How Academia Laid the Groundwork for Redlining
Figure 1. Richard Ely in 1903. Published in The Comrade vol. 2, no. 7 (Apr. 1903).
Changing the field of economics once was not enough for Richard T. Ely. Early in his career, in 1885, Ely had transformed his discipline by helping to found the American Economic Association. In 1920, at the age of 66, Ely still had ambition. That year, he established a research institute on land economics at the University of Wisconsin, aspiring not only to create a new disciplinary subfield, but also to transform the practice of real estate development and brokerage nationwide. Five years later, with financial backing from electricity magnates Samuel Insull and Martin Insull, Ely moved his Institute for Research in Land Economics and Public Utilities to Northwestern University, determined to enact his ambitious vision.
Ely was uniquely positioned to do this work. He had trained dozens of leading economists and social scientists at Johns Hopkins and Wisconsin, among them historian Frederick Jackson Turner and future president Woodrow Wilson. Confident of his intellectual impact, Ely boasted to a friend in 1923 that his theorizations regarding land values “would be felt a hundred years from now.” Nearly a century later, as Ely predicted, we can clearly see in his work the theoretical and organizational roots of redlining: the hugely destructive practice of denying home mortgages on the basis of race (among other presumed risk factors).
Decades before the Great Migration of African Americans from the rural South would transform American cities—with accompanying conflagrations like the 1919 Chicago Race Riot—Ely and likeminded Progressives had helped cement the intellectual tyranny of eugenics and scientific racism. Now, amid shifting demographics and a frenzy of metropolitan development in the 1920s, Ely and his colleagues sought to enforce an urban racial order. In a new research article that we discuss here, we show how they strategically positioned themselves to make policy proposals that would dramatically restructure real estate and home finance in the Great Depression decade that followed, and beyond.
Figure 2. Title page of the first issue of The Journal of Land & Public Utility Economics, published by Richard Ely’s Institute.
Ely was an experienced real estate investor as well as a professor, who pursued a collaboration with the National Association of Real Estate Boards (NAREB) emphasizing real estate education, both at the college level as well as for those lacking access to higher education. NAREB, founded in 1908 and today called the National Association of Realtors, was the leading U.S. trade organization for real estate agents and developers.
In 1921, he arranged for Ernest McKinley Fisher, one of his doctoral students, to author educational materials for NAREB. Two years later, Ely’s Institute and NAREB jointly sponsored a conference that solidified their partnership. That same year, Fisher’s textbook Principles of Real Estate Practice was ready for distribution to NAREB members, some of whom had acquired their training through courses held at YMCA branches. Principles, among other things, helped ingrain the unsupported hypothesis that Black people's very presence inexorably lowered property values. As Fisher wrote, “the purchase of property by certain racial types is likely to diminish the value of other property in the section.”
Figure 3. Racist advertisement published in the Sunday Star [Washington, DC], May 30, 1926, following the U.S. Supreme Court’s Corrigan v. Buckley decision certifying the legality of racial restrictive covenants.
NAREB already had a deeply racist culture, as historian Paige Glotzer has demonstrated. Like many professionalizing groups and voluntary associations catering to native-born whites at the time, their entertainments included minstrel shows, for example. In 1924, NAREB approved a Code of Ethics stating that a Realtor “should never be instrumental in introducing into a neighborhood . . . members of any race or nationality . . . whose presence will clearly be detrimental to property values in that neighborhood.” Around this time, NAREB also began litigating to defend its trademark on the term “Realtor” as a way of delegitimizing real estate brokerage by racial and ethnic minorities whom it banned from joining the organization.
NAREB also strongly promoted the use of racial restrictions on property ownership, creating a model covenant to be used in cities across the country after the Supreme Court declined to rule on their legality in the 1926 challenge Corrigan v. Buckley, saying it had no jurisdiction over private contracts. By no coincidence, Ely’s graduate student Helen Monchow published a study on deed restrictions under Institute auspices in 1928, which recommended racial restrictions as a means to protect property values.
The Great Depression effectively shuttered Ely's Institute, but many of his colleagues were poised to put these recommendations into effect by leaving academe and the private sector for positions in government. The drop in the stock market and plummeting real estate values meant that the philanthropies that supported Ely’s work—like the Carnegie Corporation and the Laura Spelman Rockefeller Memorial Foundation—were retrenching. Ely himself retired and moved to New York, where he lived and wrote for another decade. But several of his former students and colleagues took roles in new public agencies that quickly overhauled the U.S. housing system, including the Federal Home Loan Bank Board (FHLBB), Home Owners’ Loan Corporation (HOLC), and Federal Housing Administration (FHA).
H. Morton Bodfish, whom Ely had hired at Northwestern, took a seat on the FHLBB. Ernest Fisher led the Division of Economics and Statistics at the FHA, while his colleague Frederick Babcock became head of underwriting there. Meanwhile, two professors with Ohio State University’s competing Bureau of Business Research—Spurgeon Bell and Henry Hoagland—were appointed an FHLBB member and the head of HOLC’s Division of Research and Statistics, respectively. Bodfish had actually trained with Bell and Hoagland at Ohio State before he arrived at Northwestern.
Figure 4. President Franklin Delano Roosevelt signing the Home Owners’ Loan Act that established the Home Owners’ Loan Corporation (HOLC), 1933. Courtesy U.S. Library of Congress.
Figure 5. H. Morton Bodfish in 1939. Bodfish was a professor at Ely’s Institute, a Federal Home Loan Bank Board Member, Executive Vice President of the U.S. Building and Loan League, and a co-founder of the Society of Residential Appraisers. Courtesy U.S. Library of Congress.
These colleagues and students of Ely played key roles in regularizing new approaches to real estate and home finance as they wrote books, helped to compile statistical sources, and advised on legislation that elaborated Ely’s racist ideas about property value. Most importantly, they formed an information-sharing network that connected government and private industry, blurring the lines between the two sectors as these ideas were circulated, refined, and implemented in ways that fundamentally changed both public policy and private practice.
To take one example, while at Ohio State, Hoagland had been an advisor on the Columbus Real Estate Board’s 1930 survey of that city’s real estate, along with Corwin A. Fergus, a realtor with training as a lawyer and work experience as a banker. When Hoagland joined FHLBB, he facilitated Fergus’s hire to oversee HOLC’s City Survey program which produced the agency’s now-notorious redlining maps. Fergus was later promoted to direct HOLC’s Division of Research and Statistics after Bell resumed his economics professorship.
Figure 6. HOLC residential Security map of central Chicago. Courtesy Robert K. Nelson, LaDale Winling, Richard Marciano, Nathan Connolly, et al., “Mapping Inequality,” American Panorama, ed. Robert K. Nelson and Edward L. Ayers.
One of the more insidious ways HOLC and FHA officials influenced the emergent thinking on mortgage lending was in shaping the profession and practice of private real estate appraisal. Appraisal and “valuation” had been a real estate agent’s responsibility through the 1920s, but in the 1930s two professional organizations for real estate appraisal, the American Institute of Real Estate Appraisers (AIREA) and the Society of Residential Appraisers (SRA), were created with the support of NAREB and the U.S. Building and Loan League. These organizations and the new profession of appraisal provided a pathway for the private sector ideas of the 1920s to be embedded into federal policy, then disseminated back to the restructured private housing sector as it rebounded from the Great Depression.
Several associates of Ely played key roles here, too. Morton Bodfish advised President Hoover in the passage of the 1932 Federal Home Loan Bank Act and sat on the resulting FHLBB after the election of President Roosevelt. As president of the U.S. Building and Loan League, Bodfish was instrumental in the formation of the SRA. Philip Kniskern, a mortgage industry executive who helped found AIREA, became HOLC’s first president just as his hefty Real Estate Appraisal and Valuation came out. Back in 1924 while working as a real estate appraiser in Chicago, Frederick Babcock had authored The Appraisal of Real Estate as part of Ely’s series of textbooks. With Fisher’s encouragement, he updated the volume in 1932 as The Valuation of Real Estate. Then, as chief of underwriting at the FHA, Babcock wrote the infamous manual codifying the agency’s underwriting standards, setting policy that until 1950 mandated the use of racially restrictive covenants as an eligibility condition for FHA’s mortgage insurance. Babcock and Homer Hoyt, another Chicago colleague who joined him at FHA, led seminars and workshops and wrote articles for the appraisal profession’s trade publications.
Figure 7. Workers in the mapping/drafting section at the FHA’s Division of Economics and Statistics, ca. 1937-1938. Courtesy U.S. Library of Congress.
This phalanx of administrators set and enforced residential appraisal standards just as the FHA was ramping up its home mortgage insurance program, at a time when HOLC was the nation’s largest home mortgage holder. Perhaps the most ambitious, public-facing effort to transmit Ely-derived theories and practices to private industry was the Appraisal Forum—a 1937 conference sponsored by FHA, HOLC, AIREA, SRA, and the National Association of Housing Officials.
Following the serendipitous rediscovery of HOLC’s City Survey maps in 1977 by historian Kenneth T. Jackson, the study of redlining has undergone something of a renaissance in recent years. Younger historians including David M. P. Freund, Jennifer Light, N. D. B. Connolly, Andrew Highsmith, Ocean Howell, Paige Glotzer, and the two of us have delved deeper to explore, confirm, and debate some of the more counterintuitive findings uncovered in Jackson’s initial foray.
“The connections between private industry and government were much more fluid than previously imagined, and . . . the question of who was most culpable becomes moot once we understand their elaborate intertwining via the networks created and populated by Ely.”
Disputes among historians have centered on several questions that Jackson first raised: whether HOLC, FHA, or private industry was most culpable for initiating redlining; the extent to which the color-coded Security maps were shared and whether they circulated outside of government circles; and whether race was absolutely central to New Deal-era federal housing policy, or rather one key focus among several. Even more recently, historical economists and social scientists have entered the fray, applying quantitative analysis in an attempt to discern the methodology behind HOLC’s and FHA’s maps as well as their long-term effects.
Our recent work demonstrates that the connections between private industry and government were much more fluid than previously imagined, and that the question of who was most culpable becomes moot once we understand their elaborate intertwining via the networks created and populated by Ely.
According to a source filed with the finding aid to the FHLBB records at the U.S. National Archives, for instance, HOLC never shared its final redlining maps with private industry despite “constant demand for copies from that part of the public which was familiar.” Yet in order to cause egregious damage, it didn’t even have to: the racist theories underlying HOLC’s thinking about mortgage lending and property values were well established by then, and the agency had numerous other means to disseminate its racially-informed methodology. These ranged from word-of-mouth through Ely’s network, to trade publications, to sponsored workshops and public events, not to mention the collaboration of industry consultants in compiling data for the City Survey, and the migration of HOLC personnel back to the private sector as the Depression wound down.
Figure 8. A “hypothetical security map” published with a feature on the HOLC’s City Survey in Architectural Forum, vol. 68, no. 2 (Feb. 1938). The real map on which this illustration was based can be viewed here.
Our research also includes some more surprising findings, such as that HOLC initially categorized African American neighborhoods as a fifth, “other” security grade. Nor was the City Survey nearly so “top secret” as has been previously assumed. One of its redlining maps was publicly displayed at the 1937 Appraisal Forum, and a 1938 feature on the project in Architectural Forum actually reproduced a “hypothetical security map” based on the one for Lima, Ohio, albeit in black and white and green.
Investigating redlining has involved intensive archival research in previously overlooked sources, such as HOLC’s General Administrative Correspondence, which consists of 482 reels of microfilm (with no finding aid!). The insights to be found in such sources will surely reward future researchers, as it becomes increasingly clear that our understanding of historical redlining remains far from complete. With renewed public attention to the topic—from several candidates in the 2020 Democratic primary race, for example—we look forward to further studies and the ongoing conversation as another generation of scholars continues to investigate the history of racism and U.S. federal housing policy.
