Recovery from the Fires in Los Angeles Must Include Historically Neglected Neighborhoods
As Los Angeles rebuilds from the tragic fires, it must not neglect communities of color that have faced decades of discrimination and redlining. Recent studies found that formerly redlined neighborhoods across the country had $107 billion in home value confronting flood and other risks, which is 25 percent higher than in white neighborhoods.
In Los Angeles, African American neighborhoods also experienced greater risks from fires due to redlining. During the 1930s, federal government agencies developed neighborhood maps that displayed risks to lenders. Based on racist assumptions, neighborhoods with high concentrations of African Americans and recent immigrants were often color-coded red and deemed to present the greatest risk to lending institutions. As a result, these neighborhoods experienced redlining in which most lenders avoided making loans to residents.
To compound matters, segregation often confined communities of color to areas with higher risks of natural disasters including floods and fire. A UCLA study revealed that the African American suburb of Altadena is one such community facing a higher risk of fire damage. High percentages of African Americans in Altadena were able to buy homes over the decades but the homes experienced slower property appreciation due to the depressed market and sluggish lending levels. Several homeowners in Altadena may not have the equity or insurance coverage enabling them to remain and rebuild their homes.
In an upcoming book, Ending Redlining Through a Community-Centered Reform of the Community Reinvestment Act(CRA), I make the case for a reinvigorated CRA that would more effectively spur redevelopment of formerly redlined neighborhoods. CRA requires banks to lend in all communities, including modest income ones victimized by redlining. It increases bank accountability by rating bank performance in lending and investing and in allowing members of the public to comment to federal examiners evaluating banks. In 2023, the federal bank agencies updated CRA and emphasized redevelopment plans empowering communities that featured partnerships among local public agencies, neighborhood based nonprofit organizations and banks.
To the extent that lending and investing is needed in addition to insurance payments for the Los Angeles rebuild, neighborhoods such as Altadena should benefit from bottom-up reinvestment initiatives modeled after the Purple Line Coalition that sprung into existence to make sure that light rail development in Silver Spring and College Park, Maryland also benefits traditionally neglected communities. The coalition involves multiple stakeholders ranging from community organizations, national nonprofit intermediaries, foundations and local public agencies. The coalition aims to preserve 17,000 units of affordable housing and assists small business with grants and technical assistance.
The state of California should also contemplate bolstering its CRA-like requirements for insurance companies. Insurance companies have their own legacy of disparate treatment. An academic study found that the probability of a claim being paid in the wake of earthquake damage decreases by 4.7 percentage points for a one percentage point increase in the African American share of a neighborhood’s population, holding other socioeconomic factors constant. Likewise, the Consumer Federation of America has documented higher premiums for automobile insurance in African American than white neighborhoods.
Considering the disparate treatment by insurance companies and the increasing occurrence of natural disasters, California should consider an update to its accountability mechanisms. During the late 1990s, the state created the California Organized Investment Network (COIN) in response to pressure for CRA-like legislation applied to insurance companies. COIN now assists insurance companies to invest in climate remediation and affordable housing projects. The insurance commissioner previously collected and disseminated data regarding the investments of large insurance companies, but the last data collection occurred for the year 2020.
New legislation is needed to re-authorize data collection and the legislation should specify that the data should be location specific in addition to revealing overall investment dollars so stakeholders can see if underserved neighborhoods are receiving investments. Furthermore, as I describe in Ending Redlining, bills have been introduced in Congress that should be replicated by states, which mandate the collection of data such as that used by research studies and the rating of insurance companies based on the extent to which they provide insurance policies to traditionally underserved communities.
The best hope for Altadena and other formerly redlined communities is reinvigorated CRA-like laws mandating that financial companies serve their needs, especially after nature disasters. Nearly a century of redlining stimulated by the creation of public agency risk maps shows that voluntary efforts, though laudable, are not enough.