Chapter 6

The Federal Housing Administration justified its segregationist policies by claiming that if African Americans were to move to or near a white neighborhood, the value of properties would decline. The FHA never provided evidence to support this claim, and the nearest it came to doing so was a report released in 1939 by its principal housing economist, Homer Hoyt. Hoyt claimed that racial segregation was a worldwide phenomenon, basing this observation on the fact that European and American missionaries in China lived in separate neighborhoods from the Chinese.

There is no statistical evidence to support the FHA’s contention, and in practice, the opposite was often true. This was recognized in an unusual decision by the federal appeals court for the District of Columbia in 1942, when it refused to uphold a racially restrictive covenant. The court said that because African Americans were prepared to pay higher prices than white people, excluding them from the development would artificially depress property prices. However, the FHA’s policies could cause the fall in property prices they predicted by creating opportunities for blockbusting. The practice of blockbusting involved buying properties in borderline Black–white areas, selling or renting them to African American families, and creating a panic among nearby white homeowners that their neighborhood was turning into a Black slum. The blockbuster was then able to buy their homes cheaply, as Floyd Lowe had done in East Palo Alto, often reselling them to Black buyers at a large profit.

The extortionate prices many African Americans paid for their homes often went some way toward creating slum conditions, as people were forced to share cramped accommodation and neglected their properties as they worked overtime to pay for them. The mortgages available to white buyers—and, for that matter, to unscrupulous blockbusters—were not available to them, and the consequent financial hardship produced the type of deterioration in neighborhoods and property values predicted by the FHA.

Chapter 7

The Internal Revenue Service’s willingness to grant tax-exempt status to churches, universities, and other groups that promoted residential racial segregation contributed to the problem. So, too, did the complicit approach of regulatory government agencies to discrimination on the part of banks and insurance companies. The activities of a private business do not become state actions merely because the business is regulated by the government. However, the legacy of slavery led directly to the passing of the Thirteenth, Fourteenth, and Fifteenth Amendments, which give African Americans special protection under the Constitution. This means that intrusive government regulation that encourages racial exclusion is unconstitutional. The IRS should be particularly careful to withhold tax exempt status from any organization that promotes racial segregation.

Churches and universities have often been active in promoting such segregation. In Shelley v. Kraemer, trustees of the Cote Brilliante Presbyterian Church provided funds from the church treasury to assist the Kraemers in having the African American Shelleys evicted from their home. The University of Chicago spent $100,000 between 1933 and 1947 on defending restrictive covenants and evicting African Americans from the neighborhood. These are just two of many examples. Insurance companies and banks also provided support for segregation by investing their reserve funds in developments only open to white residents, such as the Parkchester and Stuyvesant Town complexes in New York City.

Some forms of racial discrimination by the government persist in the twenty-first century. One of these is the regulatory tolerance of “reverse redlining,” the aggressive marketing of high interest loans to African Americans. Black people were disproportionately affected by the subprime mortgage crisis that was one of the major factors in the 2008 financial collapse, though...