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How Blockbusting and Real Estate Profiteers Cash In on Racial Tension

How Blockbusting and Real Estate Profiteers Cash In on Racial Tension

Scholars of housing segregation have described blockbusting as a tool of racial capitalism. Here’s what we can learn from the practice—and how to fight back.

As the most unpopular president in American history stokes suburban racism in an effort to gain a foothold for a failing reelection campaign, it’s worth revisiting another characteristic tool in the annals of what scholars of housing segregation have described as racial capitalism.

A predatory real estate practice, blockbusting leverages racial prejudice to drive white homeowners out of their neighborhoods and coerce them into selling their properties at low prices. Real estate agents and speculators situated a Black household on a block, then capitalized on expectations of declining home values, flipping the vacating homes to Black families to turn a quick profit. Within a short period, a neighborhood’s demographics would change, and the manufactured white flight depreciated prices further in a self-fulfilling prophecy. 

Congress outlawed blockbusting as a part of the 1968 Fair Housing Act, but provided little enforcement. Real estate agents and banks continued to maintain—or to systematically break, when they saw an opportunity for profit—the neighborhood color lines. Racial steering was disguised by coded terms for projected risk like “inner city,” “urban,” and later, “subprime,” cementing the underfunding of public schools and wealth stratification.

Other sinister real estate tactics soon followed: Once the Federal Housing Authority was mandated to provide low-interest loans to Black homebuyers, guaranteed compensation for mortgage defaults led to innovative forms of exploitation. Speculators began chasing Black buyers; and because the number of properties available to African Americans was even lower than the generally short supply of housing, the industry had a captive market. It artificially inflated home values and sold properties that were beyond the means of buyers who had few other options.

The companies made money on the initial sales, and when the owners inevitably defaulted, they could retrieve mortgage insurance payments—then flip the house to another buyer, starting a new cycle. In the worst-case scenarios, the buildings suffered from serious deterioration. In other cases, the companies systematically defrauded would-be buyers with confusing land option contracts—wherein they pay a premium for the option to purchase real estate for a fixed price after a holding period—and binding them to perpetual rent payments in lieu of paying down the principal on a mortgage.

Keeanga-Yamahtta Taylor, author of Race for Profit: How Banks and the Real Estate Industry Undermined Black Homeownership, uses the term “predatory inclusion” to describe how African American homebuyers gained access to mortgages only on “more expensive and comparatively unequal terms” with poor conditions caused by “years of public and private institutional neglect” used as justification. “When ended, these conditions of poverty and distress became excuses for granting entry into the conventional market on different and more expensive terms, in comparison with the terms offered to suburban residents,” Taylor writes. “The result was the continuation of older predatory practices in combination with the invention of wholly new means of economic exploitation of African Americans in the U.S. housing market.” 

However, some scholars argue that blockbusting was a comparative net gain for Black households. Within tightly restricted housing markets that drove up the costs of shelter, it made more—and better-quality—housing available. From 1940 to 1980, African American homeownership increased by 27% in the U.S., though it still lags far behind that rate of white homeownership at 43% versus 70%. These homes did grow in value over time and allowed families to build generational wealth despite a relative devaluation in Black neighborhoods and unscrupulous practices by speculators. 

Though blockbusting remains illegal, racial segregation and predatory lending practices still plague our most vulnerable communities. In the 2000s, with interest rates near zero and property values rising, creating the U.S. housing bubble, banks began offering adjustable-rate second mortgages so homeowners could cash in on the increase in home values. Then, the banks resold those subprime mortgages to hedge funds as high-risk securities, the speculators betting on the expectation that the loans would default. When the market crashed in 2008, the federal government bailed out the banks. Bankers gambling against the homeowners walked away with billions in profits while millions lost their homes. Black neighborhoods were left with foreclosed, deteriorating properties, and vacant lots where there had once been thriving communities. 

The extent to which Black homeowners benefit from recent demographic changes—namely, the attraction of white buyers to historically African American neighborhoods—remains a source of debate among researchers and activists. In inflationary real estate markets like New York City, where late 19th-century brownstones have drawn white homeowners to neighborhoods like Park Slope, Bushwick, Bed-Stuy, Fort Greene, and South Harlem settled by African Americans during the era of white flight, prices can easily top one million dollars for an unrenovated two- or three-family home with well-preserved details. It can quickly rise to double or triple that price for a high-end conversion by design-savvy African American owners—or more likely, speculative white real estate investors—with access to capital, the fortitude to deal with contractors, and willingness to empty out existing tenants to appeal to upper-middle-class buyers.

East Bay Permanent Real Estate Cooperative purchased a multifamily building in Oakland last year to protect its tenants from displacement.

Courtesy of East Bay Permanent Real Estate Cooperative

See the full story on Dwell.com: How Blockbusting and Real Estate Profiteers Cash In on Racial Tension

This content was originally published here.

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