But that option hasn’t always been available to everyone, especially black families.
Well into the 20th century, the government systematically discriminated against black homeowners through a process known as “redlining,” which constrained who could get decent mortgages for good homes and where those homes could be built.
A new book by Keeanga-Yamahtta Taylor, a professor of African American studies at Princeton, called Race for Profit: How Banks and the Real Estate Industry Undermined Black Homeownership is the best attempt yet to unpack this history and lay out the consequences.
Taylor argues that the abolition of redlining led to a new type of housing discrimination, something she calls “predatory inclusion.” Under this model, bankers and real estate brokers worked in tandem with the government to support housing policies that fortified racial inequalities and made billions of dollars for the private sector.
A lightly edited transcript of our conversation follows.
What’s this book about? What were you trying to understand or explain?
It’s almost like we treat black neighborhoods and white neighborhoods and Latino neighborhoods as though they’re purely natural phenomena. It’s just a reflection of people’s desire to live amongst their own.
And so I wanted to talk about segregation as a financial arrangement that extends way beyond the individual desires of buyers and renters, and one that reflects the financial interests of real estate and banking.
This is a huge, complicated issue that has not received the attention it deserved.
Redlining was a process created in the 1930s when the federal government first implemented housing policies. Prior to that, there were really no formal policies regarding housing in the United States.
First, it created the Home Owners’ Loan Corporation, which is an agency designed to help people refinance the terms of the loans that they took out for their homes as a way to stem the tide of foreclosures. And in doing so, the government creates maps that determine the risk involved: how likely is it that the people in this area will either repay it or fall into foreclosure.
They created a color code as part of this process. Green was the most desired group to refinance; blue the second most desirable group; yellow the third most desirable group; and finally red areas that were basically excluded.
They wanted to make it cheaper and easier to buy a house, as opposed to renting. To help banks get over their reluctance, the federal government created mortgage insurance, meaning they would insure what were essentially subprime loans to working class people on two conditions.
The second condition was that those communities would be racially homogenous.
And so that meant that they would be white because they were outside of the city, just as black people were beginning to move into cities. And this became colloquially known as redlining, the federal government’s refusal to insure loans in cities where black people were concentrating.
And that refusal led to decades of disinvestment and underdevelopment in the urban areas that African Americans lived in.
On the surface, that seems like a great idea. What went wrong?
This is where the role of the private sector becomes important.
People can have a larger discussion about the utility of public-private partnerships, but there is something particular to the real estate industry that was deeply problematic in terms of this public-private relationship.
The real estate industry had been instrumental, both in its real estate brokerage arm and its mortgage banking arm, in segregating cities.
The federal government didn’t invent housing segregation in the 1930s; the real estate industry had been doing it for a long time. Indeed, the National Association of Real Estate Boards had already created a rule in 1924 saying that any broker who introduces someone of the opposite race into a neighborhood that is racially homogenous would lose their license.
So organizing a housing program aimed at solving the urban housing crisis made no sense because it meant that these programs would adopt the same kind of segregating impulses that were at the heart of real estate, unless you could have a commitment from the federal government to aggressively enforce its own rules regarding housing discrimination.
But that doesn’t happen.
So there’s already a pattern of avoiding any kind of confrontation with the real estate industry on questions of race.
And so when this program is eventually implemented, it is swallowed up by the same racist impulses driving the real estate industry. And the consequences were devastating for African Americans.
Why would anyone think that the private sector would help solve the public housing problem? The idea seemed to be that profiteering would work in conjunction with public welfare, but in reality the pursuit of profit overwhelmed the public policy objectives in utterly predictable ways.
The problem is this mismatch between profiteering and the public interest.
The federal government’s role as regulator has been undermined because it has divested itself from developing, building, or managing any kind of housing program. It has completely outsourced it to the private sector.
And what’s profitable to build?
It’s profitable to build million-dollar condos.
And that’s why I wanted to write this history.
Let me ask you what might be a tricky question: Was this by design? In other words, did anyone actually intend to solve the housing problem? Or did the policy achieve its real goal, namely reinforcing inequality?
That’s a great question.
I don’t think that this was the desired outcome. But I also don’t think it’s a case of, “Well, if different people had been in place, the outcome would have been different.
” The underlying problems here are deeply structural. The government can’t effectively regulate or enforce its own rules when it has no role in producing housing, when it has essentially become dependent on the private sector to do this.
The bottom line is that nearly every government housing program or department has been seen as a tool to facilitate business for the private real estate industry. It is written into the entire function of organizations like Housing and Urban Development (HUD).
The desire is always to do as much as possible to avoid coming into conflict with private industry.
Even if this wasn’t the desired outcome, it’s difficult to see how the outcome would be different when real estate brokers were the main point of contact throughout this entire program.
They matched the people with a mortgage broker. At no point in time did the prospective homeowner, who is a low-income person in these programs, ever interface with a state representative on the city, local, state or federal level.
This is a significant distinction.
This doesn’t change in any significant way until 1967, when, in the aftermath of the Detroit Uprising, a consortium of 300 life insurance companies, the largest life insurance companies in the United States, form what eventually turns into a $2 billion mortgage pool to finally finance single-family homeownership, multi-family units, apartments, and business loans to small black businesses but on two conditions.
One condition is that the FHA must insure all of these mortgages so that there’s no risk to the insurance companies; and second, that these loans are only available in formerly redlined areas.
You could only use the loan in a segregated area.
So, not only are they not enforcing their own rules, but they’re also standing to the side and letting these private corporations make decisions on their own.
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How do you draw a straight line between this history and these policies on the one hand and the persistent wealth gap on the other?
We live in a country where your personal accumulation of wealth is what unleashes social mobility and what determines your quality of life.
And for most Americans, homeownership is key to wealth accumulation. But if you don’t have access to good housing, if you’re excluded from buying good homes on conventional terms, then none of it matters.
Black people have been homeowners for the entirety of the 20th century and since the end of slavery in some form or another, but not on the same terms. And so, if you exclude African Americans from access to conventional sources of finance and conventional means to buy their homes, then you’re going to end up with a huge disparity in wealth.
Today we’re seeing a precipitous drop in black homeownership. It’s down to 40 percent, which is roughly what it was in the late 1960s and early 1970s, and you see a small uptick in white homeownership, so we’re going to see the gap actually grow.
But what’s also important to say is that even for the 40 percent of the black people who do come to own their own homes, it doesn’t function in the same way. Property in white hands is valued more than property in black hands.
So even when black people own property, it still does not accrue in value in the same way or at the same rate.
Instead, it often functions as a debt burden to African Americans.
This is a massive problem I wanted to bring attention to with this book. We have a society in which homeownership is the key to the good life, and African Americans have not had fair access to it.
That so many people still believe that the market alone will solve this problem is just incomprehensible to me.
People talk about the free market as this racially neutral, color-blind space within which the invisible hand of supply and demand dictates what does or doesn’t happen.
But that’s so incredibly naive. The market is us.
The market is a reflection of our values.
And when it comes to property, race is at the very center.
Without any kind of serious commitment to enforcing civil rights laws, to creating behavior-altering punishment and fines, it’s difficult to see how any of this would actually change. And there’s there’s never been any commitment even at the height of the civil rights movement.
So this country’s never been serious about actually enforcing the law as it relates to civil rights.
Are you optimistic that we can solve a problem with such deep roots? And if we can solve it, what would that look like?
We’re in a political moment where people are thinking differently about lots of things, whether it’s how health care should be distributed or how education should be made accessible. People are considering ideas that were widely mocked just a few years ago.
One reason for this is that things are supposed to be booming right now. We have historically low unemployment.
We have decent economic growth. And yet millions of people find themselves saddled with debt and have no hope of ever being able to pay it off.
They have no financial future.
Maybe her plan is good, maybe it isn’t, but that’s the direction we need to go. The scale of the problem is so vast that it’s beyond the capacity of the private sector to solve.
So yes, I think the state has to be much more involved if we are to have any chance of reckoning with this issue.
The truth is that this is a chronic problem stretching back decades, and the private sector has been at the center of it. So it’s time to fundamentally rethink housing just as we’re rethinking how other social goods are distributed.