Persistence of Prejudice: Estimating the Long Term Effects of Redlining

Abstract

As part of a New Deal initiative to minimize home foreclosure, federal government officials and local real estate professionals graded each neighborhood in America's largest cities on its perceived credit risk. Using recently digitized maps that precisely show neighborhoods marked with red ink (highest risk) or yellow ink (slightly lower risk), I document that surveyors disproportionately assigned the most restrictive credit rating to neighborhoods with black residents. Nearly 90 percent of African Americans in 1940 lived in a census tract marked for credit redlining. Comparing credit-restricted "redlined" census tracts to adjacent "yellow-lined" tracts, I estimate the long-run effects of redlining on housing and neighborhood outcomes. Between 1940 and 1970, redlining was associated with large differential declines in housing supply and population density; homeownership rates and racial composition did not change differentially from their 1940 baseline though. Once discriminatory lending was outlawed during the mid-1970s, there was moderate convergence in homeownership rates and racial composition. However, housing supply and population density remain persistently lower in formerly credit-restricted census tracts relative to their credit-favored neighbors.

Residential housing segregation and urban tree canopy in 37 US Cities

“…The link between redlining and socioeconomic outcomes such as poverty and home foreclosure has previously been documented 3,29,33,[44][45][46][48][49][50]60 . The lack of access to wealth via homeownership had a powerful influence on real estate markets.…”

The Effects of the 1930s HOLC “Redlining” Maps

“…A 0.5 percentage point increase explains 8 to 16 percent of the change in vacancy rates in our buffer zones between 1940 and 1990. 48 Further corroborative support of housing disinvestment is in Krimmel (2017), who finds a 20 percent relative reduction in housing units between 1940 and 1970 on the D-graded side of HOLC borders compared to the C-graded side. Finally, the 1960 Census asked directly about housing quality.…”

“…They use a border-based regression discontinuity approach on a smaller set of cities, making stronger assumptions on the exogeneity of the borders than we do. 19 Similarly, Krimmel (2017) uses a difference-in-difference approach along borders and finds an effect of redlining on housing supply and population density between 1940 and 1970. Anders (2019) uses the same 40,000 population cutoff design as ours and finds that cities with redlining maps experienced higher rates 16 See Jackson (1980) and Light (2010) for discussions of how FHA risk maps and underwriter instructions were created.…”

COVID-19, Race, and Redlining

“…Our second contribution is to research on the long-term influence of redlining policies, which have been the object of investigation not only within the field of economics but also within medicine, history, and law. Zenou and Boccard (2000), Appel and Nickerson (2016), Krimmel (2018), Aaronson et al (2017), Mitchell and Franco (2018), and Anders (2019) respectively look at the effects on unemployment, home prices, homeownership, racial segregation, inequality, and crime. Krieger et al (2020a, 2020b) and Nardone et al (2020) respectively associate historical redlining with higher risk of cancer, preterm birth, and asthma, suggesting that this discriminatory practice might be contributing to racial and ethnic disparities.…”

“…Indeed those blocks were characterized by houses lacking basic amenities such as access to water and heating (Greer, 2014). Krimmel (2018) estimates that, by 1940, 98 percent of the relatively small share of blacks living in the city, about 8 percent, were redlined.…”