities and services, increases the cost of obtaining a loan to buy a home or to start a new business, and inhibits the creation of community and intergenerational wealth.

Additionally, the concentration of some kinds of public community-development investments in high-poverty neighborhoods and neighborhoods of color—in particular, affordable housing funding—may not always be positive, as they could reinforce patterns of racial and economic segregation.

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So how do we move forward? Decades of racially motivated disinvestment and restricted access to private capital will not be solved overnight or through the work of any single actor. These systemic disparities originated from a concerted network of barriers erected by government, market forces, and individual prejudices. As Chicago mayor Lori Lightfoot characterized our findings, “All of these pieces are the result of deliberate policy choices made in decades past by people in power in this town.”

As we’ve detailed, dismantling these disparities will require an all-hands-on-deck approach across philanthropy, mission investors, and federal, state, and local governments. Implementing incentives for the private sector, growing the size of the mission-driven investment sector, and drawing more mainstream capital into a broader set of Chicago neighborhoods will help narrow this wide investment gap and make access to capital more equitable across the city.

Photo via VisionsofAmerica/Joe Sohm/Getty Images.

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