Key Takeaways
  • Redlining is a practice where mortgage lenders deny loans to people based on race or the racial makeup of their neighborhoods.
  • The term "redlining" comes from the National Housing Act of 1968, which allowed for discriminatory maps to be created for every metropolitan area in the United States.
  • The lasting effects of redlining have significantly deterred the possibility of Black Americans building generational wealth for their families. 
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Historic Redlining in the United States


Redlining is a practice where mortgage lenders deny loans to people based on race or the racial makeup of their neighborhoods. The term comes from the National Housing Act of 1968 as part of the federal government's New Deal. The housing act allowed maps to be created for every metropolitan area in the United States. 


Multiple organizations color-coded these maps, including the Home Owners Loan Corporation, the Federal Housing Administration, and the Veterans Administration. These organizations' reasoning for color-coding areas was to protect mortgage lenders from giving out risky home mortgages. The neighborhoods that were colored red and labeled as high-risk were African-American communities.


Redlining led many Black Americans to face housing discrimination, including little to no access to owning appreciating real estate. However, housing discrimination was just one of many issues that arose from the practice of redlining in the United States.



The discriminatory practice also helped separate Black neighborhoods and white neighborhoods to a greater extent. American cities were now color-coded based on race, ethnicity, and socioeconomic status. As a result, while white Americans were purchasing homes and building wealth, Black residents in neighboring towns were not benefitting from the same processes.


Redlining stripped wealth opportunities from Black families and promoted racism to be practiced by institutions on a daily basis. Consequently, the structural racism ingrained in financial institutions across America still affects Black Americans today.


The Effects of Redlining Today


At the beginning of 2020, almost 74% of white households owned their homes versus only 44% of Black and 49% of Hispanic families. Such a large gap is due to the lasting effects of redlining, which is now illegal but not completely gone. To this day, redlining continues to disproportionately affect Black communities and other minority communities of color. 


Since homeownership has historically played a significant factor in building wealth, the lasting effects of redlining have significantly deterred the possibility of Black Americans and other minority communities in building generational wealth for their families. Redlining has prevented members of minority communities from becoming homeowners and investing in real estate.



Although June is declared National Homeownership Month in the United States, there have been an infinite amount of obstacles for Black and minority communities pursuing the "American Dream" of owning a home. Despite these obstacles, numerous Black and minority families have achieved their goal of becoming homeowners. However, not all have received the same financial benefits from owning a home.


While almost three out of four white Americans own their home, less than half of all Black Americans own theirs. The gap in numbers represents inequality in homeownership, economic inequality, and unequal wealth-building opportunities.


The Economic Inequality Caused by Redlining


A study conducted by Redfin found that homes in redlined areas missed out on more than $212,023 gains on their home equity for over 40 years. Black families who own homes in historically redlined neighborhoods are more likely to have a diminishing home equity value, which contributes to the overall economic inequality in the United States. This equates to white families building wealth faster through homeownership than Black and minority families. 


In simpler terms, Black homeowners in historically redlined neighborhoods are losing money simply by living in their homes. The practice of redlining has caused the value of black homeowners' homes to slowly drop instead of increasing over time.


Editorial Credit: REUTERS / Alamy Stock Photo


Redfin's study also found that Black homeowners today are five times as likely to own a home in a formerly redlined neighborhood than a greenlined one. The National Community Reinvestment Coalition conducted a study in which they found that 74% of redlined neighborhoods from the 1930s are today's low-to-moderate income neighborhoods.


Closing the Wealth Gap Between Black and White Homeowners


Although redlining is now illegal, its generational effects are still very much alive. As a result, reparations and other possible solutions to help bridge the gap between Black and white homeownership rates are still being addressed and spoken about today. Reparations may be a starting point in order to help close the racial wealth gap between white and Black homeowners. 


The Local Reparations Restorative Housing Program in Evanston, Illinois is an example of what many cities and states across the country may begin practicing. Certain Black residents in Evanston are able to receive $25,000 towards their mortgage, down payment assistance, or home improvement. To qualify for these reparations, the applicant must have been an Evanston resident between 1919 and 1969, have Black ancestry, or be a direct descendant of an individual that has been harmed by discriminatory housing practices or policies during that time or later.


According to the National Community Reinvestment Coalition, a 20-30% gap between white and Black homeownership rates has continued for more than 100 years. Additionally, Black Americans receive less of a return on homes than white Americans when investing in a home. 


Another solution to bridging the gap between Black and white homeownership rates may be to provide home buying assistance to Black and minority communities. By providing financial aid, such as down-payment or closing costs assistance, more people will be eligible to purchase and invest in real estate.



The Community Reinvestment Act, passed in 1977, encourages financial institutions to assist their community members with borrowing, regardless of their income level. The act is one of many steps towards ensuring equal access to credit for all people.


Lastly, it is crucial to ensure that redlining is no longer occurring in overlooked and underserved areas and communities. Regardless of race or income, ensuring that all citizens have equal access to homeownership opportunities is key to closing the gap between ownership rates.


The Home Mortgage Disclosure Act (HMDA), passed in 1975, requires financial institutions to publicly disclose mortgage loan data. Through the data provided by financial institutions, discriminatory lending patterns may be revealed. The data reported also shows whether or not financial institutions are complying with the Community Reinvestment Act and serving their communities.


Recommended Read: Celebrating National Homeownership Month: Three (3) Financial Benefits to being a Homeowner


At CapWay, we strive to provide financial access and opportunities to all, especially to communities that have been historically underserved and overlooked. If this article was helpful to you, share your thoughts or comment below!


Thumbnail and Main Image Credit: Hum Historical / Alamy Stock Photo

Redline Map for Birmingham, Alabama 1933-1939 Home Owners Loan Corporation

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