Even though the Fair Housing Act has resulted in significant strides toward ending discriminatory real estate practices since it was enacted 50 years ago, significant challenges related to fair housing and fair lending still exist, requiring further action by researchers, policymakers, and advocates. This theme underpinned the Federal Reserve Bank of Philadelphia and the Center for Urban Research and Education at Rutgers University–Camden’s recent Research Symposium on Fair Housing, which highlighted the past, present, and future of the Fair Housing Act.
Signed into law by President Lyndon Johnson in 1968, shortly after the assassination of Dr. Martin Luther King Jr., the Fair Housing Act1 outlawed discriminatory practices in housing transactions in an attempt to combat some of the causes of residential racial segregation. The Kerner Commission,2 which President Johnson formed in 1967 in response to major riots occurring throughout the country, noted that racial residential segregation was leading to the formation of “two societies, one black, one white — separate and unequal.” The Fair Housing Act was passed in part to address the concerns raised in the commission’s report, making it illegal for renters, homeowners, and mortgage applicants to be denied housing on the basis of race, color, religion, or national origin, a list of protected classes later expanded to include sex, disability, and family status.3
In recognition of the 50th anniversary of this landmark legislation, leading scholars and practitioners reflected on the Fair Housing Act’s successes, failures, and opportunities for the future during a recent one-day research symposium hosted at the Philadelphia Fed. To kick off the event, Katherine O’Regan, former assistant secretary of the U.S. Department of Housing and Urban Development (HUD) and currently professor of public policy and planning at New York University, explored the context in which the Fair Housing Act was passed, followed by a discussion from leading scholars on the latest research on fair housing and residential segregation, fair lending, and policy approaches to fair housing. Regulators, consumer advocacy groups, and practitioners also shared their perspectives on challenges and policy solutions related to fair housing and fair lending. These wide-ranging perspectives — some of which will be featured in a forthcoming special edition of Housing Policy Debate — allowed attendees, who represented government agencies, academia, and nonprofits, to consider how they could apply this research and commentary to their work.
Although there are continuing fair housing and fair lending challenges, the symposium’s participants shared optimistic outlooks for the future of the Fair Housing Act. However, the research symposium revealed three key factors that must be considered in order for the Fair Housing Act to better fulfill its purpose.
1. Policy solutions are needed to address residential segregation that still persists and, in some areas, is increasing.
According to Christopher A. Wheeler and Paul Jargowsky of the New Jersey Department of Community Affairs and Rutgers University–Camden, respectively, “the goals of the Fair Housing Act can’t be realized unless we focus on spatial equity in metropolitan areas.” Their research shows that racial residential segregation decreased from 1990 to 2010, but economic residential segregation increased during the same time period. This increase of economic residential segregation has contributed to an increase in concentrated poverty. Wheeler and Jargowsky’s analysis shows that between 2005 and 2009, an estimated 9.5 million people lived in concentrated poverty in the United States, but between 2011 and 2015, 13.8 million people lived in concentrated poverty. This increase was most pronounced for Hispanic residents.
Their analysis also indicates that historic changes in economic residential segregation vary across metropolitan areas. For instance, the Minneapolis–St. Paul metropolitan statistical area (MSA) saw a small decrease in economic residential segregation between 1970 and 2010. However, the Philadelphia MSA experienced a much larger increase in economic residential segregation, and neighborhood inequality increased much faster than household inequality. Wheeler and Jargowsky attribute the growth of economic residential segregation to increases in household inequality and increases in the sorting of households into neighborhoods, and they conclude that policy solutions to address spatial inequities in metropolitan areas, such as local zoning reforms, are needed to address the increase of residential segregation.
Small Area Fair Market Rents (SAFMR) and the enforcement of the Affirmatively Furthering Fair Housing (AFFH) rule are two possible solutions to address residential segregation, according to the symposium’s participants. HUD sets voucher rent limits, or Fair Market Rents, for an entire metropolitan area, but housing units in neighborhoods of higher opportunity generally charge rents that exceed HUD’s rent limits, resulting in voucher holders being excluded from those neighborhoods. In an attempt to promote greater mobility for voucher holders, HUD instituted a new rule in select metropolitan areas that sets rent limits for voucher holders at the zip code level — SAFMRs4 — to make higher-opportunity neighborhoods available to voucher holders. Vincent Reina, assistant professor of city and regional planning at the University of Pennsylvania, examined whether SAFMRs improved the quality of neighborhoods where black and Hispanic voucher households live. Looking at six demonstration sites, Reina found that in certain geographies, SAFMRs were associated with greater access to opportunity for black and Hispanic households, which could help reduce racial segregation, but gains were not consistent across all areas, according to his preliminary analysis.
Enforcement of HUD’s AFFH rule could also help remedy increases in residential segregation. AFFH requires that HUD grantees submit an Assessment of Fair Housing (AFH) to continue to receive funding. By requiring AFHs to receive funding, HUD forces communities to evaluate how they are addressing challenges related to fair housing and to establish goals and priorities to further those efforts. In an analysis of submitted AFHs, Justin Steil and Nicholas Kelly of the Massachusetts Institute of Technology find that while 17 of the 49 AFHs submitted to HUD before the rule was suspended on January 5, 2018, were initially rejected, the majority of rejections were revised based on HUD’s feedback and accepted before the rule’s suspension. These rejections demonstrate the effectiveness of the rule as communities are being held to higher standards in regards to fair housing. According to Steil and Kelly, it also demonstrates that, before the suspension of the rule, standards were being enforced, HUD was providing constructive feedback, and there was intergovernmental collaboration. SAFMRs and AFFH demonstrate just two ways to improve the state of fair housing.
2. Tests for fair lending can be improved.
Researchers at the symposium discussed the need for improvement in fair lending tests and presented new fair lending measures to more effectively reveal discrimination in mortgage lending. Laurie Goodman, vice president for housing finance policy at the Urban Institute, proposed a new measure of mortgage denial rates, the real denial rate (RDR). The RDR improves upon the widely used observed denial rates (ODR) by holding credit profiles of mortgage applicants constant. In her analysis, Goodman finds that ODRs underreport how difficult it is for mortgage applicants with poor credit to obtain a mortgage compared with RDRs. She reports that RDRs more accurately measure the accessibility of credit over time and across different channels (e.g., government or conventional channels). Additionally, RDRs suggest that a significant portion of the differences in ODRs by race and ethnicity can be attributed to differences in applicants’ credit scores.
Jason Dietrich, senior economist at the Consumer Financial Protection Bureau, proposed a new test for discrimination in mortgage pricing through the use of data envelopment analyses, which he uses to estimate if minorities with certain combined loan-to-value ratios (CLTVs) receive unusually higher mortgage rates than nonminorities. This analysis also makes it possible to simulate disadvantage or introduce lending discrimination, including unusual rates, discount points, or fees, to minority borrowers by manipulating FICO scores, combined loan-to-value ratio, and loan amounts to estimate patterns of lending discrimination and better identify unfair lending practices.
Both Goodman’s and Dietrich’s new measures offer innovations on traditional approaches of assessing fair lending. While both ideas are preliminary, they can potentially improve the state of fair lending, especially as lenders continue to innovate.
3. Further collaboration between research and practice is needed.
Practitioners called on researchers to provide more opportunities for meaningful collaboration. Just as legal efforts need to be combined with advocacy and organizing to achieve the best results in addressing fair housing challenges, as noted by Kevin Walsh, executive director of the Fair Share Housing Center, research and practice need to be complementary. For instance, Anju Chopra, a senior policy manager at ProsperityNow, described the need for research in making policy recommendations. She said that strong policy recommendations rely on multiple pieces of research that demonstrate similar results. Therefore, the evidence base needs to be continually replenished and expanded for new and innovative policies to take hold. For policy to be reformed, practitioners need stories in one hand and data in the other hand, demonstrating the need for advocates, researchers, and policymakers to work together rather than in silos.
All consumers deserve the guarantee of fair and reasonable choices when purchasing a home, renting a housing unit, or applying for a mortgage, which is the intent of the Fair Housing Act. New challenges continue to arise for fair housing and fair lending, requiring researchers and practitioners to continue to advance new, innovative ideas and practices for the Fair Housing Act to better fulfill its intended purpose for all Americans.