The Housing Market is Booming but Remains Deeply Unequal
The current housing market features plenty of prospective buyers but few sellers, and is likely to make housing inequality and the racial wealth gap much worse. Politicians are beginning to grapple with this problem. President Biden came to office on a pledge to make racial equity central to his Build Back Better agenda, and Sen. Elizabeth Warren (D-Mass.) even featured corrections to redlining in her presidential campaign. Congress has also begun to address legacies of redlining and discussions of how to best mitigate their damage, and federal action around housing equity is increasingly vigorous.
Yet there is another, far less-discussed, but no less important tool perpetuating housing inequality: the practice of real estate appraisals. Crucially, the racial wealth gap is the racial housing gap. For every one dollar of equity the median Black homeowner in America has, the median White homeowner has nearly two dollars, according to a Brookings Institution report. Real estate appraisals were designed to support White homeownership and disadvantage minorities — and they still do today.
The business of home finance, ownership and improvement depends on home appraisal. When you buy a house or refinance, the mortgage company needs to know the value to be sure it is not lending more than the property is worth. An appraiser visits and studies the house to assess its size, condition and neighborhood, then compares it to other sales in the area.
But it wasn’t always this way. Until the 1920s, real estate agents made calculations of home value based on their experience and a few folk principles of value. One scholar compared it to attempts at alchemy without understanding chemistry. Hoping to improve on this process, real estate professionals teamed up with Richard Ely, an economist who helped found the American Economics Association, and who promised an economic science of land value.
The method they created was based on White supremacy and forged in response to the great migration of African Americans to northern cities. Ely was raised a rural northern progressive. He led the Institute for Research in Land Economics and Public Utilities at Northwestern University in metro Chicago and had little interaction with African Americans before the great migration. He thought Black southerners had to show their “fitness” for land and homeownership — that tenant farming was more appropriate for them.
These views about Black unworthiness and riskiness were prevailing opinions among White real estate leaders at the time. The National Association of Real Estate Boards (NAREB, now NAR)’s 1924 code of ethics stated, “A Realtor should never be instrumental in introducing into a neighborhood a character of property or occupancy, members of any race or nationality … whose presence will clearly be detrimental to property values.” Ely’s institute gave these racialized ideas of real estate the imprimatur of an academic discipline.