Recap from Part I:

During the early 1930s, the federal government created the Home Owners Loan Corporation (HOLC), which purchased and refinanced over one million troubled non-farm mortgages and held roughly a tenth of all non-farm mortgages in the US.  The HOLC finished this refinancing project early in 1936, but by then, refinanced borrowers were already having problems repaying their loans. To better understand the default risk of refinanced homes, HOLC officials developed “residential security maps” of neighborhoods throughout the country. These maps assigned colors to each grade of default risk. A red rating signified the highest risk - hence, neighborhoods at the highest risk were “redlined”.  Black households had been concentrated in these neighborhoods several years prior to the development of the HOLC maps. According to Price Fishback and colleagues in Race, risk, and the emergence of federal redlining (2020), these economically distressed neighborhoods were redlined because they had the highest default risk, not because they were Black.

Even if it’s the case that that racial bias had little to do with the original construction of HOLC maps, perhaps living in a redlined area made it harder for Black residents and their descendants to escape poverty, a disadvantage that directly led to the Black-White homeownership gap. If so, how would we know?

One approach to this question is to look at whether once-redlined areas are a good proxy for Black America. How many Blacks currently live in these neighborhoods? Are they doing worse than Blacks in other neighborhoods? Are the numbers big enough to account for the Black-White homeownership gap today? Luckily, Andre Perry and David Harshbarger of the Brookings Institute have already crunched those numbers. To quote:

…approximately 11 million Americans (10,852,727) live in once-redlined areas, according to the latest population data from the Census Bureau’s American Community Survey (2017). This population is majority-minority but not majority-Black, and, contrary to conventional perceptions, Black residents also do not form a plurality in these areas overall. The Black population share is approximately 28%, ranking third among the racial groups who live in formerly redlined areas, behind white and Latino or Hispanic residents…While still a tremendously large population, the approximately 3 million Black residents in redlined areas account for just 8% of all non-Latino or Hispanic Black Americans.

It’s also important to remember that the HOLC maps covered around half the Whites in American cities. Many of these White areas were redlined too - not surprising, given that the maps were drawn up in the middle of the Great Depression. What happened to the White descendants of these redlined households? Is there a homeownership gap between them and other Whites? For that matter, is there a homeownership gap between descendants of households in redlined households and other Americans, irrespective of race or ethnicity? I haven’t found a study that addresses that question.

None is this is to say that racial discrimination hasn’t contributed to the Black-White homeownership gap. Of course it has. But did the practice of redlining lead to an even bigger homeownership gap? That is, if you controlled for historical and ongoing racial discrimination, did redlining by itself contribute to the present-day homeownership gap? I have yet to see the evidence.

But let’s keep it as a working hypothesis for the time being. What kind of evidence would support the hypothesis that redlining is one of many root causes of the Black-White homeownership gap? Answer: evidence linking the practice of redlining to the proximate causes of that gap. To be discussed next.

References:

America’s formerly redlined neighborhoods have changed, and so must solutions to rectify them . Andre M. Perry and David Harshbarger/Brookings Institute October 14, 2019

Fishback, P. V., LaVoice, J., Shertzer, A., & Walsh, R. (2020). Race, risk, and the emergence of federal redlining (No. w28146). National Bureau of Economic Research. doi: http://dx.doi.org/10.3386/w28146 

Redlining Didn’t Happen Quite the Way We Thought It Did. Jake Blumgart/Governing.com September 21, 2021