Past and present of discriminatory housing policy

Discriminatory housing policy has its roots in the earliest forms of zoning and land use policy. For instance, places like San Francisco began using nuisance laws to outlaw laundromats in certain districts beginning in the late 19th century to exclude the Chinese immigrants (who often worked in these facilities) from certain parts of the city. Cities like Baltimore were even more explicit, creating racial zones in which white and Black families were permitted to live. When the U.S. Supreme Court struck down the practice of racial zoning in Buchanan v. Warley (1916), zoning and land use evolved into a ostensibly race-neutral way of segregating land uses to accomplish racial segregation. Comprehensive zoning was still fairly uncommon until the State Standard Zoning Enabling Act of 1926 provided a framework for local governments to adopt the practice. After the U.S. Supreme Court decision of Euclid v. Ambler of the same year (1926) legitimized the practice, comprehensive zoning became widely adopted. In the majority opinion, Justice George Sutherland referred to multi-family housing as “a mere parasite”, thereby institutionalizing a bias towards single-family detached housing and against multi-family housing in U.S. housing policy.³

Another tool to promote segregation that evolved alongside racial zoning were racially restrictive covenants. Properties have deeds, which can oftentimes come with restrictions on the use of the property, such as what color the house can be painted. Racially restrictive covenants were a practice of adding a deed restriction that forbid the sale of a property to specific racial and ethnic groups and Black people were typically the targets of these restrictions.⁴ These were popular practices. Influential planners like Frederick Law Olmstead promoted their use and government institutions like the Federal Housing Administration all but required them for new construction. The U.S. Supreme Court case of Shelley v. Kramer in 1948 deemed the practice of racially restrictive covenants unconstitutional, though plenty of scholarship suggests this was not strongly enforced for decades.⁵ Indeed, many properties today still contain racially restrictive covenants in their deeds. Though they are no longer legally enforceable, they leave a trace of how widespread the practice was and how it shaped the demographic trajectory of most residential areas.

Outright racial terror and tepid responses by local police played a role in preventing racial integration all throughout the United States. Historians have documented instances of mobs of white residents fire-bombing the homes of Black residents who recently moved into all white neighborhoods in Chicago and Detroit. This research also points to the role of churches and religious institutions encouraging their largely white congregations to protest integration and intervene to stop it in their neighborhoods.⁶ These actions went largely unpunished and likely played a significant role in undermining residential integration by creating a strong impression of white neighborhoods as hostile to integration, thereby encouraging later policies like the Federal Housing Administration’s underwriting policies to discourage residential integration.

Housing policies established in the aftermath of the Great Depression expanded access to homeownership, but also played a significant role in exacerbating housing inequities that remain with us today.

HOLC

The first notable New Deal era housing policy began with the Homeowners’ Loan Act of 1932 which established the Homeowners Loan Corporation (HOLC) to rescue the cratering mortgage market at the height of the Great Depression. HOLC replaced the Federal Home Loan Bank and refinanced tens of thousands of mortgages. It is credited with institutionalizing the long-term, self-amortizing mortgage. But it is perhaps most known for its Residential Security Maps, which assigned credit risk profiles to neighborhoods through color-coded grades A (green, lowest risk), B (blue, low-risk), C (yellow, moderate-risk), and D (red, highest-risk). This, many argue, led to the process of redlining whereby many neighborhoods populated by significant shares of Black residents and immigrants systematically received C and D grades, which cut off their access to mortgage financing and began a cycle of disinvestment.⁷ HOLC’s exact role in the practice of redlining is still debated today, but it seems likely that its Residential Security Maps influenced the lending decisions of the Fair Housing Administration (FHA) later on.⁸ It is also worth noting that many HOLC officials came from and went on to work in financial and real estate institutions, emphasizing the close connection between federal housing policy and financial and real estate interests.⁹

Public Housing

The first form of public housing construction came from the Public Works Administration (PWA) created by the National Industrial Recovery Act of 1933. The PWA’s housing portfolio consisted of a dual mandate to clear slums (demolish housing and structures deemed blighted, typically through very arbitrary and racially motivated standards) and construct public housing units. Given its limited financing and technical capacity, it only constructed about 51 public housing developments, many of which have been criticized for being entirely segregated.¹⁰ The National Housing Act of 1937 created a new system of public housing construction in which the United States Housing Authority was established to oversee a decentralized system of local Public Housing Authorities (PHAs) that would develop and manage public housing with financing largely provided by the federal government.

A number of features of the National Housing Act of 1937 undermined a robust system of public housing in the United States and these features, rather than being corrected, were made worse with successive changes to public housing over the decades. Public housing emphasized slum clearance (particularly in the wake of the 1949 Housing Bill) and the deference to local authorities, particularly in decisions about where to build public housing units, gave local politicians the ability to concentrate public housing construction in primarily low-income and Black neighborhoods and keep public housing developments segregated. Additionally, strict cost-cutting measures to emphasize the efficiency of public housing (provisions that private real estate interests lobbied for successfully in order to insulate private developers from competition with public housing) sacrificed on quality and contributed to the stigma of public housing. Finally, while public housing was originally open to low- and moderate-income renters, changes to income restrictions (along with income-based payment standards) over the years meant that public housing would exclusively serve extremely low- and very low-income renters. This, combined with successive budget cuts over the years, left PHAs increasingly reliant on rental payments from increasingly poor renters to maintain public housing which contributed greatly to the decline of public housing viability in many places.¹¹

In 1973, the Nixon administration enacted a moratorium on public housing construction and later on, the Reagan administration dramatically reduced expenditures for public housing. This policy along with other previous policy decisions help explain the lack of public housing in the United States compared to other developed countries. By 1980, public housing comprised of 46% of housing units in the United Kingdom, 37% in France, but just 1% in the United States.¹² By the 1990s, several struggling PHAs like Chicago’s fell into receivership by the Department of Housing and Urban Development (HUD), which began demolishing the nation’s most distressed public housing communities through programs like HOPE VI instituted by Congress, which helped revitalize some of the most distressed public housing communities but also lead to a significant reduction in the number of overall public housing units since far fewer units were constructed relative to those demolished.¹³

In 1998, an amendment to the Housing Act of 1937 – known as the Faircloth Amendment – restricted the number of public housing units that can be in operation, effectively limiting the entire stock of public housing in the country. The current stock of public housing (with much of it built before 1960) faces a profound backlog of capital improvements and a shortfall of funding to finance them. Initiatives of the Obama administration such as the Choice Neighborhood Initiative and the Rental Assistance Demonstration (RAD) program have in some ways learned from the mistakes of the past and arguably made progress in deconcentrating poverty and modernizing the public housing stock, but the system of public housing in the United States is fundamentally limited by these previous policy choices.¹⁴

FHA

The Federal Housing Administration (FHA), created by the National Housing Act of 1934, replaced HOLC as the stabilizer of the U.S. mortgage market, but it also was tasked with boosting employment in the home construction industry. It is credited with revolutionizing the mortgage industry through a number of measures, including a considerable reduction in down-payments, fully amortizing loans with 30-year payment periods, creating uniformity in construction codes, and lowering interest rates on mortgages to 2-3%. These measures instituted by the FHA likely had a large role in the increase in homeownership from 44% in 1934 to 63% in 1972.¹⁵

Yet these measures also greatly influenced central city decline and racial housing disparities. The FHA mortgage underwriting standards heavily favored home construction in the suburbs and concentrated its mortgage underwriting activity there. They were also explicitly racist. They strongly encouraged the use of racially restrictive covenants, promoted exclusionary zoning to prevent residential integration, and warned against financing housing that would promote neighborhoods home to “inharmonious racial groups.” These policies essentially helped finance the flight of white homebuyers to the suburbs and encouraged the practices (racial covenants, exclusionary zoning) that dramatically limited or closed off access to these suburbs for people of color, leading to massive increases in residential segregation.¹⁶ Changes to these underwriting standards in the 1960s only made matters worse, by encouraging speculation and exploitation of prospective Black homebuyers in central cities and hastening white flight.¹⁷

Unlike HOLC, the FHA still exists today and provides mortgage insurance, typically as an option for those who have trouble qualifying for a conventional loan, particularly when underwriting standards tighten during housing market downturns. Yet, the damage has been done from the early years of the FHA – recent research makes clear the profoundly negative impacts of its historic policies: FHA-underwriting standards led to profound gaps in the home values between Black and white homeowners.¹⁸ Considering the crucial role of homeownership in overall wealth, this means the discriminatory housing policy implemented by the FHA played a primary role in the expansion of our nation’s racial wealth gap.

G.I. Bill

The Servicemen’s Readjustment Act of 1944 (known as the G.I. Bill) provided a range of benefits for veterans who fought in World War II. The two most prominent benefits included the funding of college tuition and low-interest mortgage loans. The Veterans’ Administration (VA) administered the low-mortgage interest loans and accounted for huge portions of overall mortgage activity – nearly 50% during the 1950s, a booming decade for suburbanization.¹⁹ Yet, due to racially restrictive covenants, discriminatory FHA underwriting guidelines, and other forms of racial discrimination, Black veterans were largely unable to find banks that would originate mortgage loans for them, despite a loan guarantee by the federal government. Consequently, millions of white veterans received generous subsidies to enable them to become homeowners and build generational wealth while Black veterans largely did not, further amplifying racial inequality and wealth gaps.²⁰

Black households throughout the 20th century faced immense housing insecurity made worse by the dual housing market created by racially discriminatory housing policies. Lack of access to mortgage financing and the refusal to build multi-family housing in many neighborhoods forced Black households into neighborhoods with typically substandard and overcrowded housing. Significant amounts of migration to Northern U.S. cities over the course of the Great Migration only compounded the overcrowding experienced in many of these neighborhoods and homes. In essence, many Black households faced intense exploitation and were doubly-disadvantaged by not only being relegated to substandard and overcrowded housing, but also by being forced to pay more for their housing than white residents due to massive demand for very undersupplied housing.

This created a situation ripe for further exploitation of the Black households that were able to purchase housing in other neighborhoods, particularly in the wake of Shelley v. Kramer (1948), which outlawed racially restrictive covenants. In a practice known as blockbusting, unscrupulous real estate agents would capitalize on a slowly integrating white neighborhood (or they would hire Black people to go to these neighborhoods and draw attention to themselves) by going door-to-door and convincing white homeowners that their neighborhood would soon turnover into a primarily Black neighborhood and that their property values would precipitously fall, panicking white homeowners into selling their house at a below-market rate to the real estate agent and move elsewhere. The real estate agent would then turn around and sell the home to a prospective Black homebuyer at a tremendously marked-up prices, taking advantage of these households’ high willingness to pay. These Black homebuyers, oftentimes desperate to escape overcrowded and substandard living conditions, would agree to exploitative or unclear terms, which routinely left these buyers unable to keep up with mortgage payments and be foreclosed upon. This process essentially became a self-fulfilling prophecy. White households were panicked into fleeing, leading the neighborhood to rapidly turn over. Black households were exploited and frequently foreclosed upon and neighborhood conditions deteriorated, concentrating disadvantage in newly Black neighborhoods.²¹

Urban renewal refers to a confluence of housing and community development policies that ostensibly were about revitalizing communities, but in practice resulted in slum clearance and mass displacement, typically in Black and low-income neighborhoods. The Housing Act of 1949 ushered in this impulse towards urban redevelopment, but after the passage of the Housing Act of 1954, due to the heavy lobbying by public housing opponents in the housing industry (e.g., National Association of Home Builders), the main goal became urban renewal. The bill, in addition to providing modest increases to the public housing program (35,000 additional units annually for four years), provided alternatives to slum clearance through voluntary rehabilitation and repair initiatives and created Sections 220 and 221 finance housing for those displaced.²²

Yet, the homebuilding industry was far more interested in slum clearance over voluntary rehab and there was little enforcement of preservation or code enforcement by local governments, which was supposed to be a major component of urban renewal efforts. Moreover, standards for what constituted a slum were usually arbitrary and little to no thought was given to where the displaced would be forced to relocate. The value of the land and its proximity to the central business district appeared to be far more important factors in driving urban renewal. Consequently, vibrant neighborhoods that needed only minor cosmetic improvements were often razed and the housing that was destroyed was typically not replaced.

Urban renewal became deeply unpopular by the 1960s and played a major role in the political influence of historic preservation movements that in many ways limit what urban redevelopment can take place. Funding for urban redevelopment was converted into block grants during the 1970s due to the Housing and Community Development Act of 1974. In the 1980s, community development organizations (CDOs) like Enterprise and LISC started to emerge as a major beneficiary of these funds.²³ Despite the need for urban redevelopment in many cities across the country, the public remains deeply skeptical of its aims and objectives due to the scars of urban renewal.²⁴

The Federal-Aid Highway Act of 1956 began the construction of the Interstate Highway System. Historical evidence is replete with examples of highway construction being purposefully routed through Black and low-income neighborhoods. It also greatly facilitated white flight to the suburbs and greatly subsidized car travel and elevated the importance of private automobile ownership, thereby undermining a more robust public transit network in the United States.²⁵ Empirical evidence also makes clear that the construction of the Interstate Highway System and the resulting white flight it facilitated greatly exacerbated residential and political segregation.²⁶

The Housing and Urban Development Act of 1968 (also known as the Fair Housing Act) was a major deal for housing policy. It made housing discrimination by race illegal and asserted the federal government’s responsibility to affirmatively further fair housing (guidance for how this was to happen was not completed until 2015). It also instituted Section 235 and 236, two additional programs to finance urban housing development. These programs were essentially mortgage insurance subsidy programs, meant to encourage homeownership and rental opportunities in neighborhoods that had been disadvantaged by FHA’s previous underwriting standards. Section 235 provided mortgage subsidies, allowing borrowers to pay as low as 1% interest rates. Section 236 was similar, but provided these mortgages directly to housing developers, who would then build below-market rate rental units.²⁷

Unfortunately, unscrupulous financial and real estate actors, enabled by incompetent and/or discriminatory housing officials, capitalized on the provisions of these programs to exploit Black households seeking upward mobility. HUD’s production goals were overly ambitious and FHA – which could hardly be considered an institution committed to fair housing at this point – failed to oversee the programs properly, leading to discriminatory and fraudulent valuations of frequently substandard housing that saddled Black homebuyers with impossible payments and led to many foreclosures. Program participants, particularly Black women, were oftentimes not provided with sufficient assistance such as homeownership counseling and down-payment assistance and instead actively exploited and defrauded. The Section 235 and 236 programs, widely regarded as failures, were dramatically scaled back by the 1970s during the Nixon administration, as the federal government pivoted away from direct housing provision and instead placed more emphasis on a limited number of housing vouchers as its main form of housing assistance moving forward.²⁸

Though discrimination in the housing market is no longer as blatant as the days of restrictive covenants and redlining, it still exists. One of the most blatant remaining forms of housing discrimination comes in the form of racial steering – influencing the choice of prospective homebuyers and renters by exclusively showing them properties in neighborhoods that primarily correspond to the characteristics (e.g., race) of the prospective buyer, do not show the prospective buyer properties that meet what they are seeking or withhold key information, or offer comments about neighborhoods with the intent of influencing buyers towards or away from these neighborhoods. Steering has been a widely adopted practice and audit studies reveal that it remains a problem today despite being outlawed by the Fair Housing Act in 1968.²⁹

Finding a home is just one hurdle to overcome in actually securing housing. Potential borrowers can also be offered less favorable or exploitative terms, be shown less cooperation or assistance, or denied financing altogether. Indeed, there have long been racially disparate outcomes in mortgage lending, disparities that research proves continue to this day. Keeanga-Yamahtta Taylor coined the term predatory inclusion to describe how U.S. housing and financial agencies have routinely taken advantage of efforts to increase access to financing for Black households previously excluded from such opportunities through exploitative and illegal practices as uncovered in the Section 235/236 programs and the foreclosure crisis of 2008.³⁰

Today, Black and Hispanic applicants for mortgages are denied (16.3% and 15.2% of Black and Hispanic applicants were denied between 2018-2022) at much higher rates compared to white applicants (7.3%). Though these disparities are significantly reduced when accounting for differences in the socioeconomic standing of applicants, these differences are themselves the result of decades upon decades of racial discrimination in the housing market and beyond and consequently need to be corrected.³¹ By the 1990s, researchers estimated that housing discrimination throughout the housing search process cost Black households $12.4 billion annually and another $5.6 billion annually for Hispanic households.³² Even today, discrimination in the housing market costs renters of color about 5% of their annual income.³³

Prospective Black and Hispanic home sellers are also far more likely to receive low appraisals for their homes – 8.6% and 9.6% for Black and Hispanic applicants respectively, compared to 6.5% for white applicants.³⁴ These low appraisals sometimes reveal clear racial biases. Given the role of homeownership in generating household wealth, the systematic undervaluing properties owned by Black and Hispanic homeowners is another contributing factor to our ongoing racial and ethnic wealth gaps.

Though Black people have suffered the most intense forms of housing discrimination historically, Hispanic/Latino and Asian people have also suffered from significant forms of housing discrimination. Beyond often facing precarious employment conditions and a series of counterproductive and anti-immigrant policies, Hispanic/Latino immigrants – particularly those lacking documentation – also face elevated levels of housing insecurity.³⁵

Similarly, Asian immigrants have long faced discrimination in the housing market as one of the earliest targets of racist zoning laws in California in the late 19^th century due to anti-Asian immigrant sentiment. Japanese-Americans also faced inhumane interment policies during WWII that displaced entire communities.³⁶

The United States has a long and sordid history of anti-immigrant sentiment and policies. Waves of European immigrants – such as Irish, Italian, and Polish immigrants – faced cases of forced segregation and substandard housing conditions.³⁷ But these groups of white-ethnic immigrants were able to integrate into other communities and achieve upward mobility because they did not face a regime of policies that forbid integration and made upward mobility incredibly difficult for people of color. We still struggle with not just the legacy of these policies, but ongoing versions of this discrimination.

Zoning and land use policy has changed very little since its widespread adoption in the early 20^th century  and it has contributed to racial and class segregation just as it was always intended. That’s because demographic and socioeconomic characteristics of individuals and households correlate with land uses. For instance, due in large part to the many of the aforementioned forms of racist and classist housing discrimination in the United States, Black and Hispanic/Latino households are more likely to be renters and more likely to earn low or moderate incomes compared to white households. So policies that limit multi-family housing opportunities will exclude the people who disproportionately rely on this type of housing. These policies also exclude by artificially limiting the number of housing units available in a given community, which creates housing scarcity and upward pressure on housing. That is, when housing is scarce and in high demand, more affluent households will outbid less affluent households for the housing – producing and maintaining racial, ethnic, and socioeconomic segregation.

An overwhelming amount of evidence bears this out. Several accounts illustrate how communities increasingly turned to exclusionary zoning practices in response to the Great Migration and then again in the 1970s, shortly after the passage of the Fair Housing Act of 1968.³⁸ These trends suggest that communities inherently understand the capacity of these laws to segregate and exclude, something that plenty of research repeatedly confirms.³⁹ Exclusionary zoning has also led to reductions in regional migration – people of modest means increasingly cannot afford to migrate to economically productive regions of the country where they could find work or earn higher incomes because housing costs are too prohibitive.⁴⁰ As a consequence, aggregate economic productivity across the country has suffered – by as much as $8,775 in average per-capita wages for all workers.⁴¹