Redlining, Discrimination, and Fair Housing Laws
Redlining is one of the discriminatory practices, such as steering and blockbusting that arose in real estate and finance. These practices where conducted prejudicially against classes of people based on their race and/or area where they resided or wished to reside. To address the problem, fair housing laws where enacted to outlaw these discriminatory practices.
What is Redlining?
In the real estate and finance industry, redlining refers to the practice of financial institutions defining specific neighborhoods or areas on a map as less desirable to lend to. As a result, financial institutions would refuse to lend to people who wanted to purchase homes in these areas.
The practice of redlining in the United States goes back to the early twentieth century. Areas would be outlined by lenders with a red line, or designated in red, that were considered to be areas of higher risk. These areas were effectively red flagged as areas not to lend to.
The practice of redlining also effectively applies to insurance companies that would not insure properties in these designated areas since insurance can be a requirement of obtaining a loan.
Why Is Redlining Discriminatory?
The problem of redlining was people in these areas were discriminated against based on the economic or racial composition of the area they wanted to buy a home in, not their ability to objectively qualify for a loan. The practice was inherently discriminatory. These “redlined” areas where often composed of a minority group or considered blighted.
People would not be able to get a loan for a home they wanted, even if they were able to qualify financially under the same terms in another area. Furthermore, the lack of available financing would further suppress the housing market in these areas since the availability of financing is a major driver of real estate values.
How Was The Problem of Redlining Resolved?
To put an end to redlining, it had to be outlawed. Fair housing laws where enacted to outlaw the discriminatory practice to prohibit financial institutions from refusing to lend based on a designated geographic area alone. There must be a valid business reason to refuse lending.
Fair housing laws prohibited financial institutions from discriminating against loan applicants base on race, color, religion or ancestry. In California, the Housing Financial Discrimination Act, also known as the Holden Act is an example of such a law that prohibits discriminatory lending, including discriminatory lending practices based on geographic area such as redlining.