Jacob Faber on How a New Deal Era Program Shaped America’s Racial Geography

Chancellor: Hello and thanks for joining us for the Poverty Research and Policy Podcast from the Institute for Research on Poverty at the University of Wisconsin–Madison. I’m Dave Chancellor. For this episode, I had the chance to talk to Jacob Faber about a federal government program that started in the 1930s and how the decisions made in that program promoted residential segregation that is still with us today. Faber is an associate professor of sociology and public service at the NYU Robert Wagner School of Public Service, and he was also a fellow in the 2018-2019 cohort of the IRP Emerging Poverty Scholars Program. We’ll be hearing about research he did for a paper called “We Built This: Consequences of New Deal Era Intervention in America’s Racial Geography” that you can check out in the August 2020 American Sociological Review. We also profiled his work in IRP’s brief called Fast Focus that we’re releasing alongside this podcast episode in February 2021. You can find links to both of those in our show notes. When we talked, I first asked him to introduce himself.

Faber: My name is Jacob Faber, an associate professor at New York University and the policy school, the Robert F. Wagner School of Public Service, as well as the sociology department and my research and teaching interests are in the causes and consequences of racial segregation. And it’s kind of specifically how segregation creates opportunities for exclusion and exploitation through kind of institutional means.

Chancellor: The idea that there have been specific policies and government actions behind the development of the U.S. racial geography has become more widely understood in recent years, but asked Professor Faber to give us the basics on what these policies were and how they developed.

Faber: There’s a real intentionality behind in the history, behind America’s racial geography. Basically, how we became as segregated as we are and the history that I focused on today in this research is on one specific housing policy, a federal housing policy, the homeowners loan corporation that was passed in 1933. And this law was designed to save a housing industry that was in distress by allowing people to refinance mortgages, but also provided mortgage insurance, and in doing so created these what we now refer to as redlining maps for hundreds of cities around the country. And these maps include specific grades that go from A to D. A being the kind of quote unquote best and D being the quote unquote worst in these grades where we’re color coded, D grades were red. And that’s where the term redlining comes from. If you lived in the neighborhood, it was much harder to get mortgage assistance through this one policy homeowner’s loan corporation, as well as much larger subsequent federal housing policies like the FHA and the GI Bill. For decades, the federal government was subsidizing housing homeownership in the quote unquote, green neighborhoods. And one of the largest drivers of neighborhood grades was race. If there were African-Americans living in your neighborhood, you are almost guaranteed a D grade. Because of this, it created this huge financial incentive to segregate for white households who were able to. Over the course of generations, this has resulted in highly segregated cities and metro areas. The research I showed today is that of cities that were kind of that that HLC made these maps for became far more segregated than cities that were ignored by the policy.

Chancellor: When we talk about residential segregation, we sometimes think of it as a southern issue, but Faber makes clear that that’s not necessarily correct and not what we see going on here.

Faber: This was nationwide. And actually most of the maps that we have are from the Northeast and the Midwest, Rust Belt states. And if you even look today, some of the most segregated metropolitan areas and cities are in the north, Chicago, New York, Milwaukee. These are not southern cities. These are places that are highly, highly segregated.

Chancellor: As Faber mentioned, he was looking closely at a program called the Homeowners’ Loan Corporation, so I asked him to go into a little more detail about what this New Deal era program was and how it came to be.

Faber: It was designed as a short-term program to provide relief for the housing industry, which was which is in distress. About half of mortgage debt was in default at this time. The short-term goals were to again give grants to homeowners who were at risk of foreclosure in order to refinance homes and avoid foreclosure or to buy back homes that were lost to foreclosure. But the long-term consequences of policy were in the financing insurance that it provided as well. And it kind of created the financial instrument that we now know is responsible for this creation of the kind of American Homeownership Society, the long term stable payment mortgage that did not exist as a financial instrument before HLC.

There was really no federal housing policy before H.M.S. And it created this tool for wealth accumulation that now accounts for the largest asset that most Americans hold there, the equity in their home. But it did so in a segregationist manner, that it excluded people of color and communities of color through the process of redlining that were again then inherited by even larger federal programs like the FHA and the GI Bill. From about 1930 to about 1970, the homeownership rate in America jumped from about 44 percent to about 64 percent. The FHA made 11 million home loans for individuals or helped 11 million Americans buy homes. And only one percent, less than one percent of those loans went to African-Americans.

Chancellor: When we think about where people live, it’s not just about their house. It affects where their kids go to school, where they work, where they can buy the things they need, the kinds of neighborhoods they’re in. So, I asked Professor Faber how he thinks about all these factors in his work.

Faber: This is why I am interested in segregation that, you know, in America we have decided to distribute all kinds of opportunity and all kinds of disadvantage geographically. And the perhaps the biggest driver today of segregation is, is schools and public schools. And the fact that we finance public schools through local property taxes largely. So, again, we’ve created financial incentives to segregate that. If you’re wealthy, you want to be in the wealthiest district possible because those will be the wealthiest schools that you can send your kids to. But, you know, we can look at all aspects of life, whether that’s environmental quality, access to employment, access to health care, that all of these things are kind of organized spatially. And because we are segregated by race, the access to these crucial services or detrimental polluting facilities, for example, or crime access breaks are wrong along racial lines and unequal way.

Chancellor: I asked Professor Faber to explain to us what he’s measuring in this work and what we can learn from it.

Faber: Right. What I’m measuring I’m measuring something very, very simple. I’m just measuring whether or not. At least some part of a city was appraised by H.M.S. This is a very simple measure of whether or not you were affected by this policy. But it turns out to have this huge effect. Certainly a lot more research needs to be done about variation in grading within and across cities. There’s a great paper by a number of economists out of the Federal Reserve, Chicago, where they show that the redlining maps increased within city segregation. Neighborhoods that got red lined got more segregated. But I’m aggregating. I’m going one level of geography above that and looking at cities. And what I’ve shown is that if HLC just touched your city, then that city became way more segregated than kind of comparable city at the time. And it remained that way for half a century.

Chancellor: As you might expect for any research effort that relies on historical information, the data Faber had to work with wasn’t as complete as we might hope for. So I asked him how the data he had compared to what might be ideal.

Faber: The ideal data that I would have for this project would be standard measures of race and housing characteristics and socioeconomic characteristics for geographically stable neighborhoods and geographically stable places. Over time, unfortunately, those data don’t exist. I am kind of forced to rely on admittedly imperfect data and pulled together a century’s worth of censuses, starting with the 1920 census all the way up to the 2010 census, using a number of different techniques, including GIS to create and longitudinal panels of cities so we can track New York City every single year since 1920 or every single decade excuse me, since 1920, the level of segregation as well as some demographic and housing characteristics.

Chancellor: Professor Faber found that cities that were appraised by the Homeowners Loan Corporation became far more segregated than those that weren’t. So I asked him to tell us more about the measures of segregation he used and what they tell us.

Faber: I use three different measures of segregation. And they are among the most commonly used measures of segregation. And one of them is the dissimilarity index, the black white dissimilarity index. And this measure estimates basically the kind of percent of African-Americans within the city that would have to change neighborhoods in order for there to be an even distribution of African-Americans across neighborhoods within the city. It’s this measure of unevenness and it’s probably the most common measure of segregation.

And in my data, this number peaked in 1950 or 1960 and then got progressively lower until 2010. And the effect that I measure of the homeowner’s loan corporation is equivalent to about a quarter of that 60-year change.

Chancellor: Faber says it’s important to understand that the processes that led to even our current levels of segregation weren’t an accident.

Faber: I titled this research, we built this to highlight the fact that the racial segregation that we going to experience and live in today was intentionally constructed through these explicitly racist federal policies, policies that have in their appraisal guidelines labeled pig pens and undesirable races as equally objectionable. That’s a quote David Roediger has pulled from the FHA underwriting manuals. And there are really huge implications for how we think about racial inequality today, considering the prominent role of the federal government and how we should redress the inequality that has been inherited over generations. Because, again, we’ve created this tool for wealth accumulation in the through homeownership and we’ve tied homeownership appreciation to whiteness through these policies. And so because of this, African-Americans have not been able to accumulate wealth at the same rate as whites. And now racial gaps in wealth are perhaps the greatest site of racial inequality in America today. And so when we think about policy remedies to this, I mean, one way of thinking about it is we know exactly what we did to segregate people. Basically, we paid some people to live over here and other people to live over here. And we did that for almost a century so we could craft policy to create financial incentives for people to make more integrative housing decisions or tax people differently for making segregationist presidential decisions. We also can and should invest in historically red lined neighborhoods that have been sites of disinvestment over the course of generations that have been trapped in cycles of poverty. It’s not just kind of moving people from poor neighborhoods to wealthy neighborhoods. It’s improving the quality of life in poor neighborhoods as well.

Chancellor: Professor Faber says that while his research here looks at the Home Owner’s Loan Corporation, that was just one program among many that implicitly or explicitly shaped not just a racial geography, but the economic futures of many Americans.

Faber: One thing that I think about when I think about this project is that I think it’s an underestimation of the effect of federal policy on segregation. I’m just looking at this one specific housing policy that, again, was smaller than these than the FHA, the GI Bill that really created the predominantly white suburban community that is associated with upward mobility. So just focus on this one housing policy, not even the largest housing policy, but we have to think about how this is connected to other forms of investment and disinvestment in communities. You know, at the same time as we were basically paying white households to leave the city, we were building segregated housing projects within cities, you know, where there’s no opportunity for wealth accumulation. We were building highways that segregated communities through urban renewal tore down numerous vibrant middle class African-American communities and offered these connections, transportation connections between white suburban bedroom communities and job centers. And now we’ve kind of layered on top of that public school financing and many other aspects of municipal financing that serve to just reinforce these geographic inequalities in resources over time that translate into intergenerational racial inequality.

Chancellor: A big thank you to Jacob Faber for taking the time to talk with us. You can learn more about his research at jacobfaber.com. This podcast was supported as part of a grant from the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation but its contents don’t necessarily represent the opinions or policies of that Office, any other agency of the Federal government, or the Institute for Research on Poverty. Our theme music for this episode is “Staring Straight” by Maarten De Boer. Thanks for listening.