Black Housing in Chicago and the Racial Wealth Gap

Home ownership is viewed as a cornerstone of the American Dream. Often the single most important asset owned by an American family, it serves as the basis for family and generational wealth. Owning a home was presented as the defining goal for the postwar generation. This was especially true for Black Americans who wished to partake in the upward mobility enjoyed by other ethnic and racial groups during the post-World War II boom in the US economy. Most were determined to secure a better life for their families, away from the crushing poverty of sharecropping and crop lien arrangements prevalent in the South. They also sought to escape the brutal, extrajudicial mechanisms of justice including lynching and forced servitude through convict leasing.

The Great Migration was initially a trickle and then a flood of more than a million African Americans moving from the rural South to the urban South, North, and West between 1915 and 1960. Those who settled in the North experienced harsh contradictions. They enjoyed better paying jobs and opportunities but also endured serious tradeoffs such as housing segregation. These discriminatory practices were designed to limit and extract Black wealth.

According to a recent study from Duke University’s Samuel DuBois Cook Center on Social Equality on Chicago housing practices in the 1950s and 1960s, Black housing opportunities were severely constricted. The report’s authors compare these practices to a wholesale plunder of wealth from Black communities.

For instance, real estate developers and banks notoriously used redlining to designate areas where Black Americans could settle, refusing to extend loans or to rent outside of the designated areas. Another practice, just as pernicious and fully exposed in the recent Duke University study, was the housing sale contract. Rather than a mortgage deed, Black migrants to Chicago were sold a contract that saddled them with all the responsibilities of home ownership but none of the benefits, according to Bloomberg.

Housing sale contract — also known as home installment contracts, contracts for deed, and contract buying — essentially acted as a rental agreement in which Black tenants paid all of the fees associated with homeownership, including taxes and repairs.

The buyer made a down payment on the property and then monthly installment payments. These contracts made the buyer responsible for paying the mortgage, property tax and all maintenance on the home. The buyers, however, enjoyed none of the benefits of traditional mortgage holders. All the benefits accrued to the seller. The seller held the mortgage, built and benefitted from the equity in the home, maintained the right of eviction, often even if one payment was missed. They could also take out additional loans against the property (liens).

These contracts were borne of the discriminatory practices endorsed by the federal government’s support of redlining. Black migrants from the South were eager to escape rental agreements and substandard housing options. House sale contracts, at first glance, seemed a panacea when compared to these limited options.

The study revealed several disturbing trends as it relates to housing opportunities for African Americans and the creation of today’s racial wealth gap.

Housing contracts existed completely outside of the regulated housing and mortgage market. Sellers controlled all aspects of the sale. Most homes sold utilizing the housing sales contract had significant price markups. Estimated markups for home sales were as much as 84%. For instance, a white speculator could purchase a home in a racially changing neighborhood for $12,000. That same home would or could be sold to a black buyer within days for weeks for as much as $22,000.

Because many Black homeowners were denied access to conventional home loans or Federal Housing Authority (FHA) backed mortgages, they often paid much more for their homes.

On average, Black buyers paid more than $587 more per month for their homes than if they had used one of the standard loan instruments. This is problematic because most homes sold to Black buyers were sold on contract.

In addition to paying more for one’s home, Black buyers paid more points in interest on their loans. These rates were higher than those paid by whites on similar mortgages, which were conventional, or FHA backed. As a result of these discriminatory practices, housing sale contracts extracted from between 3.2 and 4 billion dollars from Chicago’s Black community in the postwar years.

Housing discrimination is one of the best examples of systematic structural discrimination. Proponents of reparations such as Ta-Nehisi Coates and William Darity Jr. have pointed to the ways in which these practices have severely constrained Black progress.

About the Author

Stephen G. Hall is a sections editor for The North Star. He is a historian specializing in 19th and 20th century African American and American intellectual, social and cultural history and the African Diaspora. Hall is the author of A Faithful Account of the Race: African American Historical Writing in Nineteenth-Century America and is working on a new book exploring the scholarly production of Black historians on the African Diaspora from 1885 to 1960.