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“The Road Home” Is a Road to Nowhere for Black New Orleanians

October 14, 2010 by Administrator in Fall 2010

By James Perry

Days after Hurricane Katrina swept ashore in 2005, the federal levees failed, filling New Orleans with water. The combination of the near miss of the Hurricane and the levee collapse proved to be one of the greatest disasters ever faced by a metropolis. Katrina’s wrath decimated nearly 200,000 units of housing in Alabama, Louisiana, Mississippi and Texas. Officials scrambled to develop long- and short-term recovery efforts.

Louisiana organized around a unique difficulty. In many cases, insurance companies deemed the damage to homes to be the result of flood rather than wind damage. For various reasons, many homeowners either didn’t have flood insurance or their flood policies were insufficient to cover their damages. As a result of these and other problematic procedures by insurance companies, hundreds of thousands of homeowners were unable to access the necessary funds to rebuild.

These catastrophes created massive loss and horrible suffering, but they also presented an incredible opportunity. In the wake of such loss, it was clear that federal, state and local governments would have to intervene, and that a significant and aggressive government housing program would be essential to recovery. This need created an opportunity to craft a program that could succeed where earlier federal housing programs had failed, especially in the case of racial equality, where a new program could have helped repair rather than further enhance the racial inequities in New Orleans. Sadly, this was an opportunity unrealized.

Louisiana, through its Louisiana Recovery Authority (LRA), working with the United States Department of Housing and Urban Development (HUD), created the Road Home program to assist Louisiana homeowners affected by Hurricanes Katrina and/or Rita in rebuilding their homes. Congress allocated more than $11 billion in Community Development Block Grant (CDBG) funding to the program. Since the program’s inception, nearly 230,000 people have applied for assistance.

The program offered the possibility of returning all homeowners in New Orleans to their homes. Regrettably, a fatal flaw in the Road Home program caused it to fail thousands of New Orleans homeowners in their efforts to rebuild, and at the same time it enhanced racial housing disparities. Rather than a road home, many black homeowners have found a road to despair and discrimination.

The program’s failure relates to a fundamental flaw in its design: HUD and LRA created a recovery program that links housing assistance to the depressed values of black families’ pre-storm segregated housing. Under the terms of the Road Home program, rebuilding grants are calculated based on the lower of two figures: the pre-storm market value of the home, or the cost to repair the storm damage to the home. Homes in New Orleans’ black neighborhoods generally have lower appraisal values than homes in white neighborhoods, largely due to decades of racial discrimination in the Louisiana housing market that has caused and reinforced segregation in housing.

Here’s a demonstration of the flaw. Consider two identical New Orleans homes, each with three bedrooms and two baths. Both homes are of brick construction and flooded with six feet of water during Hurricane Katrina. The only substantial difference is that the home in the white neighborhood is worth approximately $150,000 while the home in the black neighborhood is worth approximately $90,000. The estimated repair cost for each of the homes is approximately $150,000. The homeowner in the white neighborhood would receive $150,000 in assistance while the black homeowner would receive only $90,000. Shockingly, even though these homes are identical and have identical Katrina-related damage, the white homeowner would receive a full $60,000 more than the black homeowner. The white homeowner would therefore have enough money to fully renovate his or her home, while the black homeowner would have only enough money to complete just over half of the home renovation.

It is estimated that in 2008 as many as 35,000 black New Orleanians received unequal grant payments under the flawed and discriminatory Road Home formula. Even the former executive director of the LRA, Paul Rainwater, agreed that African Americans were more likely to get payouts based on depressed home values. He attested to this at an August 2009 field hearing of the House Committee on Financial Services Subcommittee on Housing and Community Opportunity. The data supports his conclusion. A 2008 analysis of Road Home grants by PolicyLink shows that homeowners in the Lower Ninth Ward, a predominantly black neighborhood, faced average shortfalls of over $75,000—the difference between the available rebuilding resources and the cost of rebuilding each home. At the same time, homeowners in Lakeview—a predominantly white neighborhood—faced shortfalls of $44,000 per home. The data showed that as of 2008, as many as 35,000 black homeowners may have been negatively affected by the disparity.

Later that same year, attempts at negotiating a solution to the discriminatory impact of the program failed. The Greater New Orleans Fair Housing Action Center, in partnership with the National Fair Housing Alliance and five named plaintiffs, filed a class action lawsuit against the LRA and HUD over the Road Home program. Represented by the law firm of Cohen, Milstein, Sellers & Toll, the NAACP Legal Defense Fund and the Wilmer Hale law firm, the lawsuit alleges that the Road Home program violates both the Fair Housing Act of 1968 and the Housing and Community Development Act of 1974. The Fair Housing Act requires housing programs to produce equitable results, regardless of their intent.

After two sluggish years, the lawsuit has finally begun to gain momentum. Ruling on a plaintiff’s motion this summer, Judge Henry Kennedy said:

[HUD and the State of Louisiana] offered no legitimate reason for taking pre-storm home values into account in calculating […] awards. The Court does not take lightly that some African-American homeowners received lower awards than they would have if their homes were in predominantly white neighborhoods. [I]t is regrettable that this effort to [rebuild the city] appears to have proceeded in a manner that disadvantaged African-American homeowners who wish to repair their homes.

Judge Kennedy determined that the substantial statistical and anecdotal evidence showed that plaintiffs would likely be able to prove that HUD and LRA had designed and implemented a racially discriminatory program. Furthermore, a September 2010 ruling by a District of Columbia appellate court had the effect of freezing more than $100 million in remaining Road Home funding until a non-discriminatory method for allocating awards could be attained. The parties are currently navigating litigation while simultaneously working to settle the case, however, until the disparity demonstrated in the case is resolved, black homeowners will continue to be left in the cold. Moreover, while many white homeowners are able to return their homes to a state in which they can begin to accrue value, many black New Orleanians are left with blighted, unlivable, depreciating homes.

Throughout American history, discriminatory policies similar to the Road Home program have disadvantaged black residents in dramatic ways. For nearly three centuries from the early seventeenth century until the late nineteenth century, white Americans were able to purchase, sell, own and lease property—allowing for epic wealth creation—while black Americans were prohibited from having comparable property rights. Not only were black Americans generally restricted from owning property, for most of that period, black Americans were property themselves, governed by the rules of America’s chattel slavery system. Even after slavery was abolished and former slaves gained property rights, the American court system failed to enforce black property rights until 1968.

Despite this ugly beginning, the United States had an opportunity to make substantial progress in bridging the wealth gap created by slavery. Shortly after World War II, the American government created the Veterans Administration (VA) and Federal Housing Administration (FHA) home loan programs. Among other things, the programs were part of an effort to stimulate and grow the American economy. The loans provided inexpensive capital for home purchases, allowing working-class families to borrow money at reasonable rates with generous repayment terms. Homes acquired via the loans accrued value, and as a result, American wealth grew significantly. The programs were so successful that many scholars see them as leading to the creation of both the modern American middle class and the modern American suburb. African-Americans, however, were generally excluded from participating in the loan programs, which has exponentially exacerbated the American racial wealth gap.

Today the wealth of white Americans is eleven times that of black Americans. Slavery and the discriminatory implementation of the federal home loan programs were American policy choices that created and later exacerbated the gap, and no program in any American community has been financially robust or aggressive enough to bridge the gap.

The Road Home program, as the largest housing program to benefit any American state, was the best recent opportunity to lessen this gap. It was a chance to both ensure New Orleans’ full recovery and make sure that all property owners had the same opportunity to accumulate wealth. To date, the program has failed, and with it, yet another generation of black New Orleanians has fallen even further behind. A program that was aimed at recovery and rebuilding has hugely missed its mark and what had been a racial wealth gap has the potential to become a racial wealth chasm.

James Perry is the executive director of the Greater New Orleans Fair Housing Action Center (www.gnofairhousing.org).

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