Discrimination in housing in the early 20th century was pervasive, due to the actions of federal, state and local government along with lenders, developers, REALTORS® and private parties. This was not “de facto” segregation resulting from individuals choosing where they wanted to live based on the skin color of their neighbors, but rather it was the result of government policies. The consequences of the resulting segregation are still with us today. In addition, some of these discriminatory measures that contribute to or reinforce segregation are still in play today.
Many believed the passage of the Fair Housing Act in 1968 would erase racial discrimination, but the act could not undo the entrenched segregation underlying our neighborhoods and the resulting disadvantages experienced by Black families. The historical race-based exclusions from favorable government mortgage programs, bank loans and subsidized neighborhoods that offered better educational and equity-building opportunities have caused Black parents to have less wealth to use for home purchase down payments or college tuition for their children. These impacts contribute to the homeownership and economic inequities based on race we see today.
The history of segregation reveals a systemic evolution throughout the 1900s.
Jim Crow laws
After the United States abolished slavery, segregation quickly became official policy in the South. The “Jim Crow” laws segregated everything from schools to public parks to theaters to cemeteries, and of course, residential homes. There were separate waiting rooms for whites and Black people in professional offices and separate drinking fountains. Black Americans went North in search of better jobs, but it was difficult to find decent housing because Midwestern communities also maintained strict residential racial segregation.
Public housing
The Public Works Administration (PWA), as part of the New Deal of 1933, built public housing for people displaced during the Great Depression but focused on homes for white families in white communities. Only a small portion of houses was built for Black families, and those homes were limited to segregated Black communities. The PWA even demolished integrated housing to create segregated public housing.
The reason given for the policy was that Black families would bring down property values.
The federal government established the Federal Housing Administration (FHA) in 1934 to promote homeownership. Instead of helping to increase Black access to housing, the FHA would not insure loans made to African Americans, claiming if African Americans bought homes in or near white suburbs, the property values of the white homes they were insuring would decline, putting their other loans at risk.
The FHA also refused to underwrite mortgages for white homebuyers for homes in communities with
even one Black homeowner. This led to the advent of the color-coded redlining maps and racially restrictive covenants that systematically prevented Black families from buying homes in affordable suburban communities and city neighborhoods.
Government subsidies
In the 1940s, the FHA also created new segregated neighborhoods by subsidizing housing developments such as Levittown, New York, where the sale of properties was restricted to white people, and deed restrictions and covenants prohibited the resale of those properties to Blacks and other minorities. Governments at all levels enforced these deed restrictions.
After World War II, Black veterans were similarly excluded from participating in the GI Bill. The federal government provided veterans returning from the war with a subsidy in the form of a federally guaranteed, low-interest home loan with no down payment. But most lenders refused Black borrowers, falling in step with the redlining and racial covenants that were in place.
Redlining
Redlining is the discriminatory practice of systematic denial of financing and other services to residents of certain neighborhoods or communities associated with a certain racial or ethnic group. Starting in the 1930s, the Federal Home Loan Bank Board and the Home Owners’ Loan Corporation conspired to create maps with marked areas considered bad risks for mortgages. The areas colored red, indicating a high-risk level for loans, typically were Black neighborhoods. This kind of mapping concentrated poverty as the mostly Black residents in redlined neighborhoods had no access to loans or access to only very expensive loans. The FHA would refuse to insure loans in those neighborhoods on the premise that if Black Americans bought homes in or near white neighborhoods, the value of the property owned by white property owners would
fall, jeopardizing the value of the asset securing the insured loan. Private lenders followed the FHA’s lead.
Residents in redlined communities were shut off from access to affordable homeownership. Cities zoned redlined neighborhoods for industry, thereby increasing environmental pollutants, and laid out highways through redlined neighborhoods. The FHA recommended the inclusion of restrictive covenants in the deeds of homes it insured to fortify the redlining policies.
Deed restrictions and covenants
At first there were local ordinances establishing racial restrictions in different neighborhoods and communities that prohibited Black families from moving into white-dominant blocks. In 1917, however, the U.S. Supreme Court ruled in Buchanan v. Warley that ordinances establishing racial restrictions violated the Fourteenth Amendment and were unconstitutional. The ordinances were replaced by deed restrictions and covenants.
For nearly 50 years, developers wrote racially restrictive covenants and deed restrictions into the title of millions of new homes. In 1926, the Supreme Court affirmed the legality of this practice. The ruling in Corrigan v. Buckley stated that while states are barred from creating race-based exclusionary laws and ordinances, private deeds and developer plat maps are not similarly affected by the Fourteenth Amendment because they come from “private individuals” and not the government.
The FHA extensively relied on deed restrictions to implement its redlining policies. In the 1900s, local government, real estate developers, local real estate brokers and boards, financial institutions and title companies joined forces using redlining policies and deed restrictions to keep Black families out of desirable residential areas.
However, in 1948, the U.S. Supreme Court unanimously ruled racially restrictive covenants were unenforceable. In Shelley v. Kraemer, the court held judicial enforcement of racially restrictive covenants was unconstitutional.
Twenty years after Kraemer, the Fair Housing Act of 1968 was passed and outlawed these covenants altogether. The act officially made the use of racially restrictive covenants in housing illegal and prohibited restrictive covenants from being upheld both privately and judicially.
Blockbusting
Blockbusting was an unethical business practice in which real estate agents and developers convinced white residents in a neighborhood to sell their property at below-market prices by making them believe their neighborhood was turning from white to Black.
An example of blockbusting would be a real estate agent hiring a Black woman to walk her baby carriage or her dog in an all-white neighborhood. They then placed their real estate cards in all the mailboxes on the block, offering to buy the house right away at a discounted price. Thus, fearmongering was used to trick white residents to sell at below-market prices based on the false belief that Black people were moving into their neighborhood. The blockbusters would then sell those same houses at inflated prices to Black families seeking upward mobility.
REALTOR® participation
REALTORS®, along with governmental agencies and lenders, encouraged racial segregation in order to maintain property values and sell housing. Beginning in 1924, the REALTOR® Code of Ethics provided, “a REALTOR® should never be instrumental in introducing into a neighborhood a character of property or occupancy, members of any race or nationality, or any individuals whose presence will clearly be detrimental to property values in that neighborhood.” At one time, the National Association of REALTORS® allowed the exclusion of members based on race or sex. REALTORS® also participated in blockbusting and promoted racial covenants. NAR initially opposed passage of the Fair Housing Act.
Today we still see measures that are reinforcing or implementing racial segregation.
Redlining today
Although banks deny engaging in redlining, there are strong indications that redlining continues today, although perhaps in a slightly different form. Redlining today does not involve red markers or maps, but lenders have been avoiding providing services to individuals living in certain communities because of the race or national origin of the people who live in those communities. In late 2021, the Justice Department launched a new Combatting Redlining Initiative in response to instances of modern redlining, and lending discrimination litigation initiated against several lenders.
Steering today
Steering occurs when real estate sales or rental agents encourage, or steer, prospective homebuyers and renters to communities that have high concentrations of owners and renters of their same race or ethnic group. Agent comments may appear harmless or as well-intentioned advice on the surface but are actually stripping a person of the right and ability to direct their housing search and exercise free choice as to the desired housing setting. While some agents once openly shut Blacks out of white neighborhoods, some now more subtly sort buyers by race or ethnicity.
Steering violates the Fair Housing Act because the agent is influencing a buyer’s choice of communities based on the buyer’s race, color, religion, gender, disability, familial status or national origin.
Steering illegally limits the housing opportunities available to buyers. This illegal practice reinforces existing segregation in neighborhoods.
Zoning today
Racially based ordinances were ruled unconstitutional, and racially restrictive covenants have been officially prohibited, but exclusionary zoning by wealth and income remains, often with the same effect if not intent. Communities use zoning to drive up the cost of new homes. Such ordinances contribute to the same patterns of segregation established in the past by redlining, restrictive covenants and other systemic discriminatory measures, and continue to disadvantage Black households and those with lower incomes generally.
These ordinances that serve to reinforce segregation include minimum lot size, expensive building code requirements, building height limits, single-residence-per-lot requirements, minimum square footage requirements and high hurdles for accessory dwelling units such as in-law apartments. These requirements make it difficult to build multifamily units that would allow minorities and lower-income residents to live in suburban developments with access to their jobs, quality schools and transportation. In addition, large lot size requirements reduce the supply of available land, drive up housing costs, and further keep out low-income and minority families.
It is important that real estate professionals today counteract these vestiges of discrimination and segregation by calling out instances of lending discrimination, train themselves to provide equal housing services to all buyers and provide them with prospective properties in accordance with their desires and preferences, and stand against local zoning measures that unnecessarily increase the cost of housing or exclude multifamily housing opportunities.