The killing of George Floyd by a Minneapolis police officer unleashed anger across the country over the mistreatment of Blacks throughout American history. Inequality can manifest in many ways and in many parts of our culture, despite laws that outlaw discrimination. Our housing and financial markets are no exception. Although the practice of redlining was banned more than 50 years ago, Redfin says that Black families continue to feel the impact.
Redlining came into being in the 1930s. The Home Owners’ Loan Corporation rated neighborhoods on their overall likelihood of default or “mortgage security.” The “best” neighborhoods were rated with an “A” and marked as green on a map. “Still desirable” neighborhoods were rated as a “B” and colored blue on the map. Neighborhoods in “decline” were given a “C” rating and were marked as yellow. The “D” neighborhoods were considered “hazardous” and were given a red color. Those neighborhoods were referred to as “redlined.” Urban areas that were predominantly Black were most likely in those redlined neighborhoods.
The policy was outlawed in the 1960s by the Fair Housing Act, and the Community Reinvestment Act of 1977 encouraged more lending in low- and moderate-income neighborhoods, but the impact on generational wealth is still being felt in those formerly redlined areas. Redfin says, a typical homeowner in a previously redlined neighborhood has gained 52% less personal wealth than typical homeowners in greenlined areas. In dollars, that amounts to about $200,000. Redfin also says, Black homeowners are five times more likely to own homes in those previously redlined areas.
Anti-Racist Lending Policies
There are many factors contributing to racial injustice. It isn’t just redlining. But when real estate is so highly prized for the building of personal wealth, anti-racist lending policies become that much more important. Chicago Redfin agent, Brittani Walker, said in a statement, “It’s a tale of two cities in Chicago. 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 have been exacerbated by policy, education, wage inequality and so many other issues.”
Both Blacks and Whites were prevented from getting a loan in a redlined neighborhood. But, as Redfin points out, redlining had a bigger impact on Blacks because they were prevented from getting a home loan in a neighborhood where they already lived. If you combine that with discrimination against the purchase of a home in more lender-friendly neighborhoods, you get a much lower homeownership rate for African Americans. Currently, the national homeownership rate for Blacks is 44%. For Whites, it’s 73.7%.
Redfin Chief economist, Daryl Fairweather, says, “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.” He says, “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.”
The Redfin analysis compared 41 metros and found the homeownership gap was quite large in some cities. It found the biggest gap in Atlantic City, New Jersey, where the homeownership rate is just 14.8% for Black families in “A” neighborhoods while it’s 75.3% for White families. Fresno, California, was second on the “A” neighborhood gap list with Black homeownership at just 2.5% and White homeownership at 62.6%. (1)
Oakland, California represented the smallest homeownership gap with Blacks at 84.1% and Whites at 85.9%. The gap is also small for Miami. It’s 42.7% for Blacks and 56.8% for Whites.
In 40 of the 41 metros analyzed by Redfin, the equity earned by homeowners in “A” neighborhoods greatly outpaced those in redlined neighborhoods. Redfin found the most pronounced example of this difference in the Detroit suburb of Warren. It says, home equity in “A” neighborhoods was 1,309% greater in 2019 than in formerly redlined neighborhoods. In dollars, that’s $634,000 versus $45,000 in home equity.
The one metro where properties in formerly redlined neighborhoods are worth more than other neighborhoods is Philadelphia. Redfin says, that is probably due to vacant lots located near the city center. A local Redfin agent says those lots are “valuable to modern homebuyers” who might want a new home near the downtown area.
What can be done to help the situation? Redfin says that voters, policymakers, communities, and the real estate industry need to cooperate on solutions. Some advocates have suggested reparations, or financial support for the Black community as a whole. Suggestions also include help with down payments for homes in formerly redlined areas and lending policies that encourage more home loans in those areas by local banks.
The National Association of Realtors announced a new anti-bias training program for its members. It consists of a 50-minute video that attempts to raise awareness about an automatic reaction to stereotypes that prompt a person to treat people in different ways. The video goes on to suggest ways that a person can override biased reactions and treat people with respect and fairness.
NAR says this is just a prelude to a more in-depth training course for agents that it plans to develop. NAR’s code of ethics prohibits discrimination, but NAR president Vince Malta says, “We are committed to leading the way on policies that address racial injustice and build communities where people of every color feel safe to pursue their own American Dream.”
After the foreclosure crisis of 2008, Real Wealth Network put its focus on raising property values in formally redlined neighborhoods. We would drive through streets lined with boarded up homes that had attracted vagrants and drug dealers, and drastically dropped the value of all homes in the area.
At the time we had created a partnership with Australian investors who were flush in cash because their dollar had doubled in value while U.S. property values had tanked as much as 90% in some areas. We took them on real estate tours, renting buses and driving 50 investors at a time through low income areas in Sacramento, Indianapolis, Kansas City, Tampa, Jacksonville, Dallas, and Houston. The investors bought the boarded-up homes, paid for complete renovations and rented the properties back to the locals. In some cases, we set up rent-to-own programs for people who lost their homes so they could build up their credit and be owners again.
Today, foreclosures are low, but our teams are still buying older properties in affordable areas, fixing them up to our REAL income property standards, renting them out to qualified tenants, and selling the tenanted property to investors. We hope to have a seller-financing program in place so those tenants can become homeowners.
If you’d like to hear some of the wonderful things real estate investors from Black communities are doing today, listen to my other podcast, The Real Wealth Show, for interviews preceding June 19th.
June 19th, also known as Juneteenth, is the oldest nationally celebrated commemoration of the ending of slavery in the United States.
(1) Redfin Report