Past Structural Racism and Current Home Prices

Robert W. Wassmer: Do Higher Land Costs for New Single-Family Housing Inhibit Economic Activity in U.S. Metropolitan Areas?, Economic Development Quarterly.

The Federal Homeowners' Loan Corporation (HOLC) rating system was a relative measure of pre-1940 racist practices by residential real estate activities in US central cities. It was not a rating system that guided HOLC or later FHA mortgage lending practices. The research question examined is whether a similar home in different HOLC-rated neighborhoods in Sacramento (CA) sells for a different price 80 years after receiving its grade. The hedonic regression result shows that homes in lower-rated neighborhoods sold for about 13 percent less than those in higher-rated neighborhoods.

A Blinder-Oaxaca decomposition breaks down the average difference in the selling price of $195,000 between a home sold in HOLC green/blue lined compared to orange/yellow lined neighborhoods. About a third of this difference in home prices, which is not due to home characteristics, represents a starting measure of the legacy of discriminatory housing practices. At the same time, the remaining two-thirds of the difference could be due to variations in home characteristics also influenced by Pre-1940s discriminatory housing practices. These findings are relevant to understanding the contribution of structural racism in the housing market to present inequalities.