Past structural racism and present home prices

Abstract

ABSTRACT The widely acknowledged rating system of the Federal Homeowners’ Loan Corporation (HOLC) was a relative measure of pre-1940 racist practices in residential real estate activities in large United States central cities. It was not an assessment that guided HOLC or later Federal Housing Administration (FHA) mortgage lending practices. The research question examined here is whether a similar home in different HOLC-rated neighborhoods in the City of Sacramento (California) sold for a different price eight decades after receiving its HOLC grade. A hedonic regression result shows that homes in the two forms of lower-rated neighborhoods sold for about 13% less than those in the two forms of higher-rated neighborhoods. A Blinder-Oaxaca decomposition breaks down the average selling price difference of $195,000 between a home sold in HOLC green/blue compared to yellow/red rated neighborhoods. 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. The remaining two-thirds of the difference could be due to variations in current home characteristics also influenced by Pre-1940s discriminatory housing practices. These findings are relevant to understanding the contribution of past structural racism in the housing market to present inequalities.