Question mark icon with text, Redlining.

Even as various individuals, organizations, and initiatives work to reduce the homeownership gap, the facts are still staggering. At the start of 2020, 73.7 percent of white households owned their homes — a vast difference from the 44 percent of Black households, 48.9 percent of Hispanic households, and 55.9 percent of other racial minority households that owned theirs. One reason why the gap exists today is due to the lasting effects of what is referred to as “redlining,” which is just one of several discriminatory lending practices. And while many of these practices are now illegal, the effects have built up over the years and continue to disproportionately affect communities of color.

Homeownership is often an aspirational goal, symbolizing stability, community, and equity for those pursuing it. We believe it should be an empowering milestone to be celebrated. But the fact is that home buying comes with its difficulties, not least of which is the problem of homeownership inequity for communities of color. Understanding what redlining is (among other discriminatory lending practices) can help make sense of the difficulties some people have faced — and still face — in homeownership.

Read on to learn more about what redlining is, how you can help close the homeownership gap, and our commitment to the cause.

What is redlining?

Redlining is the practice of identifying certain neighborhoods or areas as high credit risk — often on the basis of the race of those who live there — and, subsequently, denying loan applications from creditworthy borrowers, simply because they live in those neighborhoods. While the practice was outlawed in 1968, its effects have passed down over the years and continue to build in the form of gaps in wealth and homeownership.

This is not to be confused with reverse redlining, which is exactly what it sounds like — an illegal predatory lending tactic to target minority communities for loans or credit on unfair terms (think higher prices, rates, or fees).

What’s the history behind redlining laws?

Historically, the practice of redlining was often used to deny minority customers loans and housing opportunities. It kept those in low income neighborhoods — often people of color — from gaining property (a form of wealth), which limited upward mobility. It also kept those neighborhoods from developing economically through denial of loans to potential business owners in the area.

So, how did it start? In the 1930s, the Home Owners’ Loan Corporation drew up a series of maps of American cities, classifying neighborhoods based on criteria such as residents’ ethnicity, race, economic class, and employment status. Lenders used this information as an indication of credit risk and would block off (or redline) “high risk” neighborhoods, essentially denying investment or loans within those areas. This actively kept residents from economic and homeownership opportunities — and further segregated white communities and communities of color.

Despite the homeownership boom in the 1950s and 1960s, which sent homeownership rates in the U.S. from 30 to 60 percent, 98 percent of the loans approved by the federal government between 1934 and 1968 went to white applicants.

Those 34 years occurred during a period of historic economic growth in the U.S. — and homeownership was denied to many people of color for all of that time.

But redlining is illegal now. How does it affect people today?

Since redlined areas were overtly denied opportunities to develop, it left those neighborhoods and residents falling behind other neighborhoods, where businesses, schools, and housing (including property prices) grew. Even though redlining as a practice has been illegal since the passing of the Fair Housing Act in 1968, the build-up of suppressed growth has made it so communities of color still feel the effects today. According to a study by the National Community Reinvestment Coalition, 74 percent of the neighborhoods that were redlined in the 1930s are low-to-moderate income neighborhoods today, and 64 percent are also majority minority neighborhoods.

Meanwhile, the Black and white homeownership gap remains as wide as it was at the start of the 20th century. Discriminatory practices, like redlining, blockbusting, and predatory lending, led to a lower rate of appreciation for real estate in redlined neighborhoods, which paved the way to an increased wealth gap between Black and white families. A Redfin study found that, over the last 40 years, a typical homeowner in a previously redlined neighborhood has gained 52 percent less in property value increase than a typical homeowner in a neighborhood that was not historically redlined.

There are also racial disparities in housing appreciation across home mortgage borrowers of all income levels — but especially among Black borrowers whose homes are still frequently undervalued.

Let’s Act: How can you help close the homeownership gap?

You might be wondering what you can do to help close this homeownership gap. Many organizations work to create more housing opportunities for people of color as well as low-income communities. Find out which organizations are working within your local community and see how you can get involved.

Volunteer

See if Habitat for Humanity has a local chapter near you — they offer many volunteer opportunities, including ones that get you (literally) building affordable homes for local families. We at Ally are teaming up with our local Habitat for Humanity chapters across the nation to create affordable homeownership programs and COVID-19 mortgage relief funds.

Donate

We made a $3 million commitment last year to the Local Initiatives Support Corporation (LISC) to help fuel homeownership primarily in underserved Black communities in our major operations centers. Consider donating, as you can, to support organizations that are fighting homeownership inequity.

Learn and Lead

You can also do more of what you’re doing right now — educating yourself. Actively seek more information about the history behind the homeownership gap and other issues of racial inequity, and share what you learn with friends, family, and colleagues. We’ll be doing more learning and sharing on our end, too, as we pursue a more equitable future for our communities.

Our Commitment

To do our part to help close the homeownership gap, we’re concentrating on a combination of making donations to organizations that help fuel homeownership in underserved communities, sharing knowledge with articles like this one, and continuing our own education by doing research and listening to others’ stories.

Learn more about Ally’s social impact efforts.