Redlining’s Legacy Of Inequality: Low Homeownership Rates, Less Equity For Black Households

A decades-old housing policy known as redlining has had a long-lasting effect on American society and the economic health of black households in particular, according to a new report by Redfin real estate brokerage.

The racist 1930s-era policy that was outlawed in the 1960s effectively blocked black families from obtaining home loans and remains a major factor in the country’s already substantial wealth gap between black and white families.

The typical homeowner in a neighborhood that was redlined for mortgage lending by the federal government has gained 52% less—or $212,023 less—in personal wealth generated by property value increases than one in a greenlined neighborhood over the last 40 years. 

Black homeowners are nearly five times more likely to own in a formerly redlined neighborhood than in a greenlined neighborhood, resulting in diminished home equity and overall economic inequality for Black families. 

“It’s a tale of two cities in Chicago,” said Redfin agent Brittani Walker. “It goes back to redlining, when Black residents lived in certain neighborhoods and white people lived in others. And the difference in home value and segregation between those places has been exacerbated by policy, education, wage inequality and so many other issues.”

She added, “I hear the systemic problems every day when I talk to clients. Home buyers have boundaries they’ve set for themselves, or a friend of a friend has set for them. They don’t want to buy in certain neighborhoods, especially on the South Side in formerly redlined areas, because those places don’t get the culture, the restaurants, the fun events — they don’t even get healthy food at grocery stores. And that contributes to why home prices don’t go up in those neighborhoods.”

Redlining refers to the practice in which a federal agency, the Home Owners’ Loan Corporation, legitimized racial discrimination by creating color-coded maps for cities across the country between 1935 and 1940 that indicated risk levels for long-term real estate investment, in other words their mortgage security.

The agency was created as part of the New Deal, a series of programs, public work projects, financial reforms and regulations enacted by President Franklin D. Roosevelt from 1933 to 1939 to lift America from the Great Depression. Neighborhoods that received the highest grade of A, colored green on the maps, were considered “best.” Those that received the lowest grade of D, colored red, were regarded as “hazardous.” 

Urban areas with a large share of Black families were most likely to be redlined, while neighborhoods made up mostly of white families were most likely to be deemed “best” and colored green. In redlined neighborhoods, it was virtually impossible to get a loan. Type B neighborhoods, those deemed “still desirable” were colored blue and Type C neighborhoods, considered “definitely declining,” were colored yellow. 

The U.S. Supreme Court decision Plessy v. Ferguson in 1896 shaped the history of racial segregation in America. As a result, segregation across the country continued with minimal legal challenge until the Supreme Court’s 1954 decision Brown v. Board of Education. Accordingly, when the Home Owners’ Loan Corporation enacted the practice of redlining in the 1930s, many U.S. cities were racially segregated, and it was not uncommon for neighborhoods to consist predominantly of Black families or predominantly of white families. 

While redlining prevented both black and white families from obtaining loans for homes in Type D neighborhoods, the bigger impact was on black families, who were blocked from buying homes in the neighborhoods where they already lived. 

The nationwide protests against police brutality and systemic racism are now highlighting questions of how to use housing policy, among the key drivers of racism in this country, as one way to tackle inequities that haven’t gone away.

Redfin concludes that the next step is for voters, policymakers, communities and the real estate industry, Redfin included, to cooperate on solutions. Some policies proposed over the last few years include reparations for the black community and down-payment assistance for first-time home buyers in formerly redlined areas. 

The Fair Housing Act of 1968 made it unlawful to refuse to rent, sell or provide financing for a dwelling based on race, religion and national origin, and the 1977 Community Reinvestment Act further outlawed redlining. 

Today, U.S. residents, particularly black families, still feel the impact of this American tragedy.

Lack of access to credit, discrimination against minorities buying homes in Type A neighborhoods and being prevented from buying homes in their own neighborhoods has led to significantly lower homeownership rates for black families than white families. The national homeownership rate is lower for black families than white families—44% versus 73.7%. 

“The expanding homeownership gap between Black and white families can in part be traced back to diminished home equity due to redlining, as it’s one major reason why black families today have less money than white families to purchase homes either as first-time or move-up homebuyers,” said Redfin chief economist Daryl Fairweather. “It’s important to note that other factors play a role in lower homeownership rates for black families, too. For instance, employment discrimination has prevented black workers from earning equitable income.” 

Many of the challenges black households face in the housing market have to do with not benefiting from wage or job growth. Blacks still only make up single-digit percentages of the workforce at many major tech companies. 

The coronavirus crisis has laid bare the disproportionate impact of job losses on black and Hispanic families. A survey by Pew Research Center revealed notable racial and ethnic differences in job losses and pay cuts. Some 61% of Hispanic Americans and 44% of black Americans said in April that they or someone in their household had experienced a job or wage loss due to the coronavirus outbreak, compared with 38% of white adults. 

The vast majority of black and Hispanic adults without financial reserves also said they would not be able to cover their expenses for three months by borrowing money, using savings or selling assets.

In the 41 metros included in Redfin’s analysis, black homeowners are 4.7 times as likely to own in a former Type D than a Type A neighborhood, while white individuals are just 1.5 times more likely to own in a redlined area. And even though redlining was outlawed half a century ago, the homeownership rate for Black families has dropped in every neighborhood type over the last 40 years. 

Since 1980, the homeownership rate for black families in Type A, or “best,” neighborhoods dropped from 50.4% to just 44%, while the rate for white families rose 4.1 percentage points to 71% in 2017. That makes for a 27 percentage-point homeownership gap between black and white families in “best” neighborhoods, up from a 16.5 percentage-point gap 40 years ago.

The gap has widened in all neighborhood types except those that were formerly redlined, where black and white families both have relatively low homeownership rates (29.8% and 45.6%, respectively).

As Redfin notes, black homeowners were hit harder during the 2008 housing bust, with 7.9% of Black families with mortgages losing their homes to foreclosure between 2007 and 2009 versus 4.5% of white families, and it’s likely that the subsequent tightening of credit has been an exacerbating factor in the homeownership gap. 

In some areas, the difference is more pronounced. The homeownership rate for Type A areas in Atlantic City, New Jersey, is just 14.8% for Black families, versus 75.3% for white families. That’s a bigger gap than any other metro. It’s followed by Fresno, California, where the Type A homeownership rate for Black families is just 2.5% compared to 62.6% for white families, and Greensboro, North Carolina (9.3% versus 67.7%). 

The homeownership gap for “best” neighborhoods is smallest in Oakland, California, where Black families have an 84.1% homeownership rate versus 85.9% for white families. It’s followed by Miami (42.7% versus 56.8%).

“More than half a century after it was abolished, redlining continues to dictate the racial makeup of neighborhoods, and Black families still feel the socioeconomic effects of such a racist housing policy,” said Fairweather. “Black families who were unable to secure housing loans in the neighborhoods where they lived have missed out on one of the major ways to build wealth in this country. And even families who were able to buy homes in their neighborhood after redlining ended haven’t earned nearly as much home equity as people who bought homes in neighborhoods that were considered more valuable.” 

“That has had a lingering effect on their children and grandchildren, who don’t have the same economic opportunities as their white counterparts,” Fairweather added. “Not only are black parents less likely to have the resources to pay for higher education and help with other expenses, but studies show that children of homeowners are about 7.5% more likely to become homeowners than children of renters.”

While the median home equity in redlined neighborhoods has seen a bigger percentage increase since 1980 than those in greenlined neighborhoods—292% versus 204%—it’s largely because equity in redlined neighborhoods started out so low. 

The lack of equity in redlined areas pervades across the United States, with one exception, Philadelphia: The median home equity for the greenlined neighborhoods is 40% less than it is in redlined neighborhoods: $160,000 versus $268,000. 

“Philadelphia is currently grieving over the deaths of George Floyd, Ahmaud Arbery, Tony McDade and Breonna Taylor and some neighborhoods such as Center City, and parts of West Philadelphia and Kensington have experienced damage despite otherwise peaceful protests,” said local Redfin agent Mason Gallik.

“This may change some dynamics of the real estate market while neighborhoods recover,” he added. “But as of a few months ago, some of the formerly redlined neighborhoods were among the most desirable areas in the city, like parts of Fairmount and Northern Liberties. Those neighborhoods have two things a lot of the former ‘best’ neighborhoods do not have: vacant land and proximity to downtown, both of which are valuable to modern home buyers. Vacant lots in formerly redlined neighborhoods also allow for newly built homes, which tend to sell for more than older homes.”

This post first appeared on Forbes.com. To see the original, click here.