Homeownership is another indicator of the economic disparities among blacks. Perhaps equally important, it is a gauge that can be used to measure the continuing significance of race in the accumulation of wealth. As shown in Graph 6, since 1994 there has been an increase in black home ownership. Between 1994 and 2003, the proportion of black homeowners increased from 42.6% to a record high of 49.4%. From 2003 to 2010, however, the proportion of black homeowners declined to 44.9%. Much of black home ownership resulted from whites moving to the suburbs and blacks purchasing older homes in central cities or as in recent years sub-suburban communities.

Graph 6

Blacks' Homeownership Rates: 1994-2010


Source: U.S. Census Bureau, Homeownership Rates by Race and Ethnicity of Householder: 1994 to Present (2010). This information is derived from the Current Population Survey/Housing Vacancy Survey, Series H-111

Residential segregation has long been a formidable barrier to black progress and the accumulation of wealth. When northern and midwestern cities began to industrialize at the beginning of the twentieth century, thousands of African American families migrated from the rural South to cities in the Northeast and the Midwest. They joined the thousands of immigrants from Western Europe to provide the labor needed for a rapidly industrializing economy. When they arrived in urban communities, black migrants encountered many residential obstacles. Municipal ordinances were enacted that prohibited African Americans from occupying properties except in designated neighborhoods. The ordinances were challenged and declared unconstitutional in a 1917 decision, Buchanan v. Warley.

After Buchanan, the real estate industry devised another tactic, racially restrictive covenants. The covenants were clauses in deeds that prohibited property owners and subsequent purchasers from selling their homes to racial and religious minorities. The Supreme Court implicitly endorsed the covenants in a 1926 decision, Corrigan v. Buckley. The Fourteenth Amendment applies only to state action which consists of actions taken by state and local governments. The Court declined to decide the merits of Corrigan on jurisdictional grounds, but it issued an opinion that stated the Fourteenth Amendment did not prohibit private parties from controlling the use and disposition of their property.

As the migration from field to factory continued, an already severe housing shortage for African Americans grew worse. Blacks were shoehorned into existing ghettos that expanded as whites moved out of adjacent neighborhoods. In the 1940s, the National Association for the Advancement of Colored People (NAACP) launched a litigation campaign that challenged restrictive covenants. In 1948, the Supreme Court held in Shelley v. Kraemer that restrictive covenants were private arrangements, but the judicial enforcement of discriminatory agreements constituted state action that violated the Fourteenth Amendment. After Shelley, the covenants could not be enforced. This was an important victory for the NAACP, but it did not end discrimination in the nation's housing markets.

The federal government played a critical role in the institutionalization of discrimination and the perpetuation of segregation. The modern American middle-class emerged during the post-World War II era. Before the war, working class whites lived in ethnic enclaves in cities or in small towns and rural communities. The 1944 G.I. Bill provided returning veterans with financial assistance for college, businesses, and home mortgages. Millions of servicemen were able to afford homes for the first time. In 1947, real estate developer William Levitt purchased 4,000 acres of Long Island, New York farmland and converted it into the largest privately planned community in American history. Similar suburban communities were constructed in metropolitan regions across the nation. Residential construction rose from 114,000 new homes in 1944 to 1.7 million by 1950. All of this was facilitated by the introduction of fixed-rate, 30-year mortgages insured by the Veterans Administration and Federal Housing Authority (FHA).

Blacks were excluded from post-war suburbanization. The Home Owners' Loan Corporation (HOLC), a federal agency established during the 1930s depression, fostered residential segregation through redlining. Land economists believed that property values were closely linked to the racial composition of neighborhoods. The HOLC rated every urban and suburban neighborhood in America A, B, C, or D using color coded maps. The lowest quality rating, D, was colored red. Neighborhoods rated A had to be homogenous and occupied by the families of business and professional men who were white and usually native-born. Neighborhoods in which blacks resided were rated D and coded red. Lenders were discouraged from making loans in neighborhood that were redlined.

The FHA used HOLC's system to develop criteria for selecting the mortgages it would insure. The FHA's underwriting standards reflected the model of neighborhood change developed by economist Homer Hoyt. In his influential 1939 book, The Structure and Growth of Residential Neighborhoods in American Cities, Hoyt described the patterns of development residential neighborhoods according to the succession theory of neighborhood change. Under the succession theory of urban development, ethnic and racial groups entering a new area settle in older neighborhoods until they achieve economic parity with more affluent groups. As the newer group becomes economically successful, it moves out to a better residential area. With continued immigration, new ethnic groups settle in the older neighborhoods replacing those who moved on. This pattern continues, creating a succession of groups moving through the neighborhoods over time.

In this invasion-succession model, newly constructed neighborhoods were occupied by white families. Over time, the neighborhood transitioned from white Protestant to Jewish and finally black as the housing stock grew older and began to deteriorate. The FHA assigned every neighborhood a place somewhere along this continuum. FHA's Underwriting Manual warned lenders that neighborhoods could retain their values only if the properties were occupied by the same social classes and racial groups. The agency urged the use of restrictive covenants to maintain neighborhood stability.

After the decision in Shelley, the FHA made some cosmetic changes to its Underwriting Manual and removed the explicit references to race. However, the Manual continued to warn against the introduction of adverse influences that would diminish desirability or lower property values. Local real estate boards warned members not to be instrumental in introducing elements into a neighborhoods that would be detrimental to the property values and explicitly included blacks among the undesirable elements. Real estate publications used in college and university courses and by practicing realtors continued to urge segregating inharmonious populations. Revised editions of Hoyt's Principles of Urban Real Estate toned down some of its racial references but did not abandon its message that white neighborhoods needed protection from inharmonious groups. From the 1940s though the late 1960s, federal housing policies barred African Americans from the largest wealth-producing program in American history: single family, suburban homes purchased with federally insured mortgages.