Business Ethics and Sustainable Development, Term Paper Example

Throughout history the economy has went through major upheavals, beginning with the Great Depression, and more recently with the housing market crashed, that thanks to a combination of several other mitigating factors caused the 2008 Economic Recession. This was felt not only in the United States, but also around the world, with many countries still reeling from the impact. Since dealing with the economic crisis in the United States, the economy has dealt with international debt, student debt, and mounting national debt that has been the result of bank failures, market crashes, and the housing market.  While the economy is beginning to turn around, thanks to a resurgence of initiatives from the government to stimulate growth in the economy, more focus has went to stimulating the housing market.

Taking into account several literature reports, and research that focuses on the economy and the factors that impact it. My view is the real estate industry has been extremely impacted by the economic crisis, in which largely was a result of housing discrimination, and marginalization that targeted low-income families and minorities to taking loans that were not able to pay back in the time allotted.  It is the ethical responsibility of the real estate industry to create a balance between the environmental protection, social responsibility, and economic progress of society. Taking a look at Gary Becker (1992), “The Economic Way of Looking at Life”, he takes an economic approach to looking at discrimination against minorities, crime, human capital, and family. In looking economically at these different subjects as it pertains to both to real estate and fair housing regulations. More importantly, this paper will address business ethics and sustainable development in regards to how the housing market has influenced the real estate industry, and how businesses have responded to sustainability.

The decline in the economy in 2008, was a result of a large portion of homeowners defaulting on their mortgage loans, the stock market crash, and factors that go back to 2006. The housing bubble was beginning to peak in 2006, that came from lax screening from banks of sub-prime owners or housing applications, in which policies encouraged many individuals with easier access to housing loans. The sub-prime mortgages were overvalued, and many assumed that the housing prices would continue to increase. This caused many to believe that the securities values that were linked to the real estate market, would soon plummet, and create a ripple effect within the economy. The stock market was negatively impacted that ultimately caused a global market crash, as the major losses was suffered from securities, and a decline in international trade. A broader blame can be placed on the Senate and banks, in which bypasses the actions of several rating and credit agencies that turned a blind eye to many banks, investors, and insurance agencies that brought up CDOs and securities aiming to get a large payoff. After the housing market crashed, there were many credit agencies to giving triple A (AAA) credit for CDOs and RMBs. When the economy declined, many tried to sell them off quickly at rates that were alarming. Banking abuse, particularly from large financial institutions such as Deutsche Bank and Goldman Sachs played a fundamental role in the market for housing mortgages. They to large investment banks, designed and formulated tools in which eased the supply and purchasing of RMBS, CDS, and CDOs, in which they both promoted, and acted as the underwriter for numerous contracts. (Senate 15) Many of the financial transactions that were conducted allowed for the investment banks to profit from the expense of the clients. All together, there were several players that lead to the downturn in the economy. With each factor, it was conducted without the oversight or the regulation of the government in protecting the citizens from these consequences of individuals that sought to make a profit. Disregarding the ensuring unemployment, sky-high inflation, and the amounts of massive debt that younger generations would fight to achieve the economic freedom that their grandparents and parents enjoyed.

The housing and real estate market is not without its blame, as the real estate housing bubble in the United States impacted nearly the entire country. The prices for housing peaked in 2006, and rapidly declined; reaching its lowest in 2012. The credit crisis was seen as the largest contributor to the recession, but also the underlying factors of mortgage discrimination that has been a major factor since the early 20^th century. Minorities were the hardest hit by the economic crisis, and it has must to do with the wealth gap, as well as the racial disparities of the amount of minorities that were targeted for subprime loans. As Becker sees the economic approach in minority discrimination, “the amount of observable discrimination against minorities in wages and employment depends not only tastes for discrimination, but also on other variables, such as the degree of competition and civil rights legislation.” (Becker 22) This impact on discrimination resulted in several legal theories that includes Equal Credit Opportunity Act and the Fair Housing Act, that provided federal laws to protect the renter or buyer from discrimination against the landlord or seller. Rental housing providers and real estate agents have been largely found to show fewer apartments and home to minority families, which has restricted their housing options, and increased their costs. (Gonzalez 1) The documented acts of discrimination go back as far as the early 1920s and 1930s, in which minorities found great difficulty in securing mortgages in redlined zones location. During this time period, there was a systematic denial of loans that resulted in the urban decay, that was seen as a major contributor.

This trend continued throughout the 20^th century, in which discrimination held by rental property owners and real estate agents helped in sustaining and establishing stark patterns of neighborhood and housing inequality. There was a long struggle for minorities, particular African Americans to find housing options in certain sections of the countries. Many of the housing patterns in which real estate agents would not show housing to minorities was prevalent in the late 60s. Even after many went to war and returned, they were still problems in which they could not purchase or rent homes in certain residential areas based on their race. Legislations was passed in the forms of the G.I Bill, in which the National Committee Against Discrimination in Housing and The National Association for the Advancement of Colored People (NAACP), heavily lobbied for change.

It was not until the acts of the courts, were changed beginning to form as legislation passed in California, the Rumford Fair Housing Act of 1963, outlawed restrictive covenants, and the refusal to sell or rent property on the basis of physical disability, marital status, gender, ethnicity, and race. The Proposition 14 in which saw a referendum that protected property owners’ ability to deny equal access to housing for minorities followed this. However, in the case of Mulkey v. Reitman (1966), the Supreme Court ruled that the proposition violated the due process and equal protection laid out in the States’ Constitution. While the Civil Rights Act of 1964 addressed the issues of discrimination, it was not until The Fair Housing Act, which provided federal enforcement to the provisions in the Civil Rights Act of 1968. It entailed that it was prohibited to refuse to rent or sell to any person based on their national origin, sex, religion, color, or race. Interfering, intimidating, threatening, or coercing a person’s exercise or enjoyment of fair housing rights, as also outlawed. (United States Department of Justice). However, even after the passage of the Fair Housing Act in 1968, minorities were still largely discriminated against. “From 1950 to 1980, the total black population in America’s urban centers increased from 6.1 million to 15.3 million.” (History) Many of the employment opportunities were taken due to the large amounts of white Americans moving to the suburbs, and the opportunities were not available to minorities. Becker’s economic approach to human capital also comes to play in looking at how the lack of job opportunity also contributed to the discrimination of minorities in fair housing. “The accumulating evidence on the economic benefits of schooling and training also promoted the importance of human capital in policy discussions.” (Becker 27) As these policies help shape the way in which the government approaches the problems of economic progress, and social mobility, these disparities have played a role in passing legislations. Looking at the training and education of minorities at that time, only a few were given the opportunity for social mobility. This status of being highly educated was an advantage for some minorities, but a disadvantage for other minorities in which they were not able to be shown housing options in communities where job opportunities were available.

Looking at how this impacted the future growth and problems in fair housing, the lack of enforcement of the Fair Housing Act, contributed to the urban growth in the inner city communities, and the ghettos that have population that is disproportionally higher with minorities. This also was a contributor to social ills, higher rates of crimes, and higher unemployment, which has been a lasting impact throughout the 21^st century. Even with the addition of prohibiting discrimination against families and disabled individuals, the passage of the Fair Housing Amendments Act in 1988, there are still increased cases in which minorities have been largely discriminated against in the real estate market. Looking at the results from researchers in looking at 28 different metropolitan regions more than 8000 times. African Americans were aware of 11 percent fewer rental properties, and homebuyers were shown about a fifth of homes that were shown to their white counterparts. (Demby) Asian renters were aware of 7 percent of fewer units, and homebuyers saw the same amount as African Americans. While Latinos were aware of 12 percent fewer rental properties, but there was no significant difference in the amount of homes shown, with their white counterparts. (Demby)

Looking at how the Fair Housing Act pertains to Real Estate, looking at the economic approach from Becker (1992):

“When the majority is very large compared to the minority—in the United States, whites are nine times as numerous and have much more human and physical capita than blacks—market discrimination by the majority hardly lowers their income, but may greatly reduce the incomes of the minority.” (Becker 23).

When minorities are well qualified, just like their white counterparts, they are likely to know about more available housing options. However, in treatment, minorities are treated worse than white home seekers, and are shown fewer housing options by real estate agents. (Turner, Lecy, Wissoker, Aranda, Pitingolog, and Santos 1) In this regards, the real estate market, saw that the majority had greater ability to take out mortgage loans, and purchase real estate, compared to minorities. The factors of the wealth gap have contributed to the disparity in the race of homeowners, in which minorities have faced larger barriers to homeownership.

For the real estate industry, their contribution to the housing bubble burst and the economic crisis was largely due to the acts of the major investment banks pushing for minorities to borrow subprime loans, even when they were able to obtain prime loans. As one report saw, Well Fargo even went as far as calling them “ghetto loans” when they pushed for subprime loans in poor and black neighborhoods. (Garofalo 1)  According to Garofalo, “This rampant predatory lending helped inflate the housing bubble; a Center for American Progress investigation actually found huge racial disparities in lending at the big banks that wound up getting bailed out, with minority borrowers far more likely to receive high-priced loans.” (Garofalo 1) This has resulted in a higher number of minorities have lost their homes, as compared to their white counterparts. However, in looking at the financial and economic approach, the obligations of the property owners to the holders of future interests were also a contributing factor in which businesses ethics of organizations did not come into play.

The business ethics of many banking institutions including Wells Fargo, Chase Banking, Bank of America, and several other large banking institutions did a lax job of not communicating the obligations and the underlying factors of housing interest rates, and other mitigating factors. In regards, many minorities have shifted from homebuying with either one parent, or not in the same tax bracket, as many of the homeowners that are usually given primed loans. As Becker, has explained this is largely seen in well to do families, in which divorce is lower. “Households headed by unmarried women with children now comprise about one-fifth of all households with children in the United States and other advanced countries.” (Becker 29) This was in 1992, and the number has rapidly risen, given way to the amount of homeownership of single parent families, and minorities, the discrimination is felt that they will not be able to pay back the mortgages, but given the misinformation given to monitories, it contributes to the higher costs. Real estate brokers, have a large responsibility and obligation to not only disclose all the relevant information to their clients, but also be honest, and show all the housing options that are available to them. This has not been the case in many examples. Taking the economic approach in which the financial instruments of the market have played a row in providing supply and demand. Financial institutions that supplied many of the subprime loans to minorities did so because there was a high demand for homeownership, as well as a large supply of houses. The banks issued large amounts of debts, largely to minorities, in which they invested into the MBS, betting that the prices of houses would continue to rise. By offering the lower interest rates, they invested at interests rates that were higher. The borrowers of the subprime loans had low credit histories, and had a greater risk of defaulting on their loans. This was inevitable for many of the borrowers, in which the effects of the housing bubble burst, contributed to other aspects of the economy, which resulted in a higher unemployment rate. With the loss of jobs, and stop to discretionary spending, many of the homeowners lost their jobs, and were unable to pay on their mortgages. Due to this many were in foreclosure, and the actions of banks and the real estate industry, they took part in fraudulent and deceptive practices to target minorities, and other borrowers that could not afford the mortgages.

When looking at the real estate market, and the importance of fair housing, it is instrumental in showcasing how it has been extremely impacted by the economic crisis. In which largely was a result of housing discrimination, and marginalization that targeted low-income families and minorities. Real estate brokers were not honest with their clients on the grounds of the type of mortgage they will be getting into, as well as showing them housing options that would lower their costs. In looking at the economic approach, it is clear that the ethical response to sustainability needs to be reexamined for the future of the real estate industry. Business sustainability and ethics play a large role in how many of the banking institutions acted. The government as well as the larger society believes that they participated in predatory lending, and supported the deceptive actions of deceiving borrowers. Fair housing is instrumental in promoting economic progress and social mobility in the economy, and for the future.

Works Cited

Becker, Gary. “The Economic Way of Looking At Life.” Financial, Legal, and Economic Fundamentals of Real Estate. 1992. Print.

Demby, Gene. “For People of Color, A Housing Market Partially Hidden From View.” NPR. 17 June 2013. Web. 12 December 2014. http://www.npr.org/blogs/codeswitch/2013/06/17/192730233/for-people-of-color-a-housing-market-partially-hidden-from-view

“Fair Housing Act of 1968.” History. N.d. Web. 12 December 2014. http://www.history.com/topics/black-history/fair-housing-act

Gonzalez, George. “Racial and Ethnic Minorities Face More Subtle Housing Discrimination.” HUD. Gov. 11 June 2013. Web. 13 December 2014. http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2013/HUDNo.13-091

Garofalo, Pat.” Former Chase Banker Admits His Bank Pushed Minorities Into Subprime Mortgage Loans.” Think Progress. 1 December 2011. Web. 12 December 2014. http://thinkprogress.org/economy/2011/12/01/379332/former-banker-subprime-pushed/

Turner, Margery Austin, Diane Levy, Doug Wissoker, Claudia Aranda, Rob Pitingolo, and Rob Santos. “Housing Discrimination Against Racial and EthnicMinorities 2012. HudUser. 11 June 2013. Web. 12 December 2014. http://www.huduser.org/portal/publications/fairhsg/hsg_discrimination_2012.html

“The Fair Housing Act.” The United States Department of Justice. N.d. Web. 12 December 2014. http://www.justice.gov/crt//about/hce/title8.php

“Wall Street and The Financial Crisis: Anatomy of A Financial Collapse. “ U.S Senate. 13 April 2011. Web. 12 December 2014. http://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/FinancialCrisisReport.pdf?attempt=2