The Trouble With Reparations for Redlining

Most people who lived in areas where the FHA refused to insure mortgages were white

By Jason L. Riley. Excerpts:

"Proponents of reparations cite past housing discrimination as a primary driver of today’s racial wealth gap. The National Housing Act of 1934 established the Federal Housing Administration to “facilitate sound home financing on reasonable terms.” Prior to the 1930s, people usually paid cash for homes. When homes were financed, down payments of at least 30% were often required, which few could afford. The new law was intended to guarantee private mortgages and make them more widely accessible.

The effort was remarkably successful, and the effects were almost immediate. “Builders went back to work, and housing starts and sales began to accelerate rapidly in 1936,” wrote historian Kenneth Jackson in a definitive study, “Crabgrass Frontier: The Suburbanization of the United States.” There were 93,000 housing starts in 1933. By 1941 the figure had risen 566%, to 619,000. “By the end of 1972, FHA had helped nearly eleven million families to own houses and another twenty-two million families to improve their properties,” wrote Mr. Jackson. “And in those same years between 1934 and 1972, the percentage of American families living in owner-occupied dwellings rose from 44 percent to 63 percent.”

Officially, the FHA legislation had no discriminatory intent. Nevertheless, the new programs were implemented in ways that led to dramatic racial disparities. In determining which residences to insure, the agency instructed underwriters to consider, among other things, a community’s “economic stability” and its “protection from adverse influences.” This resulted in a practice known as “redlining,” in which banks declared entire neighborhoods ineligible for FHA loans. The upshot, Mr. Jackson pointed out, is that FHA helped to turn the building industry “against the minority and inner-city housing market” and to promote “the income and racial segregation of suburbia.”

Given this history, it’s easy to understand why proponents of reparations are quick to cite redlining as a justification. California’s task force noted the state’s “willing complicity in federal redlining policies” as a “clear case of state-sanctioned housing discrimination.” Sponsors of the New York legislation cited the state’s “history of segregation, housing discrimination and redlining.” Ta-Nehisi Coates’s 2014 article in the Atlantic magazine, which reignited this debate, is titled “The Case for Reparations.” That case is largely based on housing discrimination in the Jim Crow era. “Redlining went beyond FHA-backed loans and spread to the entire mortgage industry,” he wrote, “which was already rife with racism, excluding black people from most legitimate means of obtaining a mortgage.”

Nevertheless, the argument that discriminatory housing policies kept blacks from acquiring more wealth and entitle them to reparations isn’t a particularly strong one. Mr. Coates asserts that government’s housing policies “engineered the wealth gap” that exists today. The historical reality is that notwithstanding the difficulties blacks faced in obtaining mortgages in the postwar period, homeownership among blacks was rising faster than it was among whites. Research by economists William J. Collins and Robert A. Margo shows that between 1940 and 1980, homeownership rates climbed by 37 percentage points for blacks and by 34 points for whites. If homeownership builds wealth, this was a period of extraordinary gains for blacks.

But there is a more fundamental problem with linking reparations to past redlining policies. While a higher percentage of the black population lived in redlined areas, most residents of neighborhoods where the FHA refused to insure mortgages weren’t black, according to a 2021 National Bureau of Economic Research study by Price V. Fishback, Jessica LaVoice, Allison Shertzer and Randall Walsh. “In our sample, over 95 percent of black homeowners lived in the lowest-rated ‘D’ zones,” they found. “Yet, the vast majority (92 percent) of the total redlined home-owning population was white.” If being a victim of redlining is a qualification for reparations, what is the argument for excluding whites?"