There is a long history of housing market discrimination in the US. Courts have found and continue to find different forms of discrimination occurring in the sale, rental, and financing of real estate that prevents equitable access to affordable housing. Part of the problem is the aftermath of the historical redlining in real estate, one of the earliest forms of housing discrimination that took place in the US after slavery was abolished.
Read on to learn more about redlining in real estate and the prevalent forms of real estate discrimination in the US today.
What Is Redlining in Real Estate?
Redlining is when a government agency or a private company denies a particular group of people services either directly or by placing strict criteria that disadvantage them. Redlining in real estate is often used to describe discrimination in mortgage lending based on demographics. It is a practice where mortgage companies deny or offer less favorable mortgages to people in particular neighborhoods.
The term “redlining” was historically used to define a practice where mortgage companies avoided neighborhoods that were deemed of high risk, typically because they had large minority populations (predominantly African American and Latino). These neighborhoods were outlined on paper maps in red and were prohibited from receiving federally backed mortgages. Consequently, many creditworthy borrowers were denied loans based on their race and location. According to scholars, redlining in real estate is one factor that contributed to the existing gap in wealth between white people and minority populations in the US.
A federal law was enacted in 1968 to address redlining in real estate and improve the housing conditions of low-income Americans. Prior to the Federal Fair Housing Act of 1968, there were no specific laws to protect minority populations from housing market discrimination.
The Fair Housing Act
As part of the Civil Rights Act of 1968, the Fair Housing Act prohibits discrimination in the financing, purchase, sale, or rental of housing based on race, skin color, national origin, religion, handicap, sex, or marital status. It is unlawful to favor or discriminate against buyers, renters, or borrowers because they long to any of these protected groups. Recently, the Department of Housing and Urban Development outlawed discrimination based on sexual orientation and gender identity under the Fair Housing Act.
While the Fair Housing Act has helped to mitigate the damaging effects of redlining in real estate and other discriminatory practices on minority populations, it’s far from exhaustive. There are some property types that aren’t covered by the federal housing laws. These include:
- Single-family homes sold or rented without a broker or advertisement
- Owner-occupied buildings with 4 or fewer rental units
- Houses operated by organizations that limit occupancy to members only
Does Real Estate Discrimination Still Happen in 2021?
While redlining in real estate is legally behind us, its effects are longstanding. Even after decades of it being outlawed, its scars are still visible today. Historically redlined neighborhoods continue to be seen as risky even today and are segregated. Basically, the housing industry has been build on a faulty foundation. And since the current home appraisal processes largely involve looking at past real estate value trends, the situation is made even worse. This has led to wealth, health, and educational disparities.
It’s evident that legislation alone is not enough to reverse the effects of historical redlining in real estate. Mortgage lenders would have to stop the current risk-based pricing of loans and adopt another system that doesn’t rely so much on historical real estate trends.
Despite the legal protections under the Fair Housing Act, studies have shown that various forms of housing market discrimination still exist. While you won’t see lenders with maps demarcated in red lines today, redlining in real estate can be seen in a different form. It is referred to as reverse redlining. Reverse redlining occurs when lenders charge higher interest rates, charge more fees, or offer less favorable terms for mortgages in certain neighborhoods.
Steering is another form of discrimination that can be seen in the housing market today. This is when real estate agents or lenders guide home buyers or loan applicants toward or away from certain neighborhoods or loan types based on their identity as members of a particular protected class. For instance, an agent may advise some people to buy property in one area, discourage other people from buying in a particular area, or fail to tell third people about some listings. Steering practices violate the Fair Housing Act as they promote segregated housing. However, they can prove challenging to identify.
Apart from property sellers, lenders, and real estate agents, landlords and property managers are also perpetrators of real estate discrimination. It’s illegal for a landlord and a property manager to refuse to rent out to any person because he/she is member of a protected class.
The Bottom Line
There has been systemic discrimination in the housing industry in the past that has left minority populations without the opportunity to own or rent a property. We are now in 2021, but these problems seem far from over. While federal laws now prohibit housing discrimination, it still remains a serious problem in the US.
However, you should always remember that discrimination in the housing market is illegal. If you are in the housing industry, it’s important that you familiarize yourself with the basic laws regarding real estate discrimination. Landlords, realtors, brokers, property managers, lenders, and anyone in the housing industry must be careful to practice ethically and legally to avoid legal issues. You should not conduct your business in ways that discriminate against individuals in protected groups. On the other hand, if you feel that your rights under the Fair Housing Act have been violated, you should consider filing a complaint with the HUD.
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