Secret #24 – The Same 1968 FHA Program that Devastated Many Black Inner Cities Caused a Boom in New Home Construction in the White Suburbs
“In cities as diverse as Chicago, Detroit, Philadelphia, Seattle, San Jose, and Columbia, South Carolina, real-estate brokers, FHA officials, and mortgage bankers were arrested and indicted for a criminal conspiracy to commit fraud. By 1974, twenty-eight HUD officials had been indicted for their role in the housing scandal along with other mortgage brokers and real-estate brokers. The FBI was conducting another 1,930 active investigations for fraud.” - Taylor, “How Real Estate Segregated America,” 2018.
Today, no one talks about the Section 235 program devastating those inner cities but there’s another part of the story that is never talked about at all.
Although the Section 235 program was sold as a program to revive the (Black) inner city, it helped cause a boom in new house construction in the (White) suburbs.
While in some cities, local FHA officials let lower-income, inner-city Blacks be scammed by real estate investors using the Section 235 program, many lower-income, inner-city Whites and other Whites used the exact same program to buy new houses out in the White suburbs with $200 down payments and interest rates as low as 1%. New single-family house construction skyrocketed in 1971 and 1972 and the Section 235 program played a role.
Through 1972, there were 360,000 starts of new 1-to-4 unit structures under the Section 235 program.
The program was particularly important to the mortgage bankers part of the mortgage industry because they sell more FHA mortgages. “According to the director of research of the Mortgage Bankers Association of America, as of April 1970, section 235 loans were making up three-fourths of most mortgage bankers' business” (U.S. Commission on Civil Rights, 1971).
Helping the inner city was the main sales pitch that created a program that was a huge boom to new house construction in the White suburbs, even though the same program decimated the Black inner-city neighborhoods in some cities, including in Chicago, Detroit and Philadelphia.
Discussion here.
The Section 235 program was a boon to the real estate industry, not just the inner-city scammers, but it only got approved because the program was sold as helping people living in the inner city.
My theory is the real estate industry learned from this experience that they can get more of what they want from the government if they sell the new programs they want as being good for lower-income Americans and people of color even if they ended up being predatory toward Blacks, predatory inclusion. This is what I think of as, “blaxploitation,” using inclusive arguments to sell policies that turn out to be predatory toward Blacks. It would help explain why the Black home ownership rate is essentially the same today as when the Section 235 program became law over 50 years ago.