Chicago, 1970. When federal policy denied mortgages to African Americans, they had to buy houses on the installment plan, which led to numerous evictions.
ALONG WITH THE real estate industry and state courts, the FHA justified its racial policies—both its appraisal standards and its restrictive covenant recommendations—by claiming that a purchase by an African American in a white neighborhood, or the presence of African Americans in or near such a neighborhood, would cause the value of the white-owned properties to decline. This, in turn, would increase the FHA’s own losses, because white property owners in the neighborhood would be more likely to default on their mortgages. In the three decades during which it administered this policy, however, the agency never provided or obtained evidence to support its claim that integration undermined property values.
The best it could apparently do was a 1939 report by Homer Hoyt, the FHA’s principal housing economist, that set out principles of “sound public and private housing and home financing policy.” Hoyt explained that racial segregation must be an obvious necessity because it was a worldwide phenomenon. His only support for this assertion was an observation that in China enclaves of American missionaries and European colonial officials lived separately from Chinese neighborhoods. On this basis, he concluded that “where members of different races live together . . . racial mixtures tend to have a depressing effect on land values.”
STATISTICAL EVIDENCE contradicted the FHA’s assumption that the presence of African Americans caused the property values of whites to fall. Often racial integration caused property values to increase. With government policy excluding working- and middle-class African Americans from most suburbs, their desire to escape dense urban conditions spurred their demand for single-family or duplex homes on the outskirts of urban ghettos nationwide. Because these middle-class families had few other housing alternatives, they were willing to pay prices far above fair market values. In short, the FHA policy of denying African Americans access to most neighborhoods itself created conditions that prevented property values from falling when African Americans did appear.
In an unusual 1942 decision, the federal appeals court for the District of Columbia refused to uphold a restrictive covenant because the clause undermined its own purpose, which was to protect property values. Enforcement, the court said, would depress property values by excluding African Americans who were willing to pay higher prices than whites. In 1948 an FHA official published a report asserting that “the infiltration of Negro owner-occupants has tended to appreciate property values and neighborhood stability.” A 1952 study of sales in San Francisco compared prices in racially changing neighborhoods with those in a control group of racially stable neighborhoods. Published in the Appraisal Journal, a periodical with which housing practitioners, including FHA officials, would have been familiar, it concluded that “[t]hese results do not show that any deterioration in market prices occurred following changes in the racial pattern.” Indeed, the study confirmed that because African Americans were willing to pay more than whites for similar housing, property values in neighborhoods where African Americans could purchase increased more often than they declined. Ignoring these studies’ conclusions, the FHA continued its racial policy for at least another decade.
IN ONE respect, however, the FHA’s theories about property values could become self-fulfilling. An African American influx could reduce a neighborhood’s home prices as a direct result of FHA policy. The inability of African American families to obtain mortgages for suburban dwellings created opportunities for speculators and real estate agents to collude in blockbusting. Practiced across the country as it had been in East Palo Alto, blockbusting was a scheme in which speculators bought properties in borderline black-white areas; rented or sold them to African American families at above-market prices; persuaded white families residing in these areas that their neighborhoods were turning into African American slums and that values would soon fall precipitously; and then purchased the panicked whites’ homes for less than their worth.
Blockbusters’ tactics included hiring African American women to push carriages with their babies through white neighborhoods, hiring African American men to drive cars with radios blasting through white neighborhoods, paying African American men to accompany agents knocking on doors to see if homes were for sale, or making random telephone calls to residents of white neighborhoods and asking to speak to someone with a stereotypically African American name like “Johnnie Mae.” Speculators also took out real estate advertisements in African American newspapers, even if the featured properties were not for sale. The ads’ purpose was to attract potential African American buyers to walk around white areas that were targeted for blockbusting. In a 1962 Saturday Evening Post article, an agent (using the pseudonym “Norris Vitchek”) claimed to have arranged house burglaries in white communities to scare neighbors into believing that their communities were becoming unsafe.
Real estate firms then sold their newly acquired properties at inflated prices to African Americans, expanding their residential boundaries. Because most black families could not qualify for mortgages under FHA and bank policies, the agents often sold these homes on installment plans, similar to the one Charles Vatterott developed in De Porres, in which no equity accumulated from down or monthly payments. Known as contract sales, these agreements usually provided that ownership would transfer to purchasers after fifteen or twenty years, but if a single monthly payment was late, the speculator could evict the would-be owner, who had accumulated no equity. The inflated sale prices made it all the more likely that payment would not be on time. Owner-speculators could then resell these homes to new contract buyers.
The full cycle went like this: when a neighborhood first integrated, property values increased because of African Americans’ need to pay higher prices for homes than whites. But then property values fell once speculators had panicked enough white homeowners into selling at deep discounts.
Falling sale prices in neighborhoods where blockbusters created white panic was deemed as proof by the FHA that property values would decline if African Americans moved in. But if the agency had not adopted a discriminatory and unconstitutional racial policy, African Americans would have been able, like whites, to locate throughout metropolitan areas rather than attempting to establish presence in only a few blockbusted communities, and speculators would not have been able to prey on white fears that their neighborhoods would soon turn from all white to all black.
THE FHA’s redlining necessitated the contract sale system for black homeowners unable to obtain conventional mortgages, and this created the conditions for neighborhood deterioration. Mark Satter was a Chicago attorney who in the early 1960s represented contract buyers facing eviction; mostly he was unsuccessful. His daughter Beryl, now a professor of history at Rutgers University, described the conditions he encountered in her memoir, Family Properties, and summarized them like this:
Because black contract buyers knew how easily they could lose their homes, they struggled to make their inflated monthly payments. Husbands and wives both worked double shifts. They neglected basic maintenance. They subdivided their apartments, crammed in extra tenants and, when possible, charged their tenants hefty rents. . . . White people observed that their new black neighbors overcrowded and neglected their properties. Overcrowded neighborhoods meant overcrowded schools; in Chicago, officials responded by “double-shifting” the students (half attending in the morning, half in the afternoon). Children were deprived of a full day of schooling and left to fend for themselves in the after-school hours. These conditions helped fuel the rise of gangs, which in turn terrorized shop owners and residents alike.
In the end, whites fled these neighborhoods, not only because of the influx of black families, but also because they were upset about overcrowding, decaying schools and crime. . . . But black contract buyers did not have the option of leaving a declining neighborhood before their properties were paid for in full—if they did, they would lose everything they’d invested in that property to date. Whites could leave—blacks had to stay.
This contract arrangement was widespread not only in Chicago but in Baltimore, Cincinnati, Detroit, Washington, D.C., and probably elsewhere. In Mark Satter’s time, approximately 85 percent of all property purchased by African Americans in Chicago had been sold to them on contract. When the neighborhood where he worked, Lawndale on the city’s West Side, was changing from predominantly white to predominantly black, more than half of the residences had been bought on contract.
In the Lawndale neighborhood of Chicago, community opposition to evictions of contract buyers was so strong that sheriffs were often needed to prevent owners and neighbors from carrying belongings back in.
Although banks and savings and loan associations typically refused to issue mortgages to ordinary homeowners in African American or in integrated neighborhoods, the same institutions issued mortgages to blockbusters in those neighborhoods, all with the approval of federal bank regulators who failed their constitutional responsibilities. State real estate regulators also defaulted on their obligations when they licensed real estate brokers who engaged in blockbusting. Instead, regulators looked the other way when real estate boards expelled brokers who sold to African Americans in stable white neighborhoods.
Blockbusting, the subsequent loss of home values when speculators caused panic, the subsequent deterioration of neighborhood quality when African Americans were forced to pay excessive prices for housing, the resulting identification of African Americans with slum conditions, and the resulting white flight to escape the possibility of those conditions all had their bases in federal government policy. Blockbusting could work only because the FHA made certain that African Americans had few alternative neighborhoods where they could purchase homes at fair market values.