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“Where different groups of people live and the homes in which they live are not simply neutral or random demographic phenomena. They profoundly influence the allocation of rewards in the United States.”

– Gregory Squires, 2007¹

Last year marked the 50th anniversary of the release of the Kerner Report² and the passage of the Fair Housing Act. Spurred by race-related unrest that broke out in more than 100 U.S. cities between 1965 and 1968, the Kerner Report denounced the structural barriers to economic equality afflicting black communities in the United States.³ The report pointed to the role of white racism and the pervasive discrimination against and segregation of African Americans in housing, employment, and education in the creation and perpetuation of two societies: “one black, one white—separate and unequal.”⁴ The Fair Housing Act, which was passed in April 1968 as Title VIII of the Civil Rights Act, was meant to eliminate overt discrimination and disparities in the housing market and ultimately end residential segregation. Specifically, it prohibited discrimination in the sale or rental of housing; the financing of housing; and the provision of brokerage services based on a person’s inclusion in a protected class, including race, color, and national origin.⁵

Despite the economic and political gains that African Americans have achieved since the passage of the Civil Rights Act, significant disparities still exist between African Americans and non-Hispanic whites in terms of access to homeownership, quality education, and employment, among other assets. These disparities are reflected in persisting residential segregation and a racially segmented housing market—and they have significant implications for African Americans’ economic mobility. Segregation, disparate access to credit and homeownership, and the consistent devaluation of homes in black neighborhoods⁶ combine to constrict the ability of African Americans to build equity and accumulate wealth through homeownership.

This report focuses on the residential patterns of black and non-Hispanic white home mortgage borrowers and the racial disparities in home appreciation in neighborhoods where these borrowers purchase their homes. Throughout the report, the author uses the terms “African American” and “black” as well as “non-Hispanic white” and “white” interchangeably. The neighborhoods where homebuyers purchase their homes contribute to their home’s worth and its chance of appreciating over time, which has important implications for the long-term financial returns associated with homeownership. Before presenting original analysis of home mortgage lending to black and white homebuyers prior to and after the 2008 financial crisis, this report discusses the government policies and other factors that have led to and continue to contribute to persisting African American segregation. The report also provides an overview of the Fair Housing Act in addressing housing discrimination and segregation. Despite some progress in achieving integration, weaknesses in fair housing enforcement have undermined the ability of the Fair Housing Act to dismantle segregation and combat discrimination. The forms of discrimination that were common in the past have been shifting over time, and housing discrimination—along with persisting residential segregation—continue to hamper African American homebuyers’ ability to build equity. African American home mortgage borrowers remain concentrated in residentially segregated areas where homes have failed to appreciate at the same pace as those in neighborhoods where white borrowers more predominantly buy their homes.

The report concludes with recommendations on how to strengthen fair housing enforcement, even as the Trump administration is rolling back fair housing policies and integration remedies. The recommendations include:

• Make local jurisdictions once again responsible for planning to achieve fair housing. In particular, the Affirmatively Furthering Fair Housing (AFFH) rule should be fully reinstated.
• Empower federal, state, and local governments and nonprofits to fully enforce the Fair Housing Act. More funding should be appropriated for the Fair Housing Initiatives Program (FHIP) and for staffing in the U.S. Department of Housing and Urban Development’s (HUD) Office of Fair Housing and Equal Opportunity (FHEO).
• Catch and stop systematic discrimination, rather than perpetuating it. Specifically, it is essential that HUD firmly enforce—rather than reconsider and dilute—the Fair Housing Act’s disparate impact rule.

Despite a steady decline since the peak levels of the 1960s and 1970s, residential segregation still persists in U.S. metropolitan areas, and African Americans continue to experience the highest segregation levels among all racial and ethnic groups.⁷ Empirical studies show that today, the typical African American resides in a neighborhood that is only 35 percent white. That is not any better than what was common in 1940, when the average black resident lived in a census tract where non-Hispanic white residents represented 40 percent of the total population.⁸

The patterns of residential segregation observed today have not emerged by chance. As Richard Rothstein wrote in his book, The Color of Law: A Forgotten History of How Our Government Segregated America, “the public policies of yesterday still shape the racial landscape of today.”⁹ This is particularly true in the housing realm, as legal forms of discrimination and racially biased federal government policies have played a critical role in the creation and endurance of segregated African American neighborhoods during a significant portion of the 20th century.¹⁰ In particular, a two-tier approach to housing policies that emerged as a response to the Great Depression functioned largely in favor of white middle-class families, while intentionally harming people of color.¹¹ On the one side, the federal government sought to stabilize financial conditions for homeownership by establishing the Home Owners’ Loan Corporation (HOLC), the Federal Housing Administration (FHA), and the secondary mortgage market. The introduction of publicly backed, low down payment, fully amortizing, long-term, fixed-rate home mortgage loans promoted the demand for housing and boosted the construction and lending industries. On the other side, the establishment of the Public Works Administration (PWA) Housing Division programs sponsored public housing construction and slum clearance to improve the housing conditions of low-income families and boost employment in the building trades.

But this two-tier approach to housing policy promoted residential segregation in important ways. The federal government’s support for homeownership systematically targeted white borrowers and excluded African Americans and other people of color. The HOLC, in particular, institutionalized redlining as a way to evaluate the quality of neighborhoods based on their racial and ethnic makeup. Neighborhoods with a large population of African Americans and other people of color typically received the lowest ratings and were deemed too risky to secure government-backed mortgages.¹² Investment money was consistently deflected away from central cities where people of color were concentrated.¹³ At the same time, slum-clearance projects displaced minority residents and typically forced them to relocate deeper into the slums, because most government-sponsored housing units were unaffordable for very low-income families of color, and restrictive covenants prevented them from moving to integrated neighborhoods.¹⁴ In addition, the PWA program established specific rules for housing unit allocation. In particular, the Neighborhood Composition Rule required housing projects not to alter the racial character of their surrounding neighborhoods.¹⁵

The segregative patterns thus institutionalized were reinforced by the Housing Act of 1937, which introduced the enactment of the first major public housing program . Local housing authorities had discretionary control over where they would develop public housing projects and who those projects would target. This early public housing effort received intense public opposition, especially from the National Association of Real Estate Boards.¹⁶

As a concession to opponents of public housing, the so-called equivalent elimination rule contained in the 1937 Housing Act required housing authorities to eliminate a substandard dwelling unit for each new unit of public housing built. In order to not interfere with the private housing market, public housing was not to increase the overall supply of housing. As a result, public housing projects were built predominantly in inner-city locations to replace preexisting slums and thus helped contain African American and other minority neighborhoods.¹⁷

The two-tier approach to housing policy was consolidated in the postwar years, when the demand for new housing prompted the federal government to buttress existing programs and design new ones. These programs played a key role in the solidification of racially segregated neighborhoods.¹⁸ The FHA and the Veterans Administration loan programs adopted the HOLC rating system. These programs denied credit to inner-city communities of color, served predominantly white buyers, and spurred white flight and suburbanization.¹⁹ The FHA “Underwriting Manual,”²⁰ in particular, provided specific guidelines for the evaluation of properties and neighborhoods in a way that would reinforce racial segregation.²¹ Federal Housing Administration, “Underwriting Manual.”] White flight was also supported by massive federal investment in highway construction, which was often deliberately planned to create racial barriers between white neighborhoods and areas featuring a large presence of African Americans and other racial and ethnic minorities.²² At the same time, the 1949 Housing Act limited public housing to the very low income, and public housing projects became a permanent housing solution for very low-income people of color, who were increasingly separated from mainstream society.²³ The urban renewal program, introduced in 1954 as an amendment to the 1949 Housing Act, was intended to attack blight, stimulate downtown investment, and promote highway construction. As a result of the program, however, entire black neighborhoods in close proximity to key white neighborhoods and institutions—such as newly planned universities and hospital complexes—were bulldozed, and massive public housing projects were built in order to contain displaced black residents.²⁴

The Fair Housing Act of 1968 was the first open-house legislation designed to right the wrongs of the racially biased laws and policies that had purposefully created segregated communities across the United States. Specifically, the law prohibited housing discrimination in public and private housing transactions. The law also required the federal government to administer all federal housing and community development programs in a manner that would affirmatively further the fair housing purposes of the act.²⁵ As a condition of receiving HUD-administered funds, program participants were required to take active steps to undo historic patterns of segregation.²⁶ Among the discriminatory housing practices that the Fair Housing Act outlawed were refusing outright to rent or sell; refusing to negotiate; deceptively denying the availability of housing; refusing to make home mortgage loans; providing limited advertisements; and coercing, intimidating, and threatening based on membership in a protected class.²⁷ The law gave the secretary of HUD the statutory authority to enforce the nondiscrimination provisions of the act and required the secretary to ensure compliance with the Fair Housing Act’s AFFH mandate. In addition, the law provided for enforcement actions brought by the U.S. Department of Justice (DOJ) and for private causes of actions in federal court to individual victims of housing discrimination.²⁸ 

The law was passed at a time of significant turmoil, as cities around the nation were experiencing a wave of race-related unrest due to longstanding discrimination against African Americans. President Lyndon Johnson had already attempted to introduce fair housing legislation in 1966. President Johnson’s early proposal for the universal ban of discrimination in the sale and rental of housing, however, was met with significant opposition by the National Association of Real Estate Brokers and was prevented by a Senate filibuster.²⁹ It was not until the release of the Kerner Report and the assassination of Dr. Martin Luther King Jr. that the first fair housing legislation was enacted. The Fair Housing Act was quickly pulled together behind closed doors following King’s assassination, without any Senate hearings, markups, scrupulous debate, or the documentation of congressional intent necessary to guide future courts and litigants.

Rushed negotiations and significant compromise largely shaped the final statute. The Fair Housing Act’s coverage was originally limited to race, color, religion, and national origin. It also included an exemption according to which a dwelling was not covered by the statute if it had fewer than five rental units and its owner lived in one of them. Most importantly, the legislation lacked critical enforcement provisions. Civil penalties were missing, and HUD did not have any cease and desist powers to temporarily hold a housing unit off the market during a conciliation process.³⁰ During the first 20 years after the passage of the act, HUD and the DOJ did not have the ability to forcibly seek relief for individual victims of housing discrimination,³¹ in part because they lacked political support, staff, and resources.

To address the inadequacy of the statute’s enforcement provision, Congress amended the Fair Housing Act in 1988. The amendments added two new protected classes—disability and familial status—created a new administrative complaint process, and enhanced the penalties that came with violating the Fair Housing Act. In addition, HUD authorized state and local human rights commissions with “substantially equivalent” fair housing laws to perform conciliations.³²

Two major developments in the Fair Housing Act were introduced during former President Barack Obama’s tenure. In 2013, HUD published a final rule, entitled “Implementation of the Fair Housing Act’s Discriminatory Effects Standard,” under which practices with an unjustified discriminatory effect, including those without a discriminatory intent, are deemed liable.³³ Under the legal doctrine of disparate impact, actions can be considered discriminatory if they have a disparate effect on protected classes even if that was not the intent of those actions. In 2015, the U.S. Supreme Court, in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc., ruled that claims of disparate impact are cognizable under the Fair Housing Act.³⁴ Furthermore, in 2015 the Obama administration introduced a AFFH rule that strengthened the AFFH mandate of the Fair Housing Act and made it enforceable.³⁵ Over the years, due to the lack of clear implementation and enforcement guidance, many recipients of HUD funds failed to meet the existing AFFH obligation. The 2015 AFFH rule provided HUD program participants with a tool for analyzing local and regional fair housing issues and identifying patterns of segregation and access to opportunity.

Some progress in achieving integration and combating discrimination has been made since the passage of the Federal Housing Act. For example, there is greater black-white integration today compared with in 1968.³⁶ Up until the late 1960s, high levels of residential segregation were widespread across U.S. metropolitan areas. Douglas S. Massey and Jonathan Tannen indicate that in 1970, immediately following the passage of the Fair Housing Act, nearly half of the black population in the United States resided in 1 of 40 hypersegregated metropolitan areas.³⁷ Hypersegregation—a notion developed in 1989 by Massey and Nancy A. Denton³⁸—occurs when a racial or ethnic group is highly segregated on at least 4 of 5 dimensions of segregation, including unevenness, isolation, clustering, concentration, and centralization.³⁹ The number of hypersegregated areas dropped to 21 by 2010. Average segregation in these areas, however, had fallen only modestly, and hypersegregation is still common in metropolitan areas that feature some of the United States’ largest African American communities. These include Baltimore and Chicago, among other cities.⁴⁰

The root causes of residential segregation have been and continue to be widely explored and debated in scholarly studies. Some argue that residential segregation is the result of nonracial demographic and socioeconomic circumstances, whereas others attribute the separation of racial groups in the residential landscape to racist attitudes and practices such as prejudice and discrimination in the housing market. A comprehensive summary and critique of recent evidence on the causes of black-white residential segregation concludes that although racial prejudice and racial differences in homebuyers’ income, taste, and housing information play a role in the perpetuation of residential segregation, these factors contribute to just a small portion of the observed segregative residential patterns that are still visible across the United States.⁴¹ Recent evidence provides more convincing support for a fifth hypothesis, according to which discrimination in the housing market continues to drive black-white segregation and reinforces a vicious structural cycle that puts black homebuyers at a clear disadvantage compared with similarly situated white homebuyers.⁴²

There is little doubt that the legal challenges brought to discriminatory housing practices have resulted in greater compliance with the law, especially since the Fair Housing Act’s amendments of the late 1980s.⁴³ Prior to the Federal Housing Act of 1968, it was legal for real estate agents to deny African Americans and other people of color access to rental units and homeownership because of their race. As a series of national housing discrimination studies that the Urban Institute conducted for HUD indicate, the most overt forms of housing discrimination have declined over the course of the past few decades.⁴⁴ However, evidence shows that racial discrimination in the housing market still exists and, as Massey cautions, racial discrimination is a moving target,⁴⁵ as the forms of discrimination that were common in the past have been shifting over time.

New forms of racial bias in housing have thus emerged. Racial steering, for instance, has become more common. Under this practice, real estate agents deliberately steer African Americans away from desirable neighborhoods and toward areas featuring larger concentrations of people of color, higher poverty levels, and lower housing quality compared with neighborhoods to where whites relocate.⁴⁶ The Urban Institute’s 2012 audit study proves that minority homebuyers are consistently offered fewer residential options than white homebuyers. ⁴⁷ In particular, real estate agents tend to favor white homebuyers by providing information on and showing more available homes than in the case of equally qualified black homebuyers. In addition, black homebuyers are 2.4 percent more likely than equally qualified white homebuyers to be denied an in-person appointment. Furthermore, the neighborhoods where white homebuyers are recommended and shown homes tend to be characterized by a larger presence of white residents than the neighborhoods where black homebuyers are recommended and shown homes. The 2012 HUD study indicates that “whites hear more positive comments about white neighborhoods and more negative comments about minority neighborhoods than do blacks, potentially steering them away from mixed or minority neighborhoods.”⁴⁸ Recent investigations and litigation cases indicate that housing industry agents—realtors, landlords, and brokers—who intend to violate fair housing laws have become more skillful in disguising their discriminatory behavior in order not to be detected.⁴⁹ Housing providers often do not advertise available units. In particular, with the proliferation of social media and online housing advertising, discriminatory digital marketing has become more common.⁵⁰ After a 2016 ProPublica investigation⁵¹ revealed Facebook’s practice of allowing its advertisers to exclude Facebook users from seeing housing ads based on their race and ethnicity, the National Fair Housing Alliance and other civil rights advocates took legal action against the company. As a result of the litigation, in March 2019, Facebook agreed to stop allowing landlords, creditors, and employers, among other advertisers, to discriminate against people of color and other protected classes.⁵² During the same month, HUD also filed charges against Facebook for violating fair housing laws.⁵³

The forms of discrimination against home mortgage applicants that were prevalent before the Equal Credit Opportunity Act of 1974 and the Community Reinvestment Act of 1977 have similarly diminished but have not disappeared, shifting from the outright denial of mortgages to potential borrowers of color to predatory practices, subprime lending, and unfavorable loan terms.⁵⁴ Racial discrimination is often present at various stages of the home sales and mortgage lending processes,⁵⁵ and home mortgage lending discrimination often materializes in algorithmic scoring. Recent evidence shows that financial technology lenders typically charge borrowers of color eight basis points higher interest rates than they charge white borrowers.⁵⁶ In addition, in the wake of the financial crisis, redlining has reemerged as a common—although less overt than in the past—form of discrimination among lenders that have pulled back from minority neighborhoods by placing branches, brokers, and mortgage services outside these communities.⁵⁷

Discrimination in the housing market reinforces the patterns of residential segregation that have been largely shaped by decades of racially biased housing policies. Most importantly, housing discrimination and residential segregation hamper the ability of African American homebuyers to build equity. Homes in primarily African American neighborhoods typically feature more volatile demand and prices than those in predominantly white areas, where resources such as access to well-paying jobs and quality schools are concentrated and contribute to higher housing demand and prices.⁵⁸ In contrast, past and present racial biases and discriminatory practices in real estate markets⁵⁹—such as redlining,⁶⁰ steering,⁶¹ variations in appraisal methods, and appraisers’ racialized perceptions of neighborhoods,⁶² among others—contribute to a lower housing demand in African American neighborhoods.^{https://www.americanprogress.org/issues/economy/reports/2019/07/15/469838/racial-disparities-home-appreciation/}