The mostly African American neighborhoods of west Louisville were intentionally cut off from investment and homeownership due to decades of discriminatory policies. But these days, there’s a lot of capital going into that area, especially in Russell. Part of that neighborhood has a median income of just slightly more than $9,000.
LHOME, a local nonprofit lender, says it wants to put more capital in the hands of west Louisville residents, many of whom have some of the lowest incomes in the county and suffer from a lack of affordable housing. Its new small developer loans product aims to help people who live in those neighborhoods renovate vacant and abandoned properties for their own use or to rent out affordably.
At an annual meeting on Tuesday, CEO Amy Shir said organizations like LHOME — a Community Development Financial Institution, which is a private lender that lends money to low-income people — weren’t created to fix historic problems like redlining, but they are part of the solution.
"CDFIs were created to provide access to capital for people who were purposefully, intentionally and wrongfully excluded from the economic mainstream," she said. "Providing access to capital does not solve all of society's problems. But it is a critical tool for social, racial and economic justice."
Last month, LHOME launched its business loan product aimed at small developers, with half a million dollars set aside to give loans of up to $30,000. Shir said the loans are aimed at people with a "certain level of sophistication," perhaps those who have renovated houses before.
One early recipient is Marcus Harris, who runs a nonprofit organization called Pride Leadership Academy where he teaches kids different skills in areas like construction, agriculture and sustainability. He said at the event a loan from LHOME will help him work on a house he bought this year. Previously, he struggled to get loans because he didn't have a proven track record.
"Having somebody that trusted in us just gave us the opportunity and the resources ... to actually get out and do what we needed to create our own sustainability to kind of fund some of the programs that will help us change the community for real," he said.
Shir said the nonprofit’s preference is to have neighborhood residents invested in these types of properties, rather than outsiders.
"It keeps the culture of the neighborhood for the people who have lived there for generations. If we allow outside speculators to buy up all the properties and own all the stuff, and then drive up the property taxes then the people who have lived in those neighborhoods, who built those neighborhoods, the churches, all the fabric is undermined because people are displaced," she said.
But can LHOME’s small developer loan product keep people in their neighborhoods? Urban development researcher James Fraser, who has studied gentrification in Nashville, thinks there's a chance.
"This is a type of program that sounds like it has the potential to create some positive neighborhood change in terms of decreasing for example, abandoned buildings or vacant buildings," he said.
He said there probably aren’t any direct downsides to LHOME’s small developer loans program, and abandoned buildings clearly have a negative impact on many residents in low-income neighborhoods. But he warned that if lots of these types of efforts happen at once, neighborhoods can change before residents realize it.
"And all of a sudden the neighborhood is viewed by capital investors as a place where they can place their money to make a profit," he said, "then there have to be additional resources put in play for folks that live there."
Fixing up vacant buildings can contribute to rising property values, property taxes and rent. And that can make it more difficult for people to continue affording to live in their neighborhoods.
Shir said she is working on an advocacy campaign to encourage state legislators to cap property values for west Louisville residents. State law currently prohibits Louisville from making that kind of change, though it’s something Louisville Mayor Greg Fischer has said he has asked for, too. Rent control, another measure some say protects low-earners from rising housing costs, is also illegal in Kentucky.
Regardless, changing the law can take years. And current west Louisville residents say they’re already seeing their neighborhoods change and become less affordable.
Fraser said intervention is needed.
"There needs to be a suite of having related policies that respond to the challenges that low income families face in the area," he said. "So it's not only about say, property tax increases, it's not only about rent price increases, possibly, but it's really also about making sure that multifamily apartment buildings remain affordable for people."
Louisville’s eviction rate is nearly double the national average, and without protective policies in place, Fraser said the cumulative effect of developer loans like LHOME’s could have an unintended consequence: forcing people out of their homes.
