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Residential segregation and redlining

In a recent post, the FRED Blog described how the Home Owners’ Loan Corporation (HOLC) created color-coded maps of 239 cities across the U.S. to indicate the riskiness associated with making mortgage loans in each neighborhood. This practice, adopted between 1935 and 1940, informed the supervisory work of the Federal Home Loan Bank Board over the lenders. Let’s recap the color codes for those maps:

  • Grade A: “Best” (shaded green), where properties were expected to increase or maintain a high appraised value, posing the lowest default risk for mortgage lenders.
  • Grade B: “Still desirable” (shaded blue), where properties were expected to maintain their appraised value, posing an acceptable risk of default for mortgage lenders.
  • Grade C: “Declining” (shaded yellow), where properties were expected to lose their appraised value, posing a high risk of default for mortgage lenders.
  • Grade D: “Hazardous” (shaded red), where properties were old or nearby unattractive or unhealthy industrial areas, therefore having minimal value and posing a dangerous risk of default for mortgage lenders.

The term redlining is derived from the red color used for residential neighborhoods of minimal value, where the housing stock was old or decrepit or nearby unattractive or unhealthy industrial areas. But redlining also alludes to discriminatory practices in residential lending.

Research by Chicago Fed economists Daniel Aaronson, Daniel Hartley, and Bhashkar Mazumder found that the largest concentrations of African Americans were in the lowest-graded areas and that very few resided in neighborhoods where real estate values were either stable or growing. The FRED graph displays each neighborhood’s percentage of African Americans: In 1960, for example, African Americans made up about 4% of the bluelined and greenlined neighborhoods combined, whereas they made up about 40% of the redlined neighborhoods alone.

In the 1970s, a new set of federal policies aimed at preventing discriminatory housing and financial practices partially reversed those patterns, which can also be seen in this FRED graph: In the 30 years after enactment of the new federal housing and lending policies, the African American population has become more evenly distributed across all HOLC-graded neighborhoods. Nevertheless, the decades of limited access to affordable credit and good-quality real estate have had long-lasting effects. As of 2020, data from the U.S. Bureau of Labor Statistics show African Americans have the lowest homeownership rates of all racial and ethnic groups in the United States.

How this graph was created: From FRED’s main page, browse data by “Release,” search for “The Effects of the 1930s HOLC ‘Redlining’ Maps,” and select “Summary Statistics.” Under “Panel A. Share of African Americans” check the box to the left of each of the four HOLC neighborhood categories. Next, click on the “Add to Graph” button. Lastly, from the “Edit Graph” panel, select the “Format” tab to match the color of each line to their HOLC designation and to turn off the “Recession shading.”

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: RLMSHAAHOLCNA, RLMSHAAHOLCNB, RLMSHAAHOLCNC, RLMSHAAHOLCND

Residential redlining of U.S. neighborhoods

The FRED graph above shows home values for four classifications of neighborhoods from 1930 to 2010. The lowest values (and highest levels of risk) are shown by the red line, which was an intentional choice: Red is the color used in 1930s city maps to mark the residential neighborhoods where lenders deemed they were most likely to lose money when making mortgage loans. And that color gave rise to the term “redlining.”

After the Great Depression (1929-1933), the federal government tasked the Home Owners’ Loan Corporation (HOLC), among several other agencies, with overseeing the work of residential lenders. The HOLC designed a set of rules to appraise the value of properties, and these appraisals took into consideration local housing market conditions as well as the demographic and economic characteristics of the neighborhoods.

Between 1935 and 1940, the HOLC used those rules to draw maps of 239 cities across the U.S. In each city, neighborhoods were graded and city maps were shaded:

  • Grade A: “Best” (shaded green), where properties were expected to increase or maintain a high appraised value. This grade represented the lowest default risk for mortgage lenders.
  • Grade B: “Still desirable” (shaded blue), where properties were expected to maintain their appraised value. This grade represented an acceptable risk of default for mortgage lenders.
  • Grade C: “Declining” (shaded yellow), where properties were expected to lose their appraised value. This grade represented a high risk of default for mortgage lenders.
  • Grade D: “Hazardous” (shaded red), where properties were old or nearby unattractive or unhealthy industrial areas, therefore having minimal value. This grade represented a dangerous risk of default for mortgage lenders.

To learn more about this topic, see this Page One Economics essay.

FRED has added 20 data series from the working paper “The Effects of the 1930s HOLC ‘Redlining’ Maps” by Daniel Aaronson, Daniel Hartley, and Bhashkar Mazumder. Those economists matched U.S. Census data collected between 1930 and 2010 to the available geocoded HOLC maps of 149 cities.

The data in the graph are the inflation-adjusted median home values in each neighborhood: “Median value” means that, in that neighborhood, half of the houses are priced above that value and half are priced below that value. In other words, median value is the typical home value.

The lasting impact of the HOLC maps on home values is visible in the layering of the data series: Up until 1990, redlined neighborhoods consistently recorded the lowest home values. In the following decades, gentrification closed the value gap with traditionally more attractive neighborhoods.

Stay tuned to the FRED Blog, as we’ll discuss other data series in the Aaronson, Hartley, and Mazumder paper that relate the HOLC mortgage-lending maps to the practice of racial segregation in housing.

How this graph was created: From FRED’s main page, browse data by “Release.” Search for “The Effects of the 1930s HOLC ‘Redlining’ Maps.” Select “Summary Statistics” and under “Panel C. Home Values” check the box to the left of each of the four HOLC neighborhood categories. Next, click on the “Add to Graph” button. Lastly, from the “Edit Graph” panel, select the “Format” tab to match the color of each line to their HOLC designation and to turn off the “Recession shading.”

Suggested by Diego Mendez-Carbajo.



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