The Racial State: The Costs of Discrimination

The Racial State: The Costs of Discrimination

Perhaps nothing reduced the costs of discrimination more effectively than the Federal Housing Administration created by FDR’s New Deal. The FHA’s explicitly racist policy proscribed blacks from moving into white neighborhoods by barring suburban subdivision developers from qualifying for federally subsidized construction loans unless developers excluded blacks from the community (Rothstein). This not only reduced the costs to the developers for discriminating, it actually made it profitable. The FHA went further by proscribing blacks from receiving bank mortgages in suburban subdivisions that were privately financed without federal construction loan guarantees, and refused to to insure mortgages for black families in all white neighborhoods and black neighborhoods—a policy known as “redlining.” The inability to obtain a mortgage and restrictions on the available supply of housing meant that blacks were either forced into renting apartments for higher rates than their white counterparts, or bought homes on installment plans. Missing a payment on a non-amortized installment plan means the loss of a home with no accumulated equity (Rothstein).