Land & Racial Injustice – Part 3: Homeownership: White Subsidy, Black Exclusion (1910 to 1970)

This is the third piece in an ongoing series that examines the role that control of land has played in racial injustice throughout Black history in the United States:

Part 1: Slaveholders and Land Monopoly (1619 to 1865)
Part 2: 40 Acres and a Ghoul (1865 to 1910)
Part 3: Black Exclusion, White Subsidy (1910 to 1970) 👈 (you are here)
Part 4: The Invisible Hand of the Housing Market (1970 to Today)
Part 5: Reaping What Was Sowed

---

In this article we explore the period of urban and suburbanization during the early 20th Century and trace the historical roots of racial disparities in both homeownership rates and home values. We explain how New Deal public policies subsidized White homeownership even while redlining and discrimination systematically denied Black families the same privileges. Blacks were segregated out of White suburbs by use of racial covenants, exclusionary zoning, white flight and outright violence. Last, we discuss how public funds further subsidized suburban land values, all while neglecting and devaluing Black neighborhoods. This period built the foundation for today’s enduring racial wealth gap. As we conclude, the American Dream of wealth built through homeownership has always been a mirage for Black families.

White Picket Fences & Red Lines
At the dawn of the 20th Century, the Great Migration saw millions of Black families flee the South in pursuit of the economic opportunities offered by the burgeoning industrial cities in the North and West. But if they hoped to find a progressive society where they might be able to become homeowners and retain all the fruits of their own labors, they were to be sorely disappointed yet again.

Seeking to build a “homeownership society,” the US government was eagerly getting to work helping White families into their own homes. Under the New Deal, the Home Owners’ Loan Corporation (HOLC) set about refinancing underwater mortgages at below-market (subsidized) interest rates, and the Public Works Administration started building segregated housing projects. The Federal Housing Administration (FHA) began to insure home loans, eventually leading to the low-down-payment, 30-year fixed-rate mortgage. After WWII, the GI Bill handed-out $95 billion worth of low interest mortgages with zero downpayment. Described as “affirmative action for whites” by Ira Katznelson, these policies helped make homeownership widespread among White households. 



Meanwhile, Blacks were intentionally and systematically excluded from these programs. The FHA published underwriting guidelines which explicitly sought racial segregation and was happy to subsidize housing developments only under the condition that they be covered by deeds which prohibited sale to Black residents. Fewer than 2% of all FHA-insured loan funds were allocated to Black Americans between 1945 and 1959. HOLC surveyors ‘redlined’ Black neighborhoods, labeling them as too risky to insure due to the presence of “undesirable populations”, effectively “excluding black people from most legitimate means of obtaining a mortgage.” Discrimination by Veterans Administration offices and banks functionally precluded Blacks from accessing funds from the GI Bill. Black homeownership rates increased from 23% in 1940 to only 38% by 1960, meanwhile White homeownership rates rose from 46% to 64%. A society with widespread homeownership was being gifted to White America, even as Blacks were systematically excluded from the same privilege.

Even where Black families did make the leap into homeownership, what little wealth they had was maximally extracted in the process. Desperate, Blacks trying to buy in a White neighborhood had to pay a premium of roughly 28% relative to what Whites were paying on the same block. They were targeted by predatory land installment contracts whereby the prior owner would retain title and cancel the contract if a single payment was missed. One estimate suggests that up to 75% of homes sold to Blacks in Chicago were sold this way. 

Separate and Unequal

Blacks and Whites were rapidly funneled into separate neighborhoods. After the Supreme Court ruled in 1926 that private owners could legally engage in explicit racial discrimination, racial covenants proliferated in the lily-white suburbs, effectively banning homeowners from selling or renting to Black families. The HOLC rewarded these racially-restrictive covenants, often refusing to insure mortgages unless such a covenant was in place. The nation’s prototypical suburb, Levittown, whose president once told Congress that “we are 100 percent dependent on Government”, grew to a population of 70,000 by 1953 but with zero Black residents. Homeowner associations (HOAs) were further used in White suburbs to block Black entrants. If they failed, they were backed by racial violence, such as the three nights of rioting after a few Black veterans moved into the suburb of Fernwood in Chicago.

Exclusionary zoning emerged as a weapon of racial segregation, with White neighborhoods being down-zoned to effectively ban the types of dense, multi-family housing that would have been within reach of Black families. The evidence is clear that zoning rapidly segregated American cities in ways which persist today; over half of the differences in levels of segregation between Houston & Boston can be explained by zoning. As explained by Nolan Gray in Arbitrary Lines: “Since zoning first took root in the early twentieth century, it has invariably been used to enforce and perpetuate a uniquely American form of apartheid, shrouded in a fog of planning jargon and obtuse code.”

Racial prejudice meant that Whites would rapidly flee neighborhoods when racial minorities grew to exceed 15% of the population, and home values would decline by 10% as a block transitioned to become majority Black. In summary: “Because of the segregated housing market, Black families faced dual barriers to wealth accumulation: they paid more in rent for similar housing while the homes they were able to purchase rapidly declined in value.”

Subsidized Suburbia

Having been forcibly clustered into urban communities and cut-off from access to credit, Black neighborhoods subsequently suffered disinvestment. Public housing projects exacerbated the problem by concentrating poverty, resulting in self-reinforcing cycles of deprivation and what Massey & Denton (1993) describe as ‘American Apartheid’. Consequently, even where Black households did manage to become homeowners, they enjoyed slower house price appreciation, hindering their ability to accumulate wealth.

By contrast, White homeowners had their property values subsidized by public spending. Investment in the highway system boosted suburban land values by connecting them to employment hubs, often smashing through Black neighborhoods in the process. Likewise, suburbs were protected from polluting industries, which were pushed into Black neighborhoods instead, destroying both property values and quality of life.

Fair Housing?
All of these policy choices combined to handhold White households into homeownership and subsidize their land values upwards. Conversely, Black families were systematically excluded from homeownership, burdened by rent payments and segregated into deprived locations. Even as the Civil Rights movement reached its zenith in 1968, the damage had already been done: “suburban housing that whites bought with government mortgage insurance and loan guarantees appreciated substantially before the Fair Housing Act of 1968, accounting for large parts of the racial wealth gap.” Over the course of the past century, suburban land ownership served as a golden ticket into both the middle class and a secure retirement. Without equal access to homeownership, the American Dream was, for Black families, a mirage.