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Residential segregation and redlining

Summary:
In a recent post, the FRED Blog described how the Home Owners’ Loan Corporation (HOLC) created color-coded maps of 239 cities across the U.S. to indicate the riskiness associated with making mortgage loans in each neighborhood. This practice, adopted between 1935 and 1940, informed the supervisory work of the Federal Home Loan Bank Board over the lenders. Let’s recap the color codes for those maps: Grade A: “Best” (shaded green), where properties were expected to increase or maintain a high appraised value, posing the lowest default risk for mortgage lenders. Grade B: “Still desirable” (shaded blue), where properties were expected to maintain their appraised value, posing an acceptable risk of default for mortgage lenders. Grade C: “Declining” (shaded yellow), where properties were

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In a recent post, the FRED Blog described how the Home Owners’ Loan Corporation (HOLC) created color-coded maps of 239 cities across the U.S. to indicate the riskiness associated with making mortgage loans in each neighborhood. This practice, adopted between 1935 and 1940, informed the supervisory work of the Federal Home Loan Bank Board over the lenders. Let’s recap the color codes for those maps:

  • Grade A: “Best” (shaded green), where properties were expected to increase or maintain a high appraised value, posing the lowest default risk for mortgage lenders.
  • Grade B: “Still desirable” (shaded blue), where properties were expected to maintain their appraised value, posing an acceptable risk of default for mortgage lenders.
  • Grade C: “Declining” (shaded yellow), where properties were expected to lose their appraised value, posing a high risk of default for mortgage lenders.
  • Grade D: “Hazardous” (shaded red), where properties were old or nearby unattractive or unhealthy industrial areas, therefore having minimal value and posing a dangerous risk of default for mortgage lenders.

The term redlining is derived from the red color used for residential neighborhoods of minimal value, where the housing stock was old or decrepit or nearby unattractive or unhealthy industrial areas. But redlining also alludes to discriminatory practices in residential lending.

Research by Chicago Fed economists Daniel Aaronson, Daniel Hartley, and Bhashkar Mazumder found that the largest concentrations of African Americans were in the lowest-graded areas and that very few resided in neighborhoods where real estate values were either stable or growing. The FRED graph displays each neighborhood’s percentage of African Americans: In 1960, for example, African Americans made up about 4% of the bluelined and greenlined neighborhoods combined, whereas they made up about 40% of the redlined neighborhoods alone.

In the 1970s, a new set of federal policies aimed at preventing discriminatory housing and financial practices partially reversed those patterns, which can also be seen in this FRED graph: In the 30 years after enactment of the new federal housing and lending policies, the African American population has become more evenly distributed across all HOLC-graded neighborhoods. Nevertheless, the decades of limited access to affordable credit and good-quality real estate have had long-lasting effects. As of 2020, data from the U.S. Bureau of Labor Statistics show African Americans have the lowest homeownership rates of all racial and ethnic groups in the United States.

How this graph was created: From FRED’s main page, browse data by “Release,” search for “The Effects of the 1930s HOLC ‘Redlining’ Maps,” and select “Summary Statistics.” Under “Panel A. Share of African Americans” check the box to the left of each of the four HOLC neighborhood categories. Next, click on the “Add to Graph” button. Lastly, from the “Edit Graph” panel, select the “Format” tab to match the color of each line to their HOLC designation and to turn off the “Recession shading.”

Suggested by Diego Mendez-Carbajo.

About FRED Blog
FRED Blog
The Federal Reserve Bank of St. Louis is the center of the Eighth District of the Federal Reserve System. This District includes Arkansas, eastern Missouri, southern Illinois and Indiana, western Kentucky and Tennessee, and northern Mississippi.

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