Different Routes, Same Destination:

Housing Discrimination's Legacy in Britain and America

1. Introduction

This is the first of a two-part newsletter - today, I intend to explore how our financial systems in the UK and the USA continue to shape our present in ways that might surprise you - and in the second I intend to look at how some African nations are working to break out of these inherited patterns. This is, in economists’ terms, the micro of my analysis and what is to follow is the macro.

Have you ever wondered why certain neighbourhoods struggle to get bank loans? Or why some communities face higher interest rates than others? The answers lie deeper than individual choices or simple market forces.

Think about a river delta, where water flows through multiple channels into the ocean. Some channels are deep and well-maintained, allowing water to flow freely. Others are shallow, filled with obstacles, or have been deliberately blocked over time. The water doesn't "choose" which channel to flow through - it follows the paths of least resistance that were carved out long ago.

Now, imagine two families trying to buy homes in different neighbourhoods of the same city in the USA, both earning $75,000 a year with similar credit scores. The first family is looking in Riverside Heights, a historically favoured area. When they apply for a mortgage, they find:

• Multiple banks eager to offer loans

• Competitive interest rates around 4%

• Several insurance companies offering reasonable rates

• Real estate agents readily showing them properties

• Home values that have steadily appreciated over decades

The second family is looking in Eastbrook, a historically excluded area. Despite having the same financial profile, they encounter:

• Fewer banks willing to consider their application

• Interest rates starting at 6% or higher

• Limited insurance options with higher premiums

• Fewer real estate agents working in the area

• Home values that have stagnated or declined

At first glance, each family appears to be making individual choices about mortgages and homeownership. But just like water in a river delta, their options are shaped by channels carved long ago. The higher interest rates in Eastbrook aren't random, they follow patterns established when banks marked certain neighbourhoods as "high risk." The limited insurance options aren't coincidental, they reflect decades of disinvestment. The stagnant home values aren't natural, they're the result of systematic exclusion from resources and investment.

This is why focusing solely on individual financial decisions misses the bigger picture. A family in Eastbrook could make all the "right" individual choices, maintaining perfect credit, saving a large down payment, shopping around for the best rates and still face significantly higher costs and fewer opportunities than a family with identical finances in Riverside Heights. The paths to financial success aren't just about individual merit or choices, they're about which channels have been dredged and maintained over generations, and which have been allowed or forced to silt up.

Understanding this helps us see why solutions need to address the system itself, not just advise individuals on navigating it better. It's not enough to tell the water to flow differently - we need to reshape the channels themselves.

When we talk about finance, we often focus on individual actions: getting a mortgage, opening a business loan, or investing in stocks. But there's a bigger story here. In both the United States and Britain, these individual financial decisions take place within systems that were carefully constructed over generations. Consider this: in the UK, some communities pay higher prices for motor vehicle insurance than others based purely on their postcode, so if you live in Ladbroke Grove, Small Heath, or any number of areas where Black and Brown people predominantly live, you face the added burden of increased insurance costs. This is effectively an ethnic or colour premium. In America, they called it redlining; on this side of the pond, we didn't give it such a stark name, but the end result was the same, it became far more difficult to obtain finance from financial institutions to purchase a house or flat in certain neighbourhoods. To understand how these patterns persist today, we need to examine how they were established in both countries, beginning with America's more explicit system of housing discrimination.

2. Understanding Redlining: How Housing Discrimination Was Mapped into American Cities

Redlining was a systematic practice of denying financial services, particularly mortgages, to specific neighbourhoods based primarily on their racial composition. The term comes from the actual red lines that were drawn on maps by the Home Owners' Loan Corporation (HOLC), a federal agency created in 1933 as part of the New Deal.

· How Redlining Worked in Practice

Imagine you're looking at a city map from the 1930s. You would see neighbourhoods coloured in four different shades:

• Green ("Best")

• Blue ("Still Desirable")

• Yellow ("Declining")

• Red ("Hazardous")

The HOLC claimed these colours represented lending risk, but in reality, the main factor determining a neighbourhood’s colour was its racial composition. Areas with any significant Black, immigrant, or Jewish populations were typically marked in red, regardless of the actual economic status of residents or the condition of homes.

· The Mechanics of Discrimination

When a neighborhood was marked in red:

• Banks would refuse to make loans for mortgages

• Insurance companies would deny coverage

• Real estate agents would refuse to show properties

• Developers would avoid investing in improvements

This wasn't just private discrimination - it was federal policy. The Federal Housing Administration (FHA) used these maps to decide which mortgages to insure. Without FHA insurance, most banks wouldn't make loans in redlined areas. This meant that even wealthy Black families often couldn't get mortgages in their own neighbourhoods.

· The Long-Term Impact

The effects of redlining didn't end when the practice was officially outlawed by the Fair Housing Act of 1968. Consider how wealth builds over generations:

1. A white family in a green area could get a mortgage in 1940

2. They buy a house and build equity over decades

3. That equity helps pay for their children's education

4. They can leave wealth to the next generation

5. The neighbourhood receives ongoing investment, raising property values further

Meanwhile, families in redlined areas:

1. Couldn't get mortgages

2. Had to rent or buy on predatory terms

3. Couldn't build equity

4. Had less to pass on to children

5. Saw their neighbourhoods starved of investment

This helps explain why the median white family today has about ten times the wealth of the median Black family - much of American middle-class wealth was built through home equity that redlined families couldn't access.

3. Contemporary Legacy: How Historical Patterns Shape Modern Housing

While explicit redlining is now illegal, its patterns persist in subtle ways:

• Many formerly redlined neighbourhoods still have lower property values

• These areas often have less green space and more pollution

• Banks still make fewer loans in these areas

• When loans are made, they often come with higher interest rates

• Insurance and other services often cost more

Today, we see new forms of redlining emerging in the digital age:

• Algorithmic lending decisions that incorporate historically biased data

• Targeted advertising that excludes certain neighbourhoods from opportunities

• Different prices for goods and services based on ZIP codes

• Uneven access to broadband internet and digital services

· Breaking the Pattern

Some communities are working to address redlining's legacy via:

• Community reinvestment requirements for banks

• Special mortgage programs for historically redlined areas

• Investment in infrastructure and services in affected neighbourhoods

• Legal challenges to discriminatory lending patterns

• Programs to increase minority homeownership

However, truly addressing redlining's impact requires understanding how deeply it shaped American cities and acknowledging that its effects continue to influence housing, wealth, and opportunity today.

· Sources and Further Reading

While redlining maps are now historical documents, you can see them online through the University of Richmond's "Mapping Inequality" project (University of Richmond ‘Mapping Inequality’ Project Releases New Redlining Maps and Other Features - news - University of Richmond). This helps visualise how past discrimination shaped current urban landscapes. The project shows that many neighbourhoods’ current economic conditions closely match their HOLC designations from nearly 90 years ago.

In many cities, you can still see the physical legacy of redlining in neighbourhood boundaries, highway placement, tree coverage, and temperature differences - a pretty literal reminder of how financial discrimination literally shaped urban environment in the USA.

4. Housing Discrimination in Britain: A Different Path to Similar Outcomes

While Britain never had an official policy of redlining like the United States, it developed its own forms of housing discrimination that created lasting patterns of racial inequality in housing and wealth. Understanding this history helps explain current patterns of housing inequality in British cities and shows how financial systems can create racial hierarchies even without explicit government policies.

· The Post-War Context

Britain's story of housing discrimination begins largely after World War II, when the country faced both severe housing shortages due to wartime bombing and the arrival of immigrants from the Commonwealth, particularly from the Caribbean, India, Pakistan, and Bangladesh. This timing is important because it meant racial exclusion in housing developed alongside the creation of the modern British welfare state.

· How British Housing Discrimination Worked

Instead of official redlining maps, British housing discrimination operated through several interconnected mechanisms:

· Building Societies and Bank Lending

Building societies, which were the main mortgage lenders in post-war Britain, often had unwritten policies of not lending in areas with high immigrant populations. Unlike American redlining, these policies weren't mapped or officially documented, but they were widely understood and implemented by local branch managers who had significant discretion in lending decisions.

· Council Housing Allocation

Local authorities often used residence requirements and waiting list systems that disadvantaged newly arrived immigrants. For example, many councils required families to have lived in the area for several years before being eligible for council housing, effectively excluding new arrivals who needed housing most urgently.

· Estate Agent Practices

Estate agents would often engage in "steering," directing white British buyers away from areas with significant minority populations and refusing to show properties in certain areas to minority buyers. This practice helped create and maintain segregated neighbourhoods without any official policy requiring it.

· Private Landlords

In the private rental sector, discrimination was often more direct. Signs reading "No Coloureds" or "Europeans Only" were common in the 1950s and 1960s. While such explicit discrimination became illegal with the Race Relations Act of 1968, more subtle forms continued.

· The Creation of Ethnic Enclaves

These practices led to the concentration of minority communities in specific areas of British cities:

• Brixton and Notting Hill in London

• Handsworth in Birmingham

• Chapeltown in Leeds

• Toxteth in Liverpool

• Moss Side in Manchester

These areas often shared similar characteristics:

• Older, often pre-war housing stock

• Limited local investment

• Poor access to public services

• Higher levels of private renting

• Lower property values

· The Role of Financial Institutions

British banks and building societies played the primary role in maintaining housing discrimination through:

• Postcode discrimination in lending decisions

• Higher interest rates for properties in certain areas

• Requiring larger deposits in "high-risk" areas

• Limited availability of buy-to-let mortgages

• Restricted commercial lending affecting local businesses

5. Parallel

The parallel between the US and UK systems is striking, particularly in their outcomes. While the US used explicit redlining and the UK employed more informal mechanisms, both systems created remarkably similar barriers that continue to affect Black and Brown communities today. Essentially, we have two different routes leading to the same destination.

What makes this comparison particularly powerful is how the modern challenges in both countries mirror each other, despite their different historical approaches.

In the US, redlining created clearly demarcated zones of disinvestment. In the UK, while the zones weren't marked on official maps, the patterns of exclusion created virtually identical areas of systematic disadvantage. Today, in both countries, we see this manifesting through:

1. A self-reinforcing cycle of property devaluation: When homes in certain areas are consistently undervalued, residents can't build wealth through property ownership, which in turn makes it harder for the next generation to enter the housing market.

2. The phenomenon of financial deserts: Whether it's called redlining or postcode discrimination, the effect is the same - areas with large Black and Brown populations face higher costs for basic financial services, from mortgages to insurance.

3. The Buy-to-Let trap: This is particularly interesting in the UK context because it represents a modern mechanism that perpetuates historical patterns. When areas are dominated by buy-to-let properties, local residents are forced into rental arrangements rather than homeownership, effectively continuing the wealth-building barriers that existed under more explicit forms of discrimination.

4. The paradox of new development: Even well-intentioned policies often reinforce existing patterns. When affordable housing is concentrated in historically disadvantaged areas, it maintains the geographical patterns of segregation established decades ago.

The Right-to-Buy policy in the UK offers a particularly clear example of how seemingly neutral policies can reinforce racial inequalities. Black and Brown communities, having been historically excluded from council housing, couldn't benefit from the opportunity to purchase their homes at discounted rates. This mirrors how the FHA's policies in the US, while theoretically race-neutral, effectively excluded Black families from the post-war homeownership boom.

In essence, what we're seeing is that whether through mapped redlines or unwritten rules, both systems created durable patterns of exclusion that continue to shape access to housing and wealth-building opportunities today. The mechanisms might have differed, but the architecture of exclusion remains remarkably similar and equally effective in both countries.

6. Addressing Housing Inequality in the UK

Addressing Britain's housing inequalities requires understanding how historical patterns of discrimination continue to shape current outcomes. While the methods were different from American redlining, the effects on wealth building and community development have been similarly profound and long-lasting.

The challenge now is to create policies and practices that actively work to undo these historical patterns rather than simply avoiding explicit discrimination. This requires understanding both the unique aspects of British housing discrimination and its connections to broader patterns of racial inequality in financial systems.

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