A Requiem for Blockbusting
The Campaign Against Black Wealth in American Housing
In 1962, a “For Sale” sign appeared in an all-white neighborhood in Chicago. What happened next was described in The Saturday Evening Post:
a wave of fear swept across the block. A Negro family already was living several blocks away. … Suppose the bungalow came into possession of a Negro? What would happen to the rest of the block? … “Relax,” said the bungalow owner. “I’m selling this through a white real-estate man. I won’t even talk to a Negro.”
Imagine their shock, then, [when] the new owners moved in — Negroes. … Other Negro families arrived to look at homes in the block. … Almost overnight [a] family with four children sold out at a sizable loss. So did six other homeowners in quick succession. … Finally the last of the whites left — whether or not they could afford to move. …
I triggered the whole sequence of events by buying the bungalow and quickly selling it to a Negro. I am a blockbuster.
For nearly two decades starting in the 1950s, real estate speculators known as “blockbusters” bought homes in white-only neighborhoods and resold those homes to black buyers.
These blockbusters were national pariahs. Whites hated them for dismantling the segregation they had spent decades building. Progressives hated them for earning profits by antagonizing whites and exploiting blacks. Newspapers and government reports blamed them for destroying neighborhoods.
By the end of the 1960s, a national anti-blockbusting campaign — sponsored by both civil rights leaders and racist white citizens — drove the blockbusters out of business.
For most African American families, this result was a disaster. As greedy and abusive as blockbusters may have been, they were black families’ only allies in the trench warfare to obtain housing and housing finance. Before the blockbusting sector got legislated out of existence, it was highly competitive and expanding rapidly. Had these trends continued, housing prices for black families would have fallen, and financing terms would have become more competitive. Hundreds of thousands of black families would have had the opportunity to buy into America’s housing markets decades ago.
Instead, black families in America today have, on average, a tiny fraction of the wealth of white families, driven almost entirely by their lack of home equity. Large numbers of poor black families live in hyper-segregated neighborhoods with limited access to opportunity.
The rapid rise and fall of blockbusting make it a rich, self-contained case study of the argument for left-of-center libertarianism. Progressives’ visceral hostility to market forces caused them to advocate simplistic big-government solutions. Those solutions harmed blacks and helped reinforce a segregated economy.
1910–1950: The Construction of Segregation
American residential segregation began in the early 1900s. Prior to that, blacks and whites lived in close proximity. Beginning around 1910, however, technological and economic changes caused demand for black workers in the agricultural South to dry up just as the need for unskilled workers skyrocketed in the industrializing northern and coastal areas of the US. From around 1910 onward, hundreds of thousands of black citizens migrated annually in search of economic opportunity. Between 1910 and 1960, something like 6 million blacks migrated within the United States.
White Americans mostly reacted to this migration with coordinated and violent hatred. Driven by xenophobia, they used physical, political, and economic power to drive blacks into strictly circumscribed ghettos. The ugliness was a team sport, including local governments, state and federal agencies, courts, businesses, and the media.
At the federal level, the Federal Housing Administration encouraged racial covenants, stating that they “provide the surest protection against undesirable encroachment and inharmonious use.” These covenants contractually prohibited homes from being resold to black families. By the 1940s, integrated neighborhoods had ceased to exist in every major city in the United States.
This anti-black legal edifice took some hits in the 1940s, when the United States Supreme Court issued a series of rulings against racial covenants in housing. By the end of the decade, contract provisions that prohibited resale to black families were no longer legally enforceable.
White racists, however, found ways to work around the rulings to maintain segregation. For instance, both federal and local agencies encouraged white flight by steering resources to whites seeking segregated suburban houses and schools, while cutting those resources for black families. So-called “urban renewal” laws were used to raze expanding black neighborhoods that threatened white institutions. Federal funds were used to construct massive public housing projects for the displaced black residents.
Real estate agents were quiet but crucial actors in driving segregation. As one real estate agent put it in the mid-1950s,
It’s a sort of unwritten code that respectable real estate brokers should guide people into the areas where they’ll fit in socially and keep them out of areas where they won’t. Everybody’s happier that way. The people who live in the neighborhood are happier. The customers are happier, in the long run. And as for the broker himself, he’s happier.
Realtors, who were almost exclusively white men, were ideologically committed to steering races and ethnic groups into distinct enclaves. Indeed, from 1917 until 1950, the charter of the National Association of Real Estate Boards made it a violation of professional ethics to sell a home to someone whose race or ethnicity might disturb the neighborhood. Although this code was removed from the formal guidelines in 1950, it remained an unwritten governing ethic for decades.
The 1950s: The Emergence of Blockbusting
Segregation restricted the supply of housing for blacks at the same time as black migration to northern cities massively increased demand. Whites, by contrast, had net emigration from urban centers, causing net demand for housing to fall. This created an enormous discrepancy between the prices of housing in the white and black markets. Thus, although the legacy of slavery and Jim Crow left individual black families with substantially less wealth than individual white families, blacks paid substantially higher prices for housing. This phenomenon created the incentives for blockbusting. From the book American Apartheid:
Rapid black migration into a confined residential area created an intense demand for housing within the ghetto, which led to a marked inflation of rents and home prices. The racially segmented market generated real estate values in black areas that far exceeded anything in white neighborhoods, and this simple economic fact created a great potential for profits along the color line, guaranteeing that some real estate agent would specialize in opening up new areas to black settlement.
Those who sold in black areas — the blockbusters — could obtain profits nearly double those available to sellers in white areas. But by buying homes in white neighborhoods and selling those homes to black homebuyers, they flagrantly violated the ethical norms of the industry. The blockbusters were thus considered enemies of traditional realtors.
From the 1950s onward, for roughly two decades, blockbusters bought low, sold high, and moved housing supply from whites to blacks at an accelerating pace. By 1962, when blockbusting had been in existence for barely a decade, Chicago alone had over 100 operators. For a time, blockbusters around the country were on pace to destroy the price differential between white and black housing markets, making housing much more widely available for African Americans.
But make no mistake, these men were hated.
The 1960s: The Backlash Against Blockbusting
As blockbusting gained notoreity during the 1960s, it became referred to as “civic suicide” and “communicide.” Much of the hostility was driven by white outrage at black migration.
From the outset, however, blockbusting was also attacked as bad for African Americans. By 1970, blockbusting had been cast as an anti-black phenomenon. As claimed in an article titled “The Locusts” in The Long Island Press: “The principal sufferer is the black, who seeks to escape the ghetto, but unwittingly helps create new ghettos.” In the early 1960s, national officials of the NAACP criticized blockbusters for profiting by charging high prices to blacks. As early as 1955, the Quarterly Bulletin of the Federal Home Loan Bank of Greensboro, North Carolina, wrote that blockbusting resulted in “unconscionable exploitation of minority groups [and] ill will and discontent in the affected community, and unsound loan portfolios.”
Beginning in the early 1960s, cities throughout the country began passing laws designed to stop blockbusting. The laws were sweeping. They included bans and limits on “For Sale” signs, and prohibitions on real-estate solicitation without a permit. Penalties ranged from revocation of real estate licenses at the discretion of city commissions, to criminal penalties of $10,000 or a year of jail time for a first offense.
States also passed broad laws designed to smother blockbusting activity of any sort. State laws included causes of action against realtors who stated that black families had moved into nearby homes, or who talked about the changing racial composition of neighborhoods. Truth was not a defense. These restrictions on truthful commercial speech were upheld by the courts as justified by the public policy threat posed by blockbusting, in cases such as Barrick Realty, Inc. v. City of Gary (7th Cir. 1974).
The federal government got into the act with provisions embedded into the Fair Housing Act of 1968. Specifically, § 3604(e) of the Act made it unlawful “to induce or attempt to induce any person to sell or rent any dwelling by representations regarding the entry or prospective entry into the neighborhood of a person or persons of a particular race, color, religion, sex, or national origin.” Again, truth was not a defense, and even honest answers to questions put by existing owners were actionable. In other words, the act made it criminal to truthfully answer a buyer’s question about demographics. Crucially, the Act specified that this behavior was only illegal if it was “For profit.” Talking about race was now criminal, but only for those acting in their capacity as private sector real estate agents.
The logic of this attack on blockbusting were perfectly captured in a class action lawsuit brought on behalf of black homebuyers by prominent attorney Thomas Sullivan of Jenner & Block. In a 1969 ruling on the case of ContractBuyers League v. F&F Investment, a federal district court acknowledged that market forces caused prices for black homebuyers to be higher than prices for white homebuyers. The court nonetheless ruled that “it is now understood that under § 1982 as interpreted in Jones v. Alfred H. Mayer Co. there cannot in this country be markets or profits based on the color of a man’s skin.” Thus, any black homebuyer could invalidate their property and finance contracts under the Civil Rights Act of 1866 if he could demonstrate “that he was charged more than a white person would have been charged or that he received less favorable terms and conditions than would have been given to a white person.”
Thus, by the early 1970s, any real estate agent who wished to sell a home to a black family faced enormous legal liabilities. If any clients alleged that their contractual terms were not identical to the terms a white family might have obtained, they would have an automatic cause of action in federal court to challenge the contracts. If a client asked about changing racial demographics, the agent would either have to decline to answer, or could be subjected to substantial civil and criminal penalties. Given the realities of the racially segregated markets of the time, the only safe way to avoid these lawsuits was to adhere to the prior professional code of racial steering: buy and sell homes only within a single race.
Today: The Restoration of Segregation
The book American Apartheid: Segregation and the Making of the Underclass was written in 1993, roughly two decades after the decisive criminalization of blockbusting. The book cited substantial evidence, including recent studies by the Department of Housing and Urban Development, that the architecture of American residential segregation was largely intact. The nation still has dual housing markets, one for whites and one for blacks. In roughly half of observed transactions in real estate markets, housing and finance were both systematically made more available and more favorable for white buyers than black buyers.
A quick skim of the newspapers shows the same throwback tactics as used by segregationists decades ago. Consider Bob Herbert’s column in The New York Times on January 15, 1998 (discussing threats of violence against a landlord for showing homes to blacks); or David Josar’s story in the Detroit News on November 30, 1995, reporting how a man threatened to “chop up” a black couple and bury them in his backyard if they moved into his white neighborhood; or “The Elmwood Incident” in The Philadelphia Inquirer on May 4, 1986, which discussed how white residents firebombed the home of the first black family to enter their neighborhood.
Thus, the sentiment, actions, and segregation which were blamed on the blockbusters continue to exist years after the blockbusters ceased their activities.
We Got It Wrong: Redeeming the Pariahs
Taking a step back, and ignoring the alleged harms of blockbusting to whites, what was it that caused civil rights leaders to hate blockbusters? They were accused of promoting racial stereotypes and tension, and of overcharging black families. Let’s address each claim in turn.
Did Blockbusters Promote Racial Tension?
Blockbusters had an economic incentive to exacerbate white fears. If they warned whites that black neighbors were coming, and would be dangerous neighbors, then they were more likely to obtain a seller’s contract. Evidence from the period suggests that blockbusters did indeed deliberately incite such fears.
Several caveats, however, suggest that these actions by blockbusters may not have been inherently immoral, and may have had little negative impact on the racism of the time.
First of all, as discussed earlier, the ambient environment of the time was rife with extraordinary and explicit racism which was carefully coordinated to build the edifice of segregation. Most of the objectionable actions of blockbusters, including many activities that were criminalized, only caused fear because the neighborhoods were already full of racial animus. For example, many of the anti-blockbusting laws criminalized the placement of “For Sale” signs. Other laws punished realtors who showed homes to black families during daylight hours, or at night with the lights on. Other criticized activities included advertising homes from white neighborhoods in newspapers with primarily black circulation, so as to encourage large numbers of black buyers to walk and drive through the neighborhood. None of these activities would have been even remotely objectionable but for the racial panic of the white neighborhoods, which had existed since waves of black migration from the agricultural South started decades earlier. As Edwin Mills wrote in 1972 in Urban Economics, “to blame housing segregation on realtors and mortgage lenders is like blaming bad news on the journalist.” Even the anti-blockbusting court in Zach v. Hussey admitted,
Perhaps the single most significant factor operating in this case is the racial fear of the white residents of the area involved. At times, this fear has become so irrational and pervasive that it reflects a hysterical community psyche.
Second, blockbusting speech and activities do not appear to have been particularly virulent. The primary tactic of blockbusters was to identify an area near an expanding ghetto, quietly acquire a few homes or apartments, and then sell the home to what American Apartheid described as “ostentatiously lower-class blacks.”’ Most blockbusters did nothing more aggressive than insistently offering to pay cash for houses. As the Zuch v. Hussey court noted, when faced with the claim that blockbusters had shown homes to African American customers at night with the lights on, “the witness also testified that under the same conditions, he would not have been concerned if the buyers had been white. There are perhaps ways to show a house to a black family at night without the aid of lights, but the Court is unable to think of any that would be either practical or effective.” This attack on the blockbusters is particularly ironic given the history of segregation, which for decades made it taboo for any real estate agent merely to be seen with a black person.
Third, these tactics may have been necessary to acquire homes. The overlapping social and professional norms of the time made white homeowners extremely reluctant to sell their homes to or through blockbusters. After one middle-aged couple sold their former home to a black family, for instance, the couple’s former neighbors hired a sound truck, drove to the couple’s new home, and cruised the block, using the sound truck to shout:
Be sure and meet your new neighbors, the Joneses. They sold out their old block to Negroes.
At the neighborhood level, as described in the book American Apartheid, voluntary associations
lobbied city councils for zoning restrictions and for the closing of hotels and rooming houses that attracted blacks; they threatened boycotts of real estate agents who sold homes to blacks; they withdrew their patronage from white businesses that catered to black clients; they agitated for public investments in the neighborhood in order to increase property values and keep blacks out by economic means; they collected money to create funds to buy property from black settlers or to purchase homes that remained vacant for too long; they offered cash bonuses to black renters who agreed to leave the neighborhood.
In such an environment, discussing racial demographics and pursuing high-pressure sales tactics may have been the only way to counter the power of segregationists in keeping homes away from black families.
Finally, the idea that blockbusters caused racial tension assumes that in the absence of blockbusters, racial tension would dissipate. A simple review of the landscape of residential real estate shows the delusional quality of some of the court cases from this period. For example, 1975’s Zuch v. Hussey argued that cities have “enough fair-minded people of both races, who have respect for diversity, to insure that there will indeed be integrated … neighborhoods.” The court in Harris v. City of Buffalo predicted that “the delicate process of neighborhood integration” would result in “the natural realization of economically stable, racially integrated, heterogeneous neighborhood housing.” As noted above, poor black families remain hypersegregated in America today.
Did Blockbusters Drain Wealth From Black Communities?
The other major criticism of blockbusters is that they drained so much wealth from black families that they doomed black neighborhoods to failure. They did this, according to the argument, by using their unfair bargaining power to sell homes at sharply inflated prices with usurious installment-contract financing.
The installment contracts were, indeed, ugly. In many of them, if the black families missed even a single payment, they could forfeit all of their accumulated equity. Black families had little recourse, as the racist financial regulations and institutions of the time did not make legitimate financing available.
Having conceded that these contracts were nasty, let’s address the question of whether the housing prices were inflated, and whether there were other solutions to the problem of financing other than banning blockbusting entirely.
First, the obvious policy alternative to banning blockbusting would be to make nondiscriminatory financing more available. As the City Commission on Human Rights of New York noted in its 1963 Report on Blockbusting:
The interest rates paid by the Negro home owner for mortgages on his property were spectacularly higher than they would have been if he had been able to finance the purchase of his home through an FHA or VA loan or through conventional lending channel.
Another policy approach, shy of banning blockbusting, would have been to simply protect black homebuyers’ equity in installment sales contracts. This basic consumer protection, especially alongside better education of buyers, would have eliminated the aspect of the installment contracts that most closely paralleled the sharecropping system that blacks fled the agricultural south to escape.
Second, as bad as blockbusters may have been, the alternative for most black families was worse. Black families lived in poorly ventilated, highly concentrated, unhealthy conditions with inadequate social services, leading to high rates of illness and death. Apartments were carved out of bedrooms, closets, garages, basements, and sheds. Even conceding that blockbusters had bargaining power advantages over black buyers, that bargaining power had a root cause. On a single day in Chicago during this era, over 600 black families sought housing when only 53 residences were available
Indeed, the limited available evidence suggests that blockbusting was starting to ameliorate these problems before it was extinguished. For example, one study of Chicago concluded that during the 1960s, discriminatory pricing decreased while the overall quality of housing for blacks during the period rose appreciably. On the flip side, in researching this paper I reviewed thousands of pages of anti-blockbusting newspaper articles, legislative testimony, public hearings, law journal reports, and legal cases, and did not find a single systematic evaluation that concluded that metropolitan-area blacks who purchased from blockbusters were worse off than those who did not.
Finally, and essentially for the issue of “profiteering,” while blockbusters made significant profits, they also bore risks and costs. By dealing with blacks, blockbusters earned the social sanctions of the segregationist era, including boycotts, local government sanctions, and even death threats. A story in The New York Times from December 9, 1969, quoted a real estate agent as complaining: “If we don’t sell to colored, we’re bigots. If we do, we’re blockbusters.” Although in retrospect it is clear that blockbusters earned tremendous returns, the investments were considered risky at the time. Recall that when blockbusters were active, banks would not lend to blacks, and whites would not sell to blacks. Without the profits available from blockbusting, the real estate and finance industries might not have been willing to alienate their racist white customer base by dealing with blacks, or at the very least might have slowed their activities. The profits available to blockbusters were the biggest driver of support for black homebuyers during this period.
What Might Have Happened Instead
The high premiums of the early blockbusting period should have been a temporary phenomenon. The blockbusting industry, after all, emerged only after several decades of black migration to urban areas, where a solidly segregated regime denied them access to homes. When legal segregation began to be dismantled and blockbusters began their work, the pent-up demand was enormous. At the outset, blockbusters could limit themselves to those blacks who were highest up on the demand curve, and hence charge rates far in excess of the market equilibrium rate. Blockbusters probably augmented this profit with some oligopolistic market power; blacks were desperate for housing, and thus were in no position to shop around or bargain effectively. Blacks probably also lacked good information about the market during this initial period, contributing to blockbusters’ market power. These factors together should have, and did, lead to several years of poor bargains.
Over time, however, simple economic theory predicts that these high prices would have come down. The strongest pent-up demand was met by the early blockbusters, forcing later blockbusters to provide their services to blacks whose willingness-to-pay for housing was lower on the demand curve. As that happened, the supply of housing and home financing for blacks should have increased. High profits would have attracted new entrants into the market for black housing. White homeowners, facing the inevitability of blockbusting and realizing the profits to be made by selling directly to blacks, should have increasingly ignored social sanctions to sell directly to blacks. With the blockbusters having demonstrated the profitability of lending to blacks, banks would have increasingly realized the costs of their racism and would have attempted to exploit that market (perhaps by setting up subsidiaries to avoid sanctions from white consumers). These supply and demand effects would have eroded the ability of the blockbusters to collude tacitly to keep prices high. In addition to more competitors and less-desperate customers, the blockbusters would have also had to contend with savvier consumers, as information about the blockbusters and their products became more widespread.
We will never know for certain whether these effects would have occurred. The evidence, however, suggests that those effects were already occurring. In 1970, the Deputy Chief of the Housing Division of the U.S. Department of Justice wrote: “Increased housing opportunities for Negroes and the tight money market have made speculation less profitable. Higher interest rates are costly to the dealer and the increasing supply of housing that is open to Negroes has lowered the prices that can be extractedfrom them.”’ A 1976 study of Chicago’s housing markets after the blockbusting of the 1950s and 1960s concluded that the “combination of accelerated filtering and rapid residential relocation produced a substantial sag in demand in areas of traditional minority residence (i.e., those areas with the greatest minority proportions) as well as in other inner city neighborhoods and communities. Little wonder, then, that we find that, by 1972, blacks and other minorities were paying less than the white majority for housing systematically controlled in the models for quality, improvements, incomes, and other neighborhood factors.” Thus, two decades after blockbusting came into existence, and a decade after it began to grow rapidly, the salutary effects of the blockbusting industry were already empirically demonstrable.
If economic theory had been allowed to continue to work, as it appears to have been working before it was stopped, salutary secondary effects would have been felt beyond the busted neighborhoods. The costs of racism to the real estate and financial industries — in terms of foregone profits — would have been exposed. Banks in particular, looking at the profitable track record of the blockbusters, might have realized that they had exaggerated the risks of dealing with blacks. Moreover, as more and more whites chose to cut the blockbusters out of the loop and deal directly with blacks, the social sanctions might have weakened. Whether this effect would have actually occurred will never be known.
A Victory for the Bad Guys
Anti-blockbusting laws strengthened segregation, and not by accident.
Anti-blockbusting provisions, such as anti-solicitation ordinances, were explicitly designed to stop market forces and preserve the status quo. For example, many segregationist whites during this period voluntarily refused to put up “For Sale” signs for fear of attracting black buyers. This racist norm became law in many cities and states, which banned “For Sale” signs as one of the blockbusters’ techniques for inspiring white fear. Thus, the same racist actions that were explicitly designed to exclude blacks from the white housing market were codified into law by the anti-blockbusting regime.
The racial animus motivating many of these laws was recognized at the time, even by courts that upheld the laws themselves. In the modern Pearson v. Edgar case, a federal judge wrote that: “this Court strongly believes that community organizations, such as [the one at issue in this case], primarily use [anti-solicitation statutes] to block minority entry into their communities.” In the case of Linmark Assocs., Inc. v. Township of Willingboro, the federal court noted that “the true thrust of these sign ordinances is to promote … a racial imbalance in order to perpetuate existing racial lines.” Nonetheless, the court upheld the anti-blockbusting laws by stating: “It is within the power of the legislature to determine that the community should be… well-balanced as well as carefully patrolled.”
Racist real-estate agents were a significant part of the movement against blockbusting, as blockbusting represented a major threat to their gatekeeping function. Neighborhoods lost their ability to punish real estate agents who sold homes to blacks, because blockbusting was sufficiently lucrative that blockbusters did not need the goodwill of racist whites. A few progressives at the time noted this problem. For example, the National Committee Against Discrimination in Housing and and the Anti-Defamation League of B’nai Brith opposed anti-blockbusting legislation, based upon an underlying distrust of the real estate boards which were considered silently behind the laws. The ADL and NCAD asserted that the real estate boards favored anti-blockbusting legislation as a method of excluding blacks and thereby maintaining their racist and lucrative monopoly on racial steering.
Once the laws were on the books, who used them? Racist whites. The Zuch v. Hussey case noted that the plaintiffs were “overwhelmingly white” and sought to (1) economically destroy those real estate companies that violated social norms by dealing with blacks, and (2) keep blacks out of their neighborhoods. At the close of the trial, the district court agreed with these claims. In another federal case, a Georgia district court noted that the plaintiffs had actually tricked real estate agents into violating the law, so that they would be able to punish the agents for dealing with blacks. Thus, at precisely the time that racist whites had lost their legal power and were losing their economic power to force the real estate industry to keep neighborhoods segregated, the anti-blockbusting movement provided those whites with a powerful new weapon to bring the real estate industry into line.
Finally, anti-blockbusting laws had the further negative effect of harming black real estate professionals. The blockbusting industry included a number of black professionals, and anti-solicitation laws tended to disproportionately hurt minority-owned businesses, because such businesses were less able to rely upon personal contacts for advertising. Most importantly, black realtors tended to serve exclusively black clientele. Laws that restricted the opportunities for black home buyers thus restricted the business opportunities for black realtors.
Thus, anti-blockbusting laws were partially designed and advocated by racist real estate professionals, were applauded and approved by racist homeowners, directly hampered black consumers, and directly harmed black professionals.
Lessons Learned
Given all of these problems, it seems astonishing that progressive elements of society supported the anti-blockbusting movement. The problem appears to be that progressives lacked economic savvy, and in fact were openly hostile to market mechanisms. This hostility blinded them to the needs of individual blacks and allowed them to accept destructive policies.
Start with the hostility to market forces. Instead of being understood as a market reaction to deeper problems of racism, blockbusters were vilified precisely because they made their money from human suffering. In a frank opinion which captured anti-market ethic of the time, the federal judge in Michigan in the 1975 case of Zuch v. Hussey opined:
Violations of law in the area of human rights are to be frowned upon even when the perpetrators of such violations are acting out of personal racial prejudice which is the product of social conditioning; such violations are even more intolerable, as in the case of these defendants, when the perpetrators are not necessarily acting out their own personal racial prejudices, but are vigorously seeking to exploit the racial prejudices of others in order to satisfy their commercial greed.
Although these entrepreneurs had violated bigoted social norms to sell homes to blacks, the fact that they made a profit while doing so made them somehow more despicable than even the deepest racists. To paraphrase the sentiment, the racists, at least, were acting out of personal beliefs, while the evil blockbusters were acting just for profit. In other words, profit-seeking was worse than racism. In this climate, an economically rational response to blockbusting was impossible.
The first way that blacks suffered from this bias by their leaders was at the individual level. Prior to anti-blockbusting laws, blacks had the choice of whether or not to patronize blockbusters. By the millions, blacks indicated that their preference was for blockbusting. The anti- market, anti-blockbusting progressives, however, refused to accept that choice as legitimate, and thus enacted laws that prevented blacks from acting upon these preferences. Perhaps some progressives genuinely felt that the decisions to patronize the blockbusters were the result of market distortions such as fraud. Others, however, refused even to accept the possibility that market mechanisms can empower individuals and reveal preferences.
One court made this argument explicitly, holding that blacks should be forced to express their preferences through political, instead of market, mechanisms. According to this court, the availability of housing from blockbusters actually reduced the likelihood of true justice, “by offering the long-oppressed black an unattractive yet alternative choice to that of a confrontation for equal buyers’ rights in a white neighborhood.” The explicit articulation of the court’s anti-market bias allows us to explore its moral and empirical flaws. At face value, the court’s argument seems brutal. After all, the court appears to be agreeing that individual blacks would choose blockbusters over political confrontation. Nonetheless, the court refuses to allow them that option, preferring to force them to take political action. In addition to moral problems with overtly removing decision-making power from blacks, the court’s logic has little empirical grounding. The court fails to consider the speculative nature of the eventual political relief, or the costs that would be imposed by delay while blacks waited for political reform to take effect. Moreover, it is not clear how making blacks desperate would have enhanced their ability to influence the all-white power-brokers of city government.
In addition to disrespecting the preferences of individual black families, the anti-market bias of the progressives hampered the overall effectiveness of the fair housing movement. Blaming blockbusters diverted attention from the deeper problems that allowed the blockbusting industry to exist, and spent political energy on initiatives that did not work. Assuming that political energy is finite and the conservative forces of society tend to fight back, this misallocation of political resources may have hindered the fight for genuinely effective solutions to the problems faced by urban blacks.
The irony is even greater in light of the many pro-market solutions that were theoretically available. For example, if exorbitant premiums resulted from real estate speculators taking advantage of ignorance among blacks about the terms of installment sale contracts, a public education campaign directed at blacks would have driven down the premiums charged by real estate speculators and allowed blacks to more directly benefit from the involuntary sacrifices of racist whites. Insurance represents another example: localities could easily have provided insurance against sharp declines in property values, providing economic security for whites who wanted to experiment with integration as black families moved in.
Subsidized lending is another obvious solution to the problem of racism in the real estate finance markets. The government had already set up several institutions to create a market for mortgage finance generally to encourage home-buying. It would have been an easy policy step to prohibit those agencies from using racism in setting up their lending structures; it would have been only a little less easy to expressly subsidize loans to black home purchases in mostly-white neighborhoods. Or, perhaps state and local governments might have guaranteed loans for a slight charge, thus pooling the risks that blacks would default on their loans, and allowing whites to be more confident of their deals with blacks.
The point, however, is not to describe exactly what the progressives should have done about blockbusting. Rather, the point is to urge that progressives cannot afford to cede economics to their enemies. Markets allow an expression of preferences, including in some circumstances the preferences of society’s worst-off. Just as importantly, markets will punish policy-makers who ignore them. Only by working with markets, or at least picking careful fights with them, can progressives address problems of racial and economic justice.
Original version of this article was published in the Fordham Law Review in 1998. The 1998 version of this article may be downloaded at ir.lawnet.fordham.edu.
