The Typical Homeowner in a “Redlined” Neighborhood Has Missed Out on $180,000 Worth of Home Equity
The discriminatory housing policy has also contributed to lower homeownership rates for Black families.
The typical homeowner in a neighborhood deemed “hazardous” for mortgage lending by the federal government during the redlining era has gained 44% less—or $180,000 less—in home equity than one in a “best” neighborhood over the last 40 years. In a “hazardous” neighborhood, commonly referred to as “redlined,” the typical homeowner has earned $321,000 in home equity since 1980, versus $501,000 for the “best” neighborhoods.
The term redlining refers to the historical practice in which the Home Owners’ Loan Corporation assigned grades to, and color coded, residential neighborhoods to indicate their “mortgage security.” The practice helped lenders isolate areas considered “safe” for investment and determine who should receive loans. Neighborhoods that received the highest grade of “A”—colored green on the maps—were deemed minimal risks. Those that received the lowest grade of “D,” colored red, were considered “hazardous.” In redlined neighborhoods, it was virtually impossible to get a loan. Type B neighborhoods, those deemed “still desirable” were colored blue and Type C neighborhoods, considered “definitely declining,” were colored yellow.
Here’s an example of a redlined map of Los Angeles:
In 1896, the U.S. Supreme Court decision Plessy v. Ferguson upheld the constitutionality of racial segregation. As a result, segregation across the country continued with minimal legal challenge until the U.S. Supreme Court’s 1954 decision Brown v. Board of Education. Accordingly, when the Home Owners’ Loan Corporation enacted the practice of redlining in the 1930s, many U.S. cities were racially segregated and it was not uncommon for neighborhoods to consist of predominantly Black families or predominantly white families.
As shown in the neighborhood level descriptions of cities across the U.S. in the University of Richmond’s Mapping Inequality, urban areas with a large share of minorities were most likely to be redlined, while neighborhoods made up mostly of white families were most likely to be deemed “best” and colored green. While redlining prevented both Black and white families from obtaining loans for homes in Type D neighborhoods, the bigger impact was on Black families, who were blocked from buying homes in the neighborhoods where they already lived.
How Redlining Contributed to a Racial Wealth Gap
While the Fair Housing Act of 1968 made it unlawful to refuse to rent, sell, or provide financing for a dwelling based on race, religion and national origin, redlining was not outlawed until 1977 with the Community Reinvestment Act. Today, U.S. residents—particularly Black families—still feel the impact. Lack of access to credit, discrimination against buying homes in Type A neighborhoods, and being prevented from buying homes in their own neighborhoods led to significantly lower homeownership rates for Black families than white families. Currently, in the 41 metros included in this analysis, white families own four times as many homes as Black families across all four graded categories—8.1 million versus 1.9 million. And Black individuals who are homeowners are 4.7 times as likely to own in a former Type D than a Type A neighborhood, while white individuals are just 1.5 times more likely to own in a redlined area.
“More than 40 years after it was abolished, redlining continues to dictate the racial makeup of neighborhoods and Black families still feel the socioeconomic effects of such a discriminatory housing policy,” said Redfin chief economist Daryl Fairweather. “Black families who were unable to secure housing loans in the neighborhoods where they lived have missed out on one of the major ways to build wealth in this country. And even families who were able to buy homes in their neighborhood after redlining ended haven’t earned nearly as much home equity as people who bought homes in neighborhoods that were considered more valuable.”
“That has had a lingering effect on their children and grandchildren, who don’t have the same economic opportunities as their white counterparts,” Fairweather continued. “Not only are Black parents less likely to have the resources to pay for higher education and help with other expenses, but studies show that children of homeowners are about 7.5% more likely to become homeowners than children of renters.”
In Type A Neighborhoods, the Homeownership Gap Between Black and White Families Expands
Not only is the national homeownership rate lower for Black families than white families—42.7% versus 73.4%—but in all 41 metros in this analysis, the homeownership rate in neighborhoods formerly marked “best” is lower for Black families than white families. Since 1980, the homeownership rate for Black families in Type A neighborhoods dropped from 50.4% to just 44%, while the rate for white families rose 4.1 percentage points to 71%. In Type B neighborhoods, the homeownership rate for Black families has fallen by more than five percentage points to 43.7% while increasing by about three percentage points to 61.1% for white families.
“The expanding homeownership gap between Black and white families can in part be traced back to diminished home equity due to redlining, as it’s one major reason why Black families today have less money than white families to purchase homes either as first-time or move-up homebuyers,” Fairweather said. “It’s important to note that other factors play a role in lower homeownership rates for Black families, too. For instance, employment discrimination prevented Black workers from earning equitable income.”
Homeownership Rates by Race and Redlining Category: National
| Overall homeownership rate | ||
|---|---|---|
| 1980 | 2017 | |
| Type A / Best | 65.5% | 66.0% |
| Type B / Still Desirable | 56.2% | 55.0% |
| Type C / Definitely Declining | 50.0% | 47.4% |
| Type D / Hazardous | 46.3% | 38.5% |
| Homeownership rate for white families | ||
| 1980 | 2017 | |
| Type A / Best | 66.9% | 71.0% |
| Type B / Still Desirable | 58.3% | 61.1% |
| Type C / Definitely Declining | 53.6% | 54.4% |
| Type D / Hazardous | 46.3% | 45.6% |
| Homeownership rate for Black families | ||
| 1980 | 2017 | |
| Type A / Best | 50.4% | 44.0% |
| Type B / Still Desirable | 49.0% | 43.7% |
| Type C / Definitely Declining | 39.9% | 35.9% |
| Type D / Hazardous | 30.8% | 29.8% |
| Homeownership rate: Percentage point difference between white and Black families | ||
| 1980 | 2017 | |
| Type A / Best | 16.5 pts. | 27.0 pts. |
| Type B / Still Desirable | 9.3 pts. | 17.4 pts. |
| Type C / Definitely Declining | 13.7 pts. | 18.5 pts. |
| Type D / Hazardous | 15.5 pts. | 15.8 pts. |
In some areas, the difference is more pronounced. The homeownership rate for Type A areas in Atlantic City, NJ is just 14.8% for Black families, versus 73.5% for white families. That’s a bigger gap than any other metro. It’s followed by Fresno, CA, where the “best” area homeownership rate for Black families is just 2.5% compared to 62.6% for white families, and Greensboro, NC (9.3% versus 67.7%).
The homeownership gap for “best” neighborhoods is smallest in Oakland, where Black families have an 84.1% homeownership rate versus 85.9% for white families. Next come Miami (42.7% versus 56.8%) and San Jose (41.1% versus 60.5%).
Below is a table with three of the 41 metros included in this analysis (the first three alphabetically), with homeownership rates by race and redlining category in 1980 and 2017. Click here for the full table, which includes all 41 metro areas.
| Homeownership Rates by Race and Redlining Category: Metro Areas | ||||||||
|---|---|---|---|---|---|---|---|---|
| 1980 | 2017 | |||||||
| Metro Area and Redlining Category | Overall Homeownership Rate | Rate for White Families | Rate for Black Families | Percentage Point Difference Between White and Black Families |
Overall Homeownership Rate | Rate for White Families | Rate for Black Families | Percentage Point Difference Between White and Black Families |
| Akron, OH | ||||||||
| Type A / Best | 74.1% | 74.7% | 69.4% | 5.3% | 70.2% | 76.4% | 50.5% | 25.9% |
| Type B / Still Desirable | 67.5% | 69.7% | 56.2% | 13.5% | 58.1% | 64.9% | 36.7% | 28.2% |
| Type C / Definitely Declining | 64.0% | 66.1% | 41.7% | 24.4% | 57.3% | 65.0% | 25.3% | 39.7% |
| Type D / Hazardous | 63.7% | 69.0% | 48.6% | 20.4% | 50.7% | 59.1% | 31.9% | 27.2% |
| Atlanta, GA | ||||||||
| Type A / Best | 67.0% | 67.6% | 44.7% | 22.9% | 64.2% | 67.8% | 25.3% | 42.5% |
| Type B / Still Desirable | 50.5% | 50.7% | 51.2% | -0.5% | 56.4% | 64.3% | 33.4% | 30.9% |
| Type C / Definitely Declining | 43.2% | 43.3% | 43.6% | -0.3% | 46.3% | 58.4% | 33.0% | 25.4% |
| Type D / Hazardous | 30.1% | 43.6% | 22.2% | 21.4% | 33.9% | 50.2% | 22.7% | 27.5% |
| Atlantic City, NJ | ||||||||
| Type A / Best | 54.4% | 54.6% | 20.0% | 34.6% | 73.5% | 75.3% | 14.8% | 60.5% |
| Still Desirable | 62.4% | 62.7% | 34.8% | 27.9% | 66.4% | 73.1% | 23.7% | 49.4% |
| Type C / Definitely Declining | 62.0% | 66.8% | 41.5% | 25.3% | 54.9% | 64.8% | 35.0% | 29.8% |
| Type D / Hazardous | 41.1% | 59.3% | 34.9% | 24.4% | 39.0% | 55.9% | 25.3% | 30.6% |
| Here’s the full table | ||||||||
Redlined vs. Greenlined: Identical Homes but Very Dissimilar Equity
Chicago Redfin agent Lamar Austin said his hometown is an apt example of how redlining continues to contribute to segregation.
“Black families lived on the south side in the 1940s, 1950s and 1960s when those neighborhoods were redlined, and white families lived on the north side in areas that were considered more desirable,” Austin said. “The problem is that the pattern hasn’t changed and it’s unlikely to anytime soon because it’s so difficult for Black families to move to a different neighborhood. They often don’t have the equity, as an identical home on the north side would cost about $200,000 more than one they already own on the south side.”
Austin also said retail investors often shy away from formerly redlined neighborhoods due to a lack of living resources that come with historic segregation. “The grocery stores are almost nonexistent—often, the places to buy food are just corner convenience and liquor stores—and there’s hardly any retail or restaurants. People don’t want to live in a neighborhood without a Trader Joe’s or a coffee shop.”
Homeowners in former Type B, “still desirable,” and Type C, “definitely declining,” neighborhoods have also missed out on sizeable home equity compared to those in Type A neighborhoods. In C neighborhoods, the typical homeowner has earned $333,000 worth of home equity since 1980; in B areas the median gain is $387,000.
While the median home equity in redlined neighborhoods has seen a bigger percentage increase since 1980 than those in greenlined neighborhoods—486% versus 260%—it’s largely because equity in redlined neighborhoods started out so low.
Here’s a look at national home equity gain for all four redlining categories, from the five-year period spanning 1975-1980 to 2019*.
| Median Home Equity* in 1975-1980 (in today’s dollars) | Median Home Equity in 2019 | Home Equity Growth (dollars) | Home Equity Growth (percentage) | Total Home Equity Growth (dollars) | Total Homes Sold 1975-1980 | |
|---|---|---|---|---|---|---|
| Type A / Best | $193,000 | $694,000 | $501,000 | 260% | $18.9 billion | 32,845 |
| Type B / Still Desirable | $122,000 | $509,000 | $387,000 | 317% | $47.6 billion | 101,436 |
| Type C / Definitely Declining | $95,000 | $428,000 | $333,000 | 351% | $62.1 billion | 160,964 |
| Type D / Hazardous | $66,000 | $387,000 | $321,000 | 486% | $22.5 billion | 61,922 |
*We measured median home equity in the period from 1975-1980, the furthest back in time data is available, by subtracting the loan amount from the sale price for homes in the 41 metros we included in this analysis. Because a standard 30-year mortgage would have been paid off by 2010, median home equity in 2019 is equal to total home value.
Lack of Equity in Redlined Areas Pervades Across the U.S., With One Exception
Overall, 2017 homeownership rates are lowest for both white and Black families in former D neighborhoods, where redlining prevented homebuyers from obtaining loans. And, home equity in former A neighborhoods outstrips former D neighborhoods in 40 of the 41 metros in this analysis.
The starkest example of the imbalance is in Warren, MI (a Detroit suburb), where in 2019 the typical homeowner in a former A area had 1,309% more home equity than one in a redlined area—$634,000 versus $45,000. It’s followed by Jacksonville, FL (836% more; $571,000 versus $61,000) and Memphis (663% more; $412,000 versus $54,000).
Philadelphia is the only exception: The median home equity for the greenlined neighborhoods is 40% less than it is in redlined neighborhoods: $160,000 versus $268,000.
“Some of the formerly redlined neighborhoods in Philadelphia are now among the most expensive areas in the city, like parts of Fairmount and Northern Liberties,” said local Redfin agent Mason Gallik. “Those neighborhoods have two things a lot of the former ‘best’ neighborhoods do not have: vacant land and proximity to downtown, both of which are valuable to modern homebuyers. Vacant lots in formerly redlined neighborhoods also allow for newly built homes, which tend to sell for more than older homes.”
| Home Equity In 2019 For “Best” and “Hazardous” Neighborhoods By Metro Area | ||||
|---|---|---|---|---|
| Metro Area | Median Home Equity For “Best” Neighborhoods | Median Home Equity For “Hazardous” Neighborhoods | Dollar Difference Between Home Equity In “Hazardous” And “Best” Neighborhoods | Percentage Difference In Home Equity Between “Hazardous” And “Best” Neighborhoods |
| Warren, MI | $634,000 | $45,000 | $589,000 | 1,309% |
| Jacksonville, FL | $571,000 | $61,000 | $510,000 | 836% |
| Memphis, TN | $412,000 | $54,000 | $358,000 | 663% |
| Birmingham, AL | $862,000 | $131,000 | $731,000 | 558% |
| Atlantic City, NJ | $900,000 | $143,000 | $757,000 | 529% |
| Tampa, FL | $832,000 | $151,000 | $681,000 | 451% |
| Oklahoma City, OK | $246,000 | $45,000 | $201,000 | 447% |
| Greensboro, NC | $341,000 | $69,000 | $272,000 | 394% |
| Virginia Beach, VA | $226,000 | $49,000 | $177,000 | 361% |
| Columbus, OH | $424,000 | $100,000 | $324,000 | 324% |
| Richmond, VA | $648,000 | $156,000 | $492,000 | 315% |
| Charlotte, NC | $926,000 | $232,000 | $694,000 | 299% |
| Trenton, NJ | $152,000 | $41,000 | $111,000 | 271% |
| Atlanta, GA | $1,052,000 | $326,000 | $726,000 | 223% |
| Phoenix, AZ | $511,000 | $165,000 | $346,000 | 210% |
| Tacoma, WA | $656,000 | $218,000 | $438,000 | 201% |
| Pittsburgh, PA | $380,000 | $133,000 | $247,000 | 186% |
| Dayton, OH | $278,000 | $103,000 | $175,000 | 170% |
| Akron, OH | $166,000 | $62,000 | $104,000 | 168% |
| New Orleans, LA | $515,000 | $196,000 | $319,000 | 163% |
| Cleveland, OH | $308,000 | $123,000 | $185,000 | 150% |
| Nashville, TN | $648,000 | $281,000 | $367,000 | 131% |
| Miami, FL | $688,000 | $302,000 | $386,000 | 128% |
| San Diego, CA | $1,058,000 | $471,000 | $587,000 | 125% |
| Camden, NJ | $202,000 | $92,000 | $110,000 | 120% |
| Seattle, WA | $1,212,000 | $562,000 | $650,000 | 116% |
| Newark, NJ | $699,000 | $338,000 | $361,000 | 107% |
| Chicago, IL | $462,000 | $230,000 | $232,000 | 101% |
| Denver, CO | $756,000 | $390,000 | $366,000 | 94% |
| Montgomery County, PA | $450,000 | $234,000 | $216,000 | 92% |
| Los Angeles, CA | $1,111,000 | $587,000 | $524,000 | 89% |
| Boston, MA | $1,039,000 | $578,000 | $461,000 | 80% |
| Fresno, CA | $282,000 | $158,000 | $124,000 | 78% |
| Oakland, CA | $1,300,000 | $752,000 | $548,000 | 73% |
| Milwaukee, WI | $251,000 | $154,000 | $97,000 | 63% |
| Baltimore, MD | $335,000 | $208,000 | $127,000 | 61% |
| San Jose, CA | $1,329,000 | $854,000 | $475,000 | 56% |
| Sacramento, CA | $778,000 | $522,000 | $256,000 | 49% |
| New York, NY | $666,000 | $502,000 | $164,000 | 33% |
| Philadelphia, PA | $160,000 | $268,000 | -$108,000 | -40% |
New York and San Jose both have relatively smaller gaps in home equity gains between former A and D neighborhoods. That’s likely because both are job centers with high wages and in-demand housing, and in each home prices have risen substantially in almost every neighborhood.
But rising home values throughout all redlining categories in New York and San Jose doesn’t mean Black Americans there have benefited. The Black homeownership rate in both areas is lower than the national average of 42.7%: just 32.4% in New York and 32.4% in San Jose.
“Relatively low homeownership rates for Black families means landlords are the ones reaping the benefits of increasing home equity in formerly redlined neighborhoods,” Fairweather said. “Black families are mostly renters in those neighborhoods, which means rising home values leads to increased rent payments and possibly being pushed to less desirable, albeit more affordable, parts of town.”
Methodology
For the home equity analysis, we measured median home equity in the period from 1975-1980, the furthest back in time data is available, by subtracting the loan amount from the sale price for homes in the 41 metros we included in this analysis. Because a standard 30-year mortgage would have been paid off by 2010, median home equity in 2019 is equal to total home value.
We obtained redlining map shapefiles from the Mapping Inequality website for 41 metro areas across the U.S. that were “redlined” by the Home Owners’ Loan Corporation. There were 357,167 home sales from 1975-1980 that fell inside of the redlining map boundaries. For the purposes of this analysis, we assumed the homes are still owned by the person who owned them in 1975-1980 to calculate equity gained. The 1975-1980 home equity values are adjusted for inflation and expressed in terms of today’s dollars using the consumer price index.
For the analysis of homeownership rates, the data on the number of occupied units (by race) comes from the 1980 decennial census as well as the 2013-2017 5-year American Community Survey, the most recent data that was available at the time of analysis for this report. We used GIS tools to match and aggregate the census tract level data by each redlined category. The homeownership rate represents the percentage of families belonging to a particular racial group that owned versus rented in 1980 and 2017. A homeownership rate refers to the share of homes that are owned by their occupants.
The post The Typical Homeowner in a “Redlined” Neighborhood Has Missed Out on $180,000 Worth of Home Equity appeared first on Redfin Blog.
