Redlining Louisville Project: Early Lessons Learned
Imagine if all your hard work and aspirations were crippled by a small handful of individuals with low expectations for your future success, credibility or worth. Redlining practices in America did just that. In the latter months of 1937, the city of Louisville, Ky., had recently recovered from the Great Flood of 1937, the single most significant natural disaster in its history. At the same time, the federal government was embarking on a new mechanism to support homeownership opportunities for millions of Americans. The Home Owners’ Loan Corp. (HOLC) was also attempting to mitigate risk for the financial institutions that would help deploy billions of dollars in mortgage capital across the country.
The Office of Redevelopment Strategies of Louisville Metro Government launched Redlining Louisville: The History of Race, Class, and Real Estate. This interactive map allows investigation of some of the ways redlining and the HOLC has affected housing, development, disinvestment and lending patterns in Louisville since the 1930s.
HOLC residential security maps provided snapshots of nearly every major American city in the 1930s before urban sprawl moved into greenfield sites (an area of land, usually in the countryside, that has never had buildings on it before). The colors in a typical map represented a four-point classification system devised by the HOLC to indicate where local lenders were encouraged to make loans and where loan requests should be denied. Green (“A Grade”) was an indicator for the very best borrowers, followed by blue (“B Grade”) and yellow (“C Grade”). Red (“D Grade”) was the color reserved for areas of the city where access to capital would be withheld.
In describing how neighborhoods were graded in the 1937 Louisville residential property survey, the HOLC, along with local realtors, lenders and other real estate professionals, offered the following explanation:
“In establishing the grade of an area, such factors as these are considered—Intensity of the sale and rental demand; percentage of home ownership; age and type of buildings; economic stability of area; social status of the population; sufficiency of public utilities; accessibility of schools, churches and business centers; transportation methods; topography of the area; and the restrictions set up to protect the neighborhoods. The price level of the homes is not the guiding factor.”
The process of considering race and class in real estate appraisal did not begin or end with the HOLC. In the 1930s, it was a commonly accepted notion in the real estate industry that the socioeconomic characteristics of a neighborhood determined the value of housing to a much greater degree than physical characteristics. These notions were widely upheld by the Federal Housing Administration’s (FHA) underwriting manuals far into the 1970s. The FHA’s underwriting system used such standards as “protection from adverse influences and inharmonious racial groups.” The FHA manual warned that “older properties in a neighborhood have a tendency to accelerate the rate of transition to lower class occupancy” and suggested that apartment owners should look to the suburbs, preferably a site “set in what amounts to a privately owned and privately controlled park area.”
The “restrictions set up to protect the neighborhoods” referred to deed restrictions prohibiting the sale of property to people of color regardless of their income, accumulated wealth or ability to repay their loan. These restrictions were mentioned in the assessments more often than physical characteristics (e.g., topography or quality of structures). For instance, several affluent neighborhoods were described as the best areas of the city in large part because they were also “one of the highest restricted areas.” Predominantly white residential areas were often described as “well restricted” and having “restrictions well observed.” The HOLC residential security maps were made available to private lenders and realtors but otherwise were kept confidential. Some of these maps, including those for Washington, D.C., are still missing from the national archives.
HOLC Neighborhood Descriptions
|A First Grade||B Second Grade||C Third Grade||D Fourth Grade|
Average Residential Property Values by Census Tract
|> $295k to $509k||> $164k to $295k||> $56k to $164k||$0 to $56k|
The first and perhaps most fundamental lesson we’ve learned is that redlining is not fiction. In fact, the practice began as a suite of federal policies that set the stage for lending practices that still impact urban communities today. Redlining was reality; the impacts of the policy are still felt today. For many of the families that survived World War II and the civil rights era, redlining was difficult to prove. Even if the practice could be substantiated, the likelihood of obtaining a just outcome or holding the offending party accountable was fairly low.
Another lesson learned is that redlining policies are contagious. What started out as a mortgage lending tool eventually led to risk management and underwriting standards for everything from property insurance to pizza delivery. Stories and experiences shared by residents and stakeholders have underscored the need to explore systematic barriers for wealth creation in underserved areas. Financial stability for millions of Americans is often predicated on the ability to open a bank account, find a neighborhood banking branch or doctor’s office, or insure a home.
We’ve also learned that we can’t ignore or undo the damage from lost time and opportunity. When thriving minority businesses and successful entrepreneurs on Old Walnut Street in Louisville’s historic Russell neighborhood were forced to shut down by urban renewal in the late 1960s, the potential for intergenerational wealth building and progressive role modeling was adversely impacted. Those of a certain generation can only imagine what west Louisville might look like today if those displaced business owners and their families had been able to get the financing needed to set up in other local neighborhoods.
Our last lesson is that redlining can be a state of mind. When consumers are uninformed about their options and investors are uninformed about their opportunities, market failures can be a reality. It is important to examine the notion of implicit bias and to abandon “redline thinking.” Each of us should consider what we are willing to wager, whom we are willing to wager on, and why that is so. These questions enable us to open our minds to the possibility of making bold, courageous, game-changing decisions on how we invest our resources and where we spend our time. Doing otherwise is to impose a self-fulfilling prophesy on many members of our community.
Let’s acknowledge that systemic devaluation and disinvestment in urban-multicultural communities was based on race and class. Let’s recognize that both public and private entities are in a position to help facilitate a concentrated effort toward reinvestment in these areas. Let’s understand that strategic, mission-based, equitable investments can become a remedy for violence and a catalyst for hope in resilient neighborhoods.
The Redlining Louisville project has opened up honest dialogue on our community’s collective history. Over the next several months, Louisville Metro will join forces with numerous community partners to continue the dialogue on the impact of past and present redlining practices. We will engage the community in an effort to develop innovative strategies and new resources that provide parity, possibilities and wealth-building opportunities for our entire community.
We invite you to visit our interactive story-map, Redlining Louisville: The History of Race, Class and Real Estate, where you can experience the impacts of historical redlining practices on poverty, segregation, property abandonment and other neighborhood characteristics.
Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.
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