The History of Redlining, and Its Lasting Effect on Black Americans Today

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 1934 as part of the federal government's New Deal. The housing act allowed for maps to be created for every metropolitan area in the country. 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 loans. The neighborhoods that were colored red and labeled as high-risk were African-American communities.

Credit: Giphy

At the beginning of 2020, almost 74% of white households owned their homes, while only 44% of Black households and 49% of Hispanic households owned theirs. 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. 

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

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

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. Another study conducted by the National Community Reinvestment Coalition found that 74% of redlined neighborhoods from the 1930s are today's low-to-moderate income neighborhoods. 

Reparations and other possible solutions to help bridge the gap between Black homeownership rates and white homeownership rates are still being addressed and spoken about today. Although redlining is now illegal, its generational effects are still very much alive. 

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!

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