How Housing Segregation Eroded Black Wealth

ogc163

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Segregated housing markets and the erosion of black wealth: New evidence from pre-war cities

Prottoy A. Akbar, Sijie Li, Allison Shertzer, Randall Walsh 31 August 2019

The Great Migration is associated with increased residential segregation in northern cities, inflating rents and eroding housing values. This column uses new data at the block level to estimate the scale of price changes. Segregation and ghetto expansion meant that much of the gain in earnings for black families who moved north were cancelled out. The effects of this are still felt today.

The Great Migration, when millions of African Americans left the Jim Crow south for northern cities of the US, is a key way in which black American families tried to improve their economic standing in the middle of the 20th century (Boustan 2016). But the Great Migration was also associated with increased residential segregation in northern cities, inflating rents and eroding housing values. This significantly undercut the gain in income for black people who migrated from the South (Akbar et al. 2019).

Known and unknown causes of disadvantage
Moving north was associated with both increased wages and improved occupational standing (Collins and Wanamaker 2014). Yet these earnings gains failed to close the racial wealth gap, which persisted and, in some cases, even worsened. Research has highlighted the role of pervasive discrimination in the labour market and educational system in preventing black families from accumulating wealth at the same rate as white families. Social scientists have also argued that government at all levels supported policies that contributed to residential segregation by race, and depressed black wealth (Rothstein 2017, Aaronson et al. 2017).

There is also consensus that real estate markets and housing policy helped to create the disadvantage faced by black families. But economists know little about the channels through which segregated housing markets eroded black wealth. The lack of empirical work is largely because urban segregation during this era occurred one city block at a time, and so researchers lacked data that linked housing prices and demographic characteristics at the fine level of spatial detail that would have been necessary to explore these changes.

The scale of the transition
We introduced novel data on pre-war American city blocks to overcome these limitations. Using the federal censuses of 1930 and 1940, we were able to match millions of addresses across the decade and construct detailed demographic data at the block level. Importantly, our data contains housing value and rents, allowing us to track the evolution of the price of each home, and its exposure to city-block-level changes in racial composition during the Great Depression. Between 1930 and 1940, the black ghetto expanded significantly.

Using this data, we can provide the first description of residential segregation by race at the block level in pre-war American cities. The share of black families living on transitioning blocks increased sharply over the decade, with nearly 13% of black households in 1940 living on blocks that had been virtually all white in 1930. By 1940, 62% of black families lived on blocks that were virtually all black.

This means transitioning blocks represent a significant share of housing for black families. The price dynamics for these blocks can be used with our new linked sample to estimate the causal impact of racial segregation and white flight on housing prices faced by black households in general.

By using repeated observations of addresses that were occupied by white homeowners at the start of the decade, we found that black families paid a rental premium of roughly 40% relative to white families living in equivalent housing on blocks that did not transition (86% of the black families in our sample were renters). Occupancy soared as well, increasing by about 40%.

The scale of price changes
When black families wanted to buy a house, this also commanded a premium. The first black arrivals on newly transitioning blocks were much more likely to buy their home then to rent it. To induce incumbent white owners to sell, these pioneers typically paid a premium of about 15% relative to the prices paid by white homeowners on similar blocks that did not transition. Once these pioneers had paid an inflated price, home values declined throughout the racial transition process. By the time a block had transitioned to majority-black, on average homes had lost 10% of their pre-transition value.

Figure 1 shows the increase in rents and decline in home values across the range of black share at the block level. The figure shows the effects for homes that were single-family, owner-occupied, and located on a block that was at most 5% black in 1930. We controlled for 1930 occupancy and price at the address level, at block-level for number of households and share of renters, and fixed effects. We also scaled both the overall price and rent effects, relative to a house that remained owned on an all-white block. Price changes are most significant after a block attained majority black status.

Figure 1 Effect of racial transition on house sales and rental prices in northern US cities, 1930 to 1940

shertzer31augfig1.png


Source: Akbar et al. (2019)

The magnitude of price declines varied significantly across cities. Cities that saw the largest inflows of black migrants during this period (Chicago, Philadelphia and Detroit are examples) experienced the largest decline in house prices during transition. In these cities, home values dropped by 50% in the first decade of racial transition.

A model of house-price dynamics
We developed a simple model to explain how racial transition could lead to a divergence in the price of owned and rented accommodation. Given the prevalence of rental units in black neighbourhoods, market prices would necessarily have been driven by the market for homes as assets (rental units), and so we use a no-arbitrage condition to model the relationship between rents and home values consistent from the perspective of an investor (Kearl 1979). We formalise the capitalisation rate as the percentage of a property’s value that must be received as rent each year to make an investor indifferent between holding the asset and receiving rent, and selling the property at its market value.

Figure 1 shows that the capitalisation rate in black blocks reached 17%, much higher than the rate observed in blocks that remained white. This suggests that investors demanded higher rents to compensate for anticipated declines in the price of their properties during the racial transition. Landlords also provided steep discounts to white renters who stayed on these blocks during the process of transition. The presence of these rental discounts for remaining white families is direct evidence of landlord discrimination.

This the first work of which we are aware showing that segregated housing markets led to both elevated rents and declining home values for black households, but this is consistent with the historical record of the period. Real estate historians have argued that the urban colour line moved when the black families who demanded better quality housing outbid whites to purchase homes in neighbourhoods just outside the established ghetto (Mehlhorn 1998, Troesken and Walsh 2019). In response to these new arrivals, and at least in part compelled by concerns about falling home values and the quality of public services, white households fled transitioning areas (Boustan 2010, Shertzer and Walsh 2019, Derenoncourt 2018). This led to an increase in absentee landlords, as many former residents either rented out their home or sold it to a (white) investor.

The impact of segregation on wealth
Segregation and ghetto expansion left African Americans living in declining neighbourhoods and doubly poorer. Much of the gain in occupational standing and earnings for black families who moved north were cancelled out by losses associated with segregated housing markets. This likely fuelled the link between racial transition and lending risk that was noted by both banks and government agencies in the early 20th century. The effects of this are still felt today.

How segregated housing eroded the wealth of black families | VOX, CEPR Policy Portal
 

EndDomination

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I think there's a great article that accompanies this: that got published last year from Duke University (I was surprised that Darrick Hamilton and Sandy Darrity weren't on it):

"The Plunder of Black Wealth In Chicago"
The plunder of black wealth in Chicago, captured in film
In just two short decades — while the post World War II housing boom created the wealth of the white middle class — blacks in Chicago were ripped off to the tune of $4 billion on land sale contracts, a common practice at the time that has been since outlawed but whose damage is still felt.

A recent study from Duke University’s Samuel DuBois Cook Center on Social Equity estimates that “the total amount expropriated from Chicago’s black community due to land sales contracts is between $3.2 and $4 billion in today’s dollars. The study, called “The Plunder of Black Wealth in Chicago: New Findings on the Lasting Toll of Predatory Housing Contracts,” is the first report to put a dollar amount on the practice.

During a time when blacks could not get mortgages because of redlining, buying homes on contract gave the illusion of a mortgage payment without any protection. Simply put, it was often the only way for black families to buy a home in Chicago during the post-World War II boom. This practice followed redlining, which began in the 1930s as a New Deal policy that color-coded neighborhoods based on the perceived risk of insuring home loans there. Neighborhoods with large percentages of non-white residents, particularly African Americans, were colored red, deeming the entire area too risky for lending. Racial prejudice, both individual and as codified by law, led many whites to leave their neighborhoods by the thousands.

As for contract sales, the average price markup for homes sold through contract was around 84%. Typically, homes in Chicago “purchased by a speculator for $12,000 would be resold days or weeks later on contract to a black buyer for $22,000,” the report said. This would often stretch black homeowners so thin that no money was left for maintenance or repairs, and if a black family was late on a single payment, the contract holder would evict them and keep all the equity that had built up. In fact, until the home was paid off in full, the contract holder held the equity, not the black owner.

In today’s dollars, black contract buyers in Chicago ended up paying an average $71,000 more for their home than they would have paid with a conventional mortgage, according to the study. It also pointed out that the home sale contracts were offered by “the very banks that turned down black homebuyers,” and along with the banks, contracts were offered to blacks by “investment syndicates comprised of white Chicago lawyers, doctors, downtown business leaders, and city government officials, all of whom profited handsomely by exploiting a separate and unequal housing market to the profound disadvantage of black families.”

The effects of unequal access to home ownership during the post-war period persist today. Only 39.1%of black households in the Chicago area own their home, compared with 74.1% of white families, according to an analysis the Washington, D.C.-based Urban Institute released last year.

Along with the study, a five-part film series called “The Shame of Chicago” is in the works by Chicago native Bruce Orenstein, who is also the artist in residence at Duke’s Cook Center. In the film series, Orenstein talks to surviving victims about the impact it continues to have on their families, shows who was behind it and how some fought back — at one point by joining together and refusing to pay exorbitant rates. Episode three, the only part that is complete, has been released to the press and additional funding is needed to complete the project. Orenstein plans to include episodes on restrictive covenants and a deeper dive into redlining and wants the series to be shown in schools everywhere.

Recently, The Chicago Reporter talked to Orenstein about the study and his film series.

The study as quoted is here:
https://socialequity.duke.edu/wp-content/uploads/2019/10/Plunder-of-Black-Wealth-in-Chicago.pdf

The estimate is about $9 BILLION was stolen over a relatively short period of time from Black Chicagoans.
 

Sammy Steez

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Knowing this, how do we position ourselves to navigate the housing and real estate market in 2020, onward?
 

88m3

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not to give you a hard time @ogc163 but didn't you share an article within the last few months saying we shouldn't own homes?
 

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Perfect timing for this thread, I just saw a segment on pbsnewshour regarding eviction...
shyt was gut wrenching and cringeworthy to say the least:


-40-60 evictions a day in Richmond, VA
-evictions stay on record for 10 years
-Richmond has a poverty rate of 25%
-VA is a friendly state for Landlords, evictions cost $58, compared to $258 in Alabama.
-Evictions affect single mothers(mainly black) who also fully employed(not paid enough)
-Majority of low income houses spend over 50% of theirn income on rent
-forces poor people to accept unfit homes, that are deterimental to their health, because poor housing violates health codes.
-Being behind on rent is just as bad as being homeless health wise
-housing instablity and living paycheck to paycheck causes anxiety.
 
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ogc163

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Perfect timing for this thread, I just saw a segment on pbsnewshour regarding eviction...
shyt was gut wrenching and cringeworthy to say the least:


-40-60 evictions a day in Richmond, VA
-evictions stay on record for 10 years
-Richmond has a poverty rate of 25%
-VA is a friendly state for Landlords, evictions cost $58, compared to $258 in Alabama.
-Evictions affect single mothers(mainly black) who also fully employed(not paid enough)
-Majority of low income houses spend over 50% of theirn income on rent
-forces poor people to accept unfit homes, that are deterimental to their health, because poor housing violates health codes.
-Being behind on rent is just as bad as being homeless health wise
-housing instablity and living paycheck to paycheck causes anxiety.


The eviction situation is crazy. Dealing with a family situation right now as we speak. Went to the courthouse yesterday, and the amount of red tape and incompetence is crazy. Although tenants can be on some bullshyt, landlords take advantage of poor folks fear of large beauraceacy. And that's the primary reason my family was lucky I was around, because an otherwise moderate problem couched in red tape would have led to panic.
 

Serious

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The eviction situation is crazy. Dealing with a family situation right now as we speak. Went to the courthouse yesterday, and the amount of red tape and incompetence is crazy. Although tenants can be on some bullshyt, landlords take advantage of poor folks fear of large beauraceacy. And that's the primary reason my family was lucky I was around, because an otherwise moderate problem couched in red tape would have led to panic.
:shaq: Did you say government red tape? :mjlit::mjgrin::sas1:

@DEAD7 :sas2:

But yeah it's insane man. The amount of visible evictions in south la is :mindblown:.

Its very dehumanizing. Like people wonder why you have a segment of the black population that just mentally doesnt give a fukk, and are checked out. Between the lack of jobs, shytty wages, crappy infrastructure, failing schools and limited access to upward mobility its no wonder, you see fukked up shyt. Something has to eventually give.
 
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