How Has Redlining Historically Impacted Real Estate Investing in Different Cities? – Motley Fool

Redlining was the vehicle the federal government used, under Federal Housing Administration (FHA) rules, to deny mortgage loans to people, usually those of color. The term “redlining” comes from the practice of literally outlining in red pen on a map the areas with a largely Black population. The redlined areas served as a warning to mortgage lenders of perceived riskier loans, based not on creditworthiness but on race.

History of redlining

Redlining went on from the 1930s until 1968, when it ended with the passage of the Fair Housing Act, which makes it illegal to practice housing discrimination based on race. The effect of redlining was to segregate white and Black people, with white people largely living in subdivisions with detached homes and Black people mainly living in urban housing projects or in rental units bought by investors who rented to Black families unable to get mortgage loans.

A growing disparity

The aftermath of redlining is still felt today. Because a home is most people’s first investment and the vehicle people most often use to gain wealth, people who are denied mortgage loans are effectively prohibited from homeownership and therefore do not gain home equity appreciation or the corresponding wealth.

When redlining became illegal in 1968 and Black people could theoretically get mortgage loans, homes in many cities appreciated to the point of being unaffordable for working-class families. In other words, while working-class white people were allowed to take out a mortgage when homes were cheap in the 1940s
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