Since I was in middle school, my dad has owned a small construction business. On my way to school, I would help him check the numbers on his bids. On my way home, I would sometimes hear the outcomes. There was always an excuse. My dad either “didn’t have enough experience” or the general contractor went with who they knew and were “comfortable with.” I knew these were covers because my dad had worked for over a decade managing similar projects as a civil engineer. What he didn’t have was membership in the good ol’ boys club. Until he did, his “impressive” bids would not be enough to win the larger contracts. The systematic exclusion of small BIPOC (Black, Indigenous and People of Color) builders like my father from the construction industry robs BIPOC communities of another avenue to generate wealth. California’s growing boom in accessory dwelling units, or ADUs, can help right this wrong.

THE LINGERING EFFECTS OF REDLINING HURT SMALL BIPOC BUILDERS

One in four of California’s 70,000 construction firms are BIPOC-owned. In a state where residents of color represent the majority, small BIPOC builders struggle to enter the $118 billion construction industry. They have to jump through hoops to get their businesses off the ground, and then must jump through more hoops to keep their businesses afloat. 

These obstacles are not merely the cost of doing business, but an inequity stemming from redlining that continues to deprive BIPOC communities of vital wealth-building, small business opportunities.

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Small BIPOC builders are undercapitalized. While many small White builders can source start-up capital from their assets or family and friends, the racial wealth gap ensures that small BIPOC builders usually do not have this option. This often leaves banks as the only available funding source. However, BIPOC businesses in general are denied loans more often and pay higher interest rates than White-owned businesses, according to the  U.S. Department of Commerce. They are also systematically excluded from relief programs. A Center for Responsible Lending study found that during the COVID-19 pandemic, structural inequities in the Paycheck Protection Program meant that small BIPOC businesses were less likely to qualify for critical loans.

Then, there’s the chicken-and-egg dilemma of capacity and experience. To win projects, small BIPOC builders need the capacity to complete them. But, to build capacity, they need  projects. Too often, they are shut out of the market with a slew of excuses, left without the skills and exposure they need to grow their businesses.      

Finally, like so many other industries, the construction industry is all about who you know. Typically, small builders attend networking events and conferences to raise their business profile. But many small BIPOC builders cannot afford the cost or time away to attend these events and benefit from these networks. And many more are not even invited. 

A DIVERSE ADU WORKFORCE WILL BUILD WEALTH IN BIPOC COMMUNITIES

California must do more to equip small BIPOC builders to thrive in the construction industry. When BIPOC businesses thrive, their communities thrive. If California’s construction industry resembled the state’s racial diversity, BIPOC communities could expect about $32.4 billion of payroll investments alone. This money flows directly to these communities, as BIPOC builders employ BIPOC workers at higher rates. They  are also more prone to spur culturally-informed redevelopment in majority-BIPOC neighborhoods. Addressing systemic barriers to entry in the construction industry will thus expand intergenerational wealth in formerly redlined communities across California. 

The statewide Accessory Dwelling Unit boom presents an opportunity to diversify the construction industry and generate wealth in BIPOC communities. Also called a casita or in-law unit, an accessory dwelling unit is a smaller housing unit located on the same lot as a single-family home. About 9,000 ADUs are built in California each year. Small BIPOC builders can use these small-scale projects to build their portfolio and client base and eventually tackle larger projects in the future. By committing to include small BIPOC builders in ADU development, cities and the state will expand and target resources and business development opportunities for BIPOC businesses. 

Assembly Bills 671 and 561 require cities and the state to create financing programs that enable low- and moderate-income homeowners to build ADUs. As local and state housing agencies map out these programs, they must center racial equity.  To do so, they should facilitate a competitive bidding process that uses equitable criteria to identify contractors.

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AN EQUITABLE PATH FORWARD FOR ACCESSORY DWELLING UNITS

An equitable ADU financing strategy would grow the state’s affordable housing supply, increase home equity for BIPOC homeowners and provide small BIPOC builders with capacity-building opportunities. This would maximize wealth building in communities of color and disrupt cycles of poverty. 

To close the racial wealth gap through ADU development, cities and the state should: 

  1. Attach a disadvantaged community preference policy to local and state ADU financing programs. This place-based workaround to Prop. 209’s ban on race-specific contracting goals would prioritize contractors in the bidding process from neighborhoods that have historically been excluded from wealth-building opportunities. These neighborhoods can be identified using a screening tool like CalEnviroScreen.
  2. Require a "work while you learn" workforce development requirement for non-BIPOC general contractors. Small BIPOC builders must still be involved in accessory dwelling unit development even when they are not selected as general contractors. A “Work While You Learn” requirement would instruct larger non-BIPOC general contractors to leverage their in-house resources to teach their subcontractors ADU construction techniques. The requirement would encourage general contractors to hire less experienced subcontractors with the intention of building the subcontractors’ capacity on the job.
  3. Coordinate a "Train the Trainer" program for community partners. From city inspectors to small builders themselves, Californians tasked with bringing ADUs online lack the knowledge to do so. Cities and the state should select a third-party consultant to educate community partners (e.g., BIPOC trade associations and supplier diversity programs) on ADU laws and construction techniques. These partners would then spread this knowledge to BIPOC communities and small BIPOC builders.
  4. Leverage banks to incorporate racial equity bonds in their Community Reinvestment Act agreements. Last month, U.S. Bank and Enterprise Community Partners announced a $30 million racial equity bond. This bond would allow companies to directly invest in projects that support racial equity and provide much-needed capital to under-resourced BIPOC housing developers. Banks operating in California should create similar bonds designated to finance small BIPOC builders of ADUs to fulfill their Community Reinvestment Act requirements. Greenlining has proposed creating a state-level Community Reinvestment Act to incentivize fintech lenders to participate in such a program.
  5. Repeal Proposition 209 and end the state's ban on affirmative action. Prop. 209 prohibits cities and the state from implementing race-specific solutions to supplier diversity. By ending MWBE (minority and women business enterprise) programs, Prop. 209 robs BIPOC builders of $1 billion in contracting opportunities each year. Repealing the proposition would allow them to reclaim this wealth. 

Small BIPOC builders need the opportunity to enter into and succeed in the construction industry. ADUs can be that opportunity and help shape a just economy where BIPOC communities can participate and prosper. 

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Otelo Reggy-Beane is Greenlining’s Economic Equity Summer Associate. Follow him on LinkedIn.

Greenlining is currently building our official housing strategy. In the meantime, we will continue to highlight issues important to communities of color in hopes of stimulating discussion and encouraging progress on the worsening housing crisis.