Perfect Storm: How Redlining, Blockbusting and Reverse Redlining Together Exacerbated the Wealth Gap

Black American education attainment

Structural racism in the U.S. housing system has promoted overt and persistent racial disparities in wealth and financial well-being, especially between Black and white households. Before the Fair Housing Act, multiple government policies led white Americans to believe that Black residents would threaten their local property values.

In real estate terms, blockbusting occurred most between the 1950s and 1970s. This is the practice of brokers urging white homeowners to move by starting rumors of an influx of Black residents. This resulted in these white owners selling their homes at lower prices to quickly move out of the neighborhood. Then the broker guided Black buyers towards these homes and sold them at a higher price or subdivided properties and rented them at a premium. Furthermore, rather than offering Black people traditional mortgages to purchase these homes, they were purchased on contracts allowing brokers to later evict Black families when they missed a single payment. Then they simply repeated this cycle with other Black families. Blockbusting and forcing contract buying are only two of the many discriminatory, wealth-stripping practices that have been permitted in the U.S. housing system.

Racial bias is another discriminatory, wealth-stripping practice that flourished in the U.S. housing market. It not only removes access to adequate housing options but also negatively effects property values. The racial discrimination in mortgage lending that began in the 1930s has shaped the demographic and wealth patterns we experience in American communities today. Black families were the most impacted. A study by the National Community Reinvestment Coalition, shows that the vast majority of neighborhoods redlined on maps drawn by the federal Homeowners’ Loan Corp. from 1935 to 1939 are much more likely to be made up of lower-income, minority residents today. The lingering effects of redlining remain clear with the pattern of economic and racial residential segregation still evident in many U.S. cities across the country. A report by the Center for Investigative Reporting showed that redlining persists in 61 metro areas even when calculating for applicants’ income, loan amount and neighborhood.

The impact of other discriminatory, wealth-stripping practices is still felt by Black families today. Racial segregation has created persistent inequalities in access to public goods—like parks, hospitals, streetlights, and well-maintained roads—and has inhibited wealth building in Black communities nationwide. Additionally, Black communities typically have less access to grocery stores, childcare facilities, and other essential resources. They are also more likely to be located near hazardous waste facilities. These differences then contribute to significant differences in the value of homes and in overall value appreciation.

Reverse redlining is the practice of targeting vulnerable communities, often previously redlined Black residential districts, for predatory lending practices. These borrowers are targeted due to their general lack of education and access to information about other options of credit. The reverse redlining practices in the 2000s exacerbated the inequities of redlining. Agents would steer Black clients to specific listings based on race. This only increased segregation and enabled targeted marketing for predatory lending. In reverse redlining, these targeted, vulnerable borrowers were also given subprime loans even if they qualified for prime loans. Many of these high-risk, subprime loans then caused borrowers to default or foreclose.

As our economy recovers from the worst financial crisis since the Great Depression, real estate agents have the opportunity to now address the racism layered throughout the system. Lawmakers are asked to significantly expand the availability of affordable housing units and to dismantle the existing segregating zoning practices. Policies that promote access to resources and opportunity among Black residents are imperative as well. Lawmakers should support robust civil rights enforcement in the housing market. This includes modifying the mortgage appraisal process along with reexamining the current Federal Emergency Management Agency and disaster relief regulations to specifically promote environmental justice and equitable recovery policies. These policies cannot compensate for centuries of injustice Black experienced in both the housing market and the opportunity to build wealth; they would, however, be steps toward the racial equity necessary in the current U.S. housing system to begin closing the wealth gap.