10.12: FHA, Redlining and Urban Renewal

FHA

The Federal Housing Administration (FHA), created in 1934 as part of Franklin D. Roosevelt’s Depression-Era New Deal, was tasked with encouraging banks to make inexpensive loans to people seeking to buy new homes while ensuring that housing was built up to new safety standards. The FHA was part of a grand scheme to stimulate the housing sector of the economy during the Great Depression while extending federal oversight to the home loan industry. The program worked has worked. Overall homeownership was around 40% at the start of the Great Depression and it has been around 70% in recent years. The biggest jump in homeownership came shortly after World War II after the economy recovered and millions of veterans took advantage of the G.I Bill to help them secure a mortgage. However, the criteria upon which the government judged the desirability of insuring mortgage loans incentivized buying a new home in the suburbs, or rehabilitating old ones in the inner city. Faced with the option of buying a cheaper new home in a new suburban neighborhood or staying in the expensive, crowded inner-city, most people moved to the suburbs – if they could. Since many of those who qualified for loans were white and not in poverty, the FHA and related government programs helped increase the residential segregation of minorities by encouraging white flight from the cities. Minorities who were often poor and regularly prohibited from moving to new suburbs by discriminatory deed restrictions, found themselves stuck in the city, where the FHA’s mortgage assistance programs were far less helpful.

1985. Crabgrass Frontier. Oxford U. Press

Redlining

Some argue that FHA policies encouraged several discriminatory mortgage and insurance practices, known as redlining. During the Great Depression, the federal government refinanced more than a million mortgages to stem the tide of foreclosures, but not everyone was eligible for this help. Neighborhoods with poor terrain, loads of old houses, or those with an abundance of “foreign-born, negro or lower grade population” were judged to be too risky for the government to help. Such neighborhoods appeared on mortgage risk maps outlined in red, which is where the term “redlining” evolved. For years afterward, banks, insurance companies, and other financial institutions also mapped out where not to do business. Residents living within the boundaries of a “redlined” neighborhood found it difficult to get loans to buy, sell, repair or improve housing. Even individuals with good credit histories and a middle-class income could find it impossible to buy homes in specific neighborhoods. Some couldn’t get insurance on what they already owned. If they could, the terms of the loan or the insurance rates were higher than those outside the zone, a practice called reverse redlining. Redlining could be a death sentence to neighborhoods because of the destructive effect the practice had on property values. Most of the people suffering from the ill-effects of redlining are people of color. African Americans appear to have been harmed most often. Because family wealth is often built generationally upon property ownership and passed down generationally, redlining has been a factor in the systemic impoverishment of many minority families. Billions of dollars in property equity have been denied to people of color via redlining since the 1930s.

Figure Los Angeles - Government made map of loan desirability from 1933. Consider the lasting effect of this government policy today. Source: Mapping Inequality

Figure Los Angeles, CA - Interactive Map. Click on the image above to open a Google Map of the map on the left. See how government nearly 100 year ago affects neighborhoods today Source: KQED

In 1968, the Fair Housing Act was passed in order to outlaw redlining and other forms of housing discrimination, but additional laws have strengthened that landmark law over the years. Unfortunately, by the 1970s, the damage done by redlining was evident in inner cities across the United States. Many neighborhoods never recovered. Although it’s illegal to discriminate against minorities (or anyone really) for non-economic characteristics, there is ample evidence to suggest it still occurs. Studies continue to show that people of color regularly

Kaplan, David H., and Gail G. Sommers.

"An analysis of the relationship between housing foreclosures, lending practices, and neighborhood ecology: Evidence from a distressed county." The Professional Geographer 61, no. 1 (2009): 101-120.

Urban Renewal

As age and federal policies tore away at the fabric of America’s inner cities, the US government launched an effort known as urban renewal in an attempt to reinvigorate the urban cores of large cities. The Federal Government launched several programs to provide funds to cities to buy up land in degraded parts of the city, to build public housing projects for the displaced, to bulldoze old neighborhoods, and to incentivize investors to rebuild on the vacated land. The idea was partly driven by a mistaken conviction that the visual elements of urban blight, were largely responsible for the problems of inner cities. Legislators believed that because old parts of cities were ugly, demolishing thousands of buildings would create a clean slate upon which new investment would pour in, and new businesses and housing would rise up. The displaced would be housed in new, high-rise housing projects that were clean and efficient. In a few instances, it worked. In some places, new businesses with good-paying jobs replaced abandoned old factories and warehouses. New apartments replaced dilapidated houses. Displaced folks moved to newer, cleaner safer housing elsewhere.

Figure Fargo, ND - These houses, and much of the adjacent neighborhood were demolished in 1959 to make way for urban renewal projects. Most of it became parking lots for businesses or civic buildings.

However, the failures of urban renewal appear to have outnumbered its successes by a wide margin. Frequently, thousands of residents, most of them poor and minority, were displaced from their homes and their neighborhoods only to be herded into overcrowded, poorly built public housing projects. Within a decade, the word “projects” became synonymous with segregation and crime (see the Ethnicity chapter for additional information). Urban redevelopment efforts often turned out to be driven by unscrupulous deals made between land developers and corrupt civic leaders, who funneled millions into projects that were unnecessary, half-completed or doomed to failure. Perhaps worst of all were the numerous cities that found themselves with acre upon acre of empty lots; untaxable wastelands with only sidewalks where neighborhoods once thrived. Some urban renewal neighborhoods were also dissected by new highways or other transportation corridors, effectively rending the social fabric of those communities and cutting off traffic to businesses that remained. Boyle Heights in Los Angeles is a classic example.

In Los Angeles, perhaps the best example of urban renewal gone awry is the Marlton Square redevelopment project. Set within the mostly black Crenshaw District, the neighborhood had gone through a long cycle of decay punctuated by the 1992 Rodney King uprising/riots. Numerous promises of redevelopment came from politicians and a few high-profile sports stars who focused on a massive shopping district just west of Crenshaw Blvd that was once hosted a thriving series of shops and services. Millions of dollars were spent and rumors of corrupt bargains between land developers and local politicians swirled around a series of unsuccessful starts and bankruptcy proceedings. For more than a decade, the property remained empty (Google Streetview – use the timeline tool to see its evolution!). In 2012, the Kaiser foundation, a health care conglomerate, launched a new effort to build something of use to the community on the massive vacant lot. After several decades something is there!

Dan Fitzpatrick.

2000. “The Story of Urban Renewal” Pittsburgh Post Gazette