The pursuit of wealth creation and the fight for economic equality go hand in hand in our nation’s under-resourced communities. That’s why innovative solutions are essential.
The good news is that there are powerful tools and strategies that can drive economic revitalization and foster a more equitable distribution of wealth. One such tool is the New Markets Tax Credit (NMTC) program. By leveraging public and private funds, NMTCs empower community development financial institutions (CDFIs) to nimbly channel capital into historically marginalized communities, creating opportunities for sustainable wealth creation. Add Community Land Trusts (CLTs) into the mix with NMTCs and there is transformative potential to catalyze the change LIIF seeks to create in the communities we serve.
First, it is important to not conflate wealth creation with wealth equality.
Wealth creation refers to the process of generating new wealth or increasing the total wealth in an economy. It involves activities such as entrepreneurship, investment, economic growth and asset accumulation. Wealth creation focuses on expanding the overall wealth available to individuals and society. Conversely, wealth equality pertains to equitable distribution of wealth among individuals or groups within a society. It reflects the degree to which wealth is concentrated or dispersed across the population. Wealth equality seeks to reduce disparities in wealth ownership to ensure a more equitable distribution of resources.
LIIF believes that when thinking about historically marginalized communities, especially communities of color, addressing wealth creation and wealth equality are one in the same. Policies and programs that promote wealth equality, NMTCs, affordable-housing financing, and financial education and literacy foster social stability and create an environment conducive to sustainable wealth creation.
The Challenges
Following are some of the main challenges to wealth equality in under-resourced communities.
- Systemic barriers. Wealth inequality is in many ways a symptom of broader systemic issues such as racial and gender disparities, education inequality and housing discrimination such as redlining. That’s why addressing wealth inequality requires not just financial interventions, but comprehensive efforts to dismantle systemic barriers. As CDFIs, we are engaging daily in policy and advocacy work that drives racial equity; when complemented with our creation of innovative lending products, we are moving the needle on breaking down endemic systemic barriers.
- Income inequality. Rising income inequality exacerbates wealth inequality. Over the past few decades, wage growth has been stagnant for most workers, while the highest earners have seen substantial increases. This makes it a challenge for individuals and families to save and build wealth. Despite recent increases in wage growth for lower-wage workers, rising rents and overall inflation around food and energy have negated most of these gains.
- Access to capital from traditional lenders. Despite our best efforts, many low-income and historically marginalized communities still struggle to gain access to capital from traditional lenders. NMTCs are an example of how CDFIs work to leverage public and private funds to channel more capital into these communities.
- Financial literacy. Lack of financial literacy is a chronic obstacle to wealth accumulation. While CDFIs provide educational programs, reaching everyone and ensuring the adoption of healthy financial habits is a considerable challenge.
- Funding and sustainability of CDFIs. Despite the crucial role CDFIs play in community development, funding challenges persist. Public funding is inconsistent, and attracting private investment can be difficult, thereby impacting our capacity to serve our communities.
- Gentrification and displacement. While community development projects aim to better neighborhoods, they can sometimes lead to gentrification and the subsequent displacement of both longtime residents and their ecosystem of support. Balancing development with the needs and rights of existing community members must be kept front of mind.
NMTC as a Solution
LIIF’s mission is that “everyone in the United States should benefit from living in a community of opportunity, equity and well-being.” As a CDFI, we mobilize capital and partners to achieve our vision for Black, Latino, and other people and communities of color. NMTC is an integral way to build family prosperity, break down systemic inequities and turn our mission into reality for millions of historically marginalized community members. While we use NMTC in the traditional manner – think community facilities – we also know of the power of investing in affordable housing, which is one of the pillars of LIIF’s work, as outlined in our strategic plan.
Affordable Housing:
There are several ways NMTCs can be used for affordable housing:
(a) Mixed-use developments. NMTC can fund mixed-use projects that integrate residential, commercial and community spaces, creating vibrant neighborhoods. By incorporating affordable housing within these developments, we can foster inclusive communities that offer residents access to essential services and amenities such as home- or center-based child care centers or health clinics, thereby contributing to a higher quality of life for residents.
(b) Partnering with community facilities. Housing developers can collaborate with community facilities — such as child care centers, health clinics or job-training centers — that qualify for NMTC funding. By locating these facilities within or adjacent to housing developments, developers can enhance the overall appeal of their projects and indirectly benefit from NMTC investments.
(c) Blending capital sources. NMTCs can be combined with other financing tools, such as Low-Income Housing Tax Credits (LIHTCs), historic tax credits or tax-exempt bonds. By blending various sources of capital, housing developers can reduce their reliance on traditional bank loans and secure the necessary funds for development.
Case Studies:
Housing, Health and NMTCs
Innovation is a key driver of success in NMTC projects. By incorporating creative financing structures, new forms of community engagement and integrated service-delivery models, developers and owners create projects that better serve their communities and achieve greater impact. This is exemplified by Central City Concern’s Blackburn Project, a six-story, mixed-use project completed in 2019. (article). There are numerous ways that NMTC fostered wealth-building in this Portland, Ore. community, being that NMTC offered: a housing solution, providing 124 homes, plus 51 recuperative-care beds; integrated health services; an Employment Access Center; building design and sustainability; a collaborative approach; and an innovative financing structure.
Comprehensive Community Development Led by Martha O’Bryan Center
In 2019 and 2021, LIIF provided NMTC allocation and leverage debt to Martha O’Bryan Center (MOBC), a nonprofit organization based in Nashville, Tenn. Founded in 1894, this organization has a long-standing history of serving individuals and families in underresourced communities. MOBC offers a range of programs and initiatives that address various aspects of community development. These include early childhood education, K-12 education support, college- and career-readiness programs, workforce development, family support services, and health and wellness initiatives.
One of MOBC’s programs is the Family Success Network (FSN), which employs a holistic approach to a family’s well-being. FSN offers a range of services and resources, centered around four key areas: education and learning; economic mobility; health and well-being; and social capital. By providing comprehensive services and fostering a supportive community, FSN positions the generational wealth-building.
Community Land Trusts (CLTs)
The CLT model started a half century back to preserve farmland owned by Black Georgians. With recent waves of gentrification resulting in the displacement of communities of color from San Francisco to Austin to Boston, there are now more than 300 CLTs across the nation, with an estimated 20% being formed over the last decade alone to combat systemic inequities in the housing market.
CLTs can play a significant role in reducing wealth inequality, particularly in the context of affordable housing and homeownership.
A CLT is a nonprofit organization that acquires and manages land with the goal of providing affordable housing opportunities for the community. CLTs separate ownership of land from the ownership of the houses or buildings on that land. The trust owns the land, while individuals or families own the houses or buildings and have a long-term lease on the land.
Homeownership is one of the primary ways individuals and families accumulate wealth. By providing affordable homeownership opportunities, CLTs allow more people, particularly those in low-income communities, to start building wealth. One example showcasing the power of a CLT is Dudley Neighbors. This CLT protects over 30 acres of land in Boston — land for affordable housing, urban farming, parks and open spaces, and affordable commercial properties.
Another benefit CLTs provide is preventing displacement. As neighborhoods gentrify, rising property values can push out longtime residents. Because a CLT owns the land, it can help control housing prices and prevent displacement, keeping communities intact.
CLTs also preserve affordability for future generations. When a homeowner decides to sell a home on CLT land, they agree to sell at a price that remains affordable for other low- to moderate-income families. This structure helps preserve affordable housing stock over the long term, providing more people with the opportunity to build wealth through homeownership.
While the NMTC program and CLTs have somewhat different mechanisms and goals, they can certainly be utilized in conjunction with one another. The NMTC can attract the private investment needed for projects on land managed by a CLT, such as the development of affordable housing, commercial spaces or community facilities.
Conclusion
Addressing wealth inequality and promoting economic revitalization in under-resourced communities requires a multi-faceted approach. NMTCs and CLTs are powerful tools that drive investment, create affordable housing opportunities and prevent displacement.
To achieve meaningful change as we continue to combat endemic challenges to equitable wealth-building, it is crucial that there be collaboration among policymakers, financial institutions, community-based organizations and community members. Advocating for equitable economic policies, supporting CDFIs, promoting financial education, and embracing the use of NMTCs and CLTs are ways we can contribute to the goal of wealth equality and sustainable economic development.