FedReserve Publication Highlights Efforts to Turn Market Failures into Opportunities for Equitable Growth

A recent article in the Federal Reserve Bank of Philadelphia’s Cascade publication highlights efforts to address market failures faced by low-income communities and people of color. The Housing Credit, one of the country’s most effective public-private partnerships, is cited as a critical example of a federal resource designed to address a market failure, namely the lack of private capital available for the development of affordable housing. It is economically infeasible for developers to build housing at rent levels affordable to low-income households without a subsidy like the Housing Credit. The article also highlights the Community Reinvestment Act (CRA), a law enacted in 1977 requiring banks to lend and invest in low- and moderate-income communities where they do business, as another federal tool that attempts to address a market failure – in this case, discriminatory lending practices. CRA has resulted in 551,000 community development loans worth $796 billion since 1996. Opportunity Zones are cited as a new tool with the potential to attract economic activity into areas the private market has historically neglected. The article also notes the importance of the federal government collecting data on Opportunity Zone investments so that stakeholders are able to track the impacts of this new tool.

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