New Approaches to Wealth Building: An interview with Dr. Andre Perry

The Economic Mobility Catalog’s Strategy Guide on wealth building features evidence-based approaches to wealth creation for low-income households. It was created in partnership with experts and practitioners, including Dr. Andre Perry, a Senior Fellow at the Brookings Institution and Director of the Brookings Center for Community Uplift. Dr. Perry is a leading voice on urban policy, economic mobility, and wealth inequality in the United States.

In this edited interview, Dr. Perry shares how local governments can create a framework for building wealth, explains how to combat housing devaluation in Black communities, and highlights other innovative wealth building strategies for local governments.

What are some of the core components of an evidence-based approach to wealth building for local governments?

I believe effective wealth-building strategies need to start with three things. First, there needs to be a direct investment in the people themselves. There are direct approaches, like cash transfers and baby bonds that provide targeted financial support. And there are more indirect strategies such as tax credit programs. Tax credit programs are most effective when tied to a specific outcome. Start with anything that directs capital to people in an underinvested community.

Equally important is investing in place. I learned the importance of this through my work on housing devaluation in Black communities. Because of property devaluation and the concentration of poverty, you get withering infrastructure and social problems. But if you only invest in brick and mortar, you'll get property values going up – but people can't keep pace and they get pushed out. So you need to invest in both people and place to uplift a community.

The third thing is you want to divest from racism. There are still structures in place that take away capital from minority neighborhoods when it comes to property tax assessments, lending, and home appraisals. Communities need new practices to drive wealth. The focus here should be increasing business and home ownership through special purpose credit programs that make it easier for working class people, people who are doing the right things but struggling to save, to get the capital they need to own a home or open a business in their community.

When you talk about investing in place, how important is home ownership to that?

It’s not just about increasing home ownership, you have to start by recognizing how formidable the legacy of segregation is when it comes to home ownership and property values. My work has shown that homes in Black neighborhoods are underpriced by 23%, which amounts to about $48,000 per home. This leads to a cumulative loss of roughly $156 billion in lost equity across the United States.

This lost wealth in devalued homes is a hangover from segregation. Look at home appraisals for example, how you determine the value of a home has a huge impact on people’s financial well-being when it comes to building wealth or securing loans. The typical way we appraise homes is to compare one property to another to get an average price. The connection to segregation comes when you compare one property to another in an area that's been discriminated against, you'll recycle the financial impact of discrimination over and over again. This prevents people in historically segregated areas from generating wealth from their property at the same rate as more privileged areas.

There’s also a lot of subjectivity in home appraisals done by individuals on behalf of these large institutions that leave room for racism. One solution is automated modeling that removes the subjectivity. This modeling should not take into account previous appraisals - start a new system to shed the legacy of racism in the home loan and valuation industries.

How can local governments be an active participant in building wealth?

A lot of the power lies with financial institutions, but local governments can intervene with commercial corridors. These are often places seen as blighted but are centrally located in neighborhoods or cities. Usually local governments try to develop around these areas. Instead, they can reinvest in existing neighborhoods through commercial corridors - areas that are likely less desirable due to segregation and years of underinvestment. My work demonstrates that retail rents are 7% lower in majority-Black ZIP codes, and these undervalued areas often are co-located with undervalued Black neighborhoods.

Local governments can offer loan or grant programs for business owners or commercial property owners to fix up the streetscapes and attract businesses. This is one way governments can spur both quality of life improvements and community wealth.

So that’s one way local governments can invest in place, but you should also redevelop in a way that includes the residents - that’s the people part that’s key to wealth building. Organizations like Chicago TREND run by Lynier Richardson are doing this in Chicago and Baltimore by identifying these undervalued commercial areas and bringing local residents in as investors in the redevelopment with as little as a thousand dollars. This approach facilitates asset building and ensures commercial redevelopment isn’t just a synonym for gentrification.

Focusing on divesting from racism, what are some specific examples of best practices for that?

With this, you’re looking to undo decades of history so there really isn’t a single solution. One intervention I’m a strong advocate for are special purpose credit programs. These programs start by identifying “invisible” prime borrowers - people who have a stable income but don’t have the savings for a down payment. These people are probably already paying more in rent than they would in a mortgage. The special purpose credit programs enable these individuals to get a mortgage without putting a down payment or the full down payment. This helps hardworking people who don’t have savings or a great credit score, or people who just never got that intergenerational wealth transfer, to own a home.

These special purpose credit programs are active in many places, with banks leading the way, but it’s not really happening at scale yet. At scale, these programs help address historical discrimination embedded in credit scoring and loan underwriting.

Who are some key partners to bring together to create an effective wealth building program?

Primarily, policymakers who create the tax code – there are many opportunities to address the economic damage of segregation through tax credits and rethinking property taxes in lower income areas.

Next, city planners. Planners need to focus on how to increase wealth for people during master planning processes. I'm particularly interested in creating homeownership strategies, not just increasing rental housing affordability.

We also need better connections between regional economic development organizations and states. These organizations often operate in silos, which limits the potential for regional growth. Stronger collaboration means they can maximize regional growth and ultimately make it easier for lower income neighborhoods to access quality jobs and build wealth.

Similarly, counties and cities really need to connect the economic development organizations with the community development organizations. Talking about education and workforce development separately negatively affects overall wealth building because from a normal person’s perspective, it’s one continuous journey from school to the workplace.

Finally, local think tanks, universities, and data centers have a significant role to play. Research organizations need to demonstrate that we’re not operating in a zero sum environment. The damage of discrimination is real and should be reported, and also champion the message that when you reduce discrimination you increase GDP.

How do you measure success for wealth building policies?

Long-term, you should monitor median wealth, and you have to do so across race and geography within your community. Comparing your community to national data is not enough. Indicators such as investment activity, 401K enrollment, business ownership, and homeownership rates signal a community's capacity to build generational wealth. Specifically, a rise in homeownership and the proportion of employer firms are signs of a community successfully building wealth.

I also look at various outcomes of systems that extract wealth. These include health outcomes like life expectancy and low birth weight, plus educational outcomes such as proficiency in math and high school graduation. I believe we should also track gun fatalities and incarceration rates. Lastly, look at divorce rates, as that’s one of the top wealth destroyers. We need to look at the preconditions of marriage, not blame poverty on not being married.