How America’s Housing System Undermines Wealth Building in Communities of Color

by Danyelle Solomon, Connor Maxwell, and Abril Castro | August 7, 2019

The full article in the Center for American Progress website is here…

Excerpt from the article…

Centuries of displacement have destabilized Black communities and undermined their access to opportunity.

For much of the 20th century, federal, state, and local policies subsidized the development of prosperous white suburbs in metropolitan areas across the country. They also constructed new highway systems—often through communities of color—to ensure access to job opportunities in urban centers for primarily white commuters. Over time, however, changing tastes and growing displeasure with congested roadways have resulted in middle-class and wealthy white households’ relocation to cities. As lawmakers rush to redevelop previously neglected urban neighborhoods, many of the same communities of color that were denied access to suburban homeownership and displaced by highway projects are again being forced from their homes to make room….

Exclusion from federal homeownership programs undermined Black families’ wealth accumulation in the 20th century. … In 1933 and 1934, in the midst of the Great Depression, President Franklin Delano Roosevelt signed the Home Owners’ Loan Act and the National Housing Act into law to prevent foreclosures and make rental housing and homeownership more affordable. To carry out these missions, the newly minted Home Owners Loan Corporation (HOLC) created maps to assess the risk of mortgage refinancing and set new standards for federal underwriting.

The Federal Housing Administration (FHA) used these maps to determine the areas in which it would guarantee mortgages. But HOLC maps assessed risk in part based on a neighborhood’s racial composition, designating predominantly nonwhite neighborhoods as hazardous, and coloring these areas red. This process, known as redlining, denied people of color—especially Black people—access to mortgage refinancing and federal underwriting opportunities while perpetuating the notion that residents of color were financially risky and a threat to local property values. As a result, just 2 percent of the $120 billion in FHA loans distributed between 1934 and 1962 were given to nonwhite families.

Today, approximately 3 in 4 neighborhoods—74 percent—that the HOLC deemed “hazardous” in the 1930s remain low-to-moderate income, and more than 60 percent are predominantly non-white. In short, while federal intervention and investment have helped expand homeownership and affordable housing for countless white families, it has undermined wealth building in black communities.

In 1944, President Roosevelt signed into law the Servicemen’s Readjustment Act—commonly referred to as the GI Bill—which provided a range of benefits, such as guaranteed mortgages, to veterans of World War II. However, according to historian Ira Katznelson, “the law was deliberately designed to accommodate Jim Crow.” For instance, the GI Bill allowed local banks to discriminate against Black veterans and deny them home loans even though the federal government would guarantee their mortgages. In Mississippi, just two of the 3,000 mortgages that the Veteran’s Administration guaranteed in 1947 went to African Americans, despite the fact that African Americans constituted half of the state’s population. While the GI Bill paved the way for millions of predominantly white veterans to enter the middle class, it also further entrenched the United States’ racial hierarchy.

Federal home loan programs allowed households—the majority of them white—to build and transfer assets across generations, contributing to glaring racial disparities in homeownership and wealth. (see Figure 2) Today, households of color remain less likely to own their own homes when compared with white households, even after controlling for protective factors such as education, income, age, geographical region, state, and marital status.