Continued...

In Cleveland’s municipal community-development department, a color-coded map charts the health of the city’s neighborhood real-estate markets—blue for a thriving area, red for a disinvested area. Considering the racialized nature of U.S. real-estate markets, it’s not surprising that the heavily white, middle-class West Side is shaded a pleasant blue and the largely impoverished and African-American East Side is an alarming red. Asked if there are any neighborhoods where the color can be attributed to the activity of a CDC rather than the operation of the market, a staff member identifies two areas of light pink in the East Side’s sea of red. The CDC in one area whole-heartedly implements the real-estate market strategy of a local intermediary, Neighborhood Progress, Inc. In the other, the CDC is pursuing a political strategy for physical redevelopment. In Cleveland, with its highly lauded community-development industry, only two CDCs out of 40 or so can be credited with making real-estate markets better than they would be otherwise. Pretty much everywhere else, the city looks like what you would expect, given the current economic mix, employment levels, and demographic distribution. In other words, community-development activity has barely made a noticeable impact on real-estate markets. Instead, the city’s real-estate markets gradually improved in a context of economic expansion and historically cheap credit. This is about to change. Soon there will be a lot more red on the map.

The current foreclosure crisis has been unfolding for a number of years, even if it has only become an issue that is national in scope recently. As early as 1999, Harvard’s Joint Center on Housing Studies and Woodstock Institute issued separate reports calling for anti-predatory lending legislation, along with other measures, in order to rein in the emerging problem. Neighborhoods are now paying a tremendous price for the lack of foresight about the outcome of the credit bubble. In many cities, abandonment is becoming a serious problem. And, as we learned in the 1970s, along with abandonment comes crime, arson, and financial and physical deterioration. Despite long-standing knowledge of the mortgage problem, community developers have not always made a positive contribution to solving it—not because they don’t want to, but because they have lost the organizational capacity to do so.

The end of the real-estate boom is likely to result in a shakeout of the industry that will favor organizations and partnerships that are not organizationally over-invested in rising real-estate values. This moment also provides a window of opportunity for community developers and their funders to revisit what community development means and what community development corporations should do.

The worst possible response to the crisis is to continue to bet on the power of physical development in a context of declining home prices and more expensive credit. Yet some community developers view foreclosed houses as an opportunity to acquire desirable properties that can be redeveloped for more strategic uses. This may be a viable strategy, but only if real-estate values recover quickly. If they do not, and nonprofit developers can’t sell new housing or lease up new commercial space, this strategy amounts to doubling down on physical redevelopment at a time when such a bet seems insupportable. Many real-estate moguls have built their fortunes by making just such a bet, but they have the luxury of not worrying about the cost of their activity. In the case of community developers, such a bet is indicative of an ideological rather than an analytical understanding of markets and their virtues.

It is time that community developers start looking at their current organizations, practices, and strategy as ill-adapted to emerging conditions. Doing so is not surrendering to pessimism, but recognizing an opportunity. However, realizing the opportunity requires community developers to start reimagining alternative approaches to their work. Funders and investors will likewise have to recognize that the current infrastructure needs to be reworked. Barring a quick recovery in real-estate markets, the work is imperative.

The assumption that physical development is a cure for all ills was a good strategy, but one that made sense in a particular historical moment of cheap credit and a sustained rise in real-estate values. The question is how much the bet on that strategy will limit the ability of community developers to be as adaptable and innovative as they once were.