How Redlining Shaped American Neighborhoods

In many parts of the United States, it’s easy to notice that neighborhoods often reflect patterns of race and income. Some areas are mostly white and wealthy, while others are home to mostly black or Latino residents and face higher rates of poverty. These patterns didn’t happen randomly or purely by personal choice. One major reason behind them is a practice known as redlining.

Redlining was a government-supported system that discouraged banks and other lenders from investing in certain neighborhoods, often based on the race or ethnicity of the people who lived there. Even though this practice started nearly a century ago, it left behind a deep imprint on American cities. Understanding how redlining worked helps to explain why so many communities today still struggle with unequal access to housing, schools, health care, and economic opportunity.

The Origins of Redlining

Redlining began in the 1930s, during the Great Depression, as part of President Franklin D. Roosevelt’s New Deal efforts to stabilize the housing market. The U.S. government created the Home Owners’ Loan Corporation (HOLC) to help people refinance their mortgages and avoid foreclosure. As part of its work, HOLC developed maps of cities that color-coded neighborhoods based on how risky they were considered to be for mortgage lending. Green meant “best,” blue was “still desirable,” yellow was “declining,” and red meant “hazardous.” Areas marked in red were usually home to black families, immigrants, and lower-income people, even if the residents were hardworking or the homes were in good condition.

These maps were used by banks, insurance companies, and FDR’s Federal Housing Administration (FHA) to decide where to issue loans. The problem was that “risk” was often judged by race or ethnicity, not actual financial facts. As a result, entire neighborhoods were cut off from investment simply because of who lived there.

Redlining in Practice

Once a neighborhood was redlined, it was labeled as a bad investment, so banks, mortgage lenders, and the federal government refused to support home loans there. Even if a family had a stable income and good credit, just living in a redlined area could mean they’d be denied a mortgage or forced to accept unfair loan terms. Insurance companies also backed away, making it harder for people to protect their homes or businesses.

The FHA, which was created to help Americans afford homes, played a big part in this system. The FHA would only insure loans in neighborhoods it considered “low risk,” which almost always meant majority-white areas. That meant white families could buy homes with government-backed loans in the suburbs, while black families were often stuck in inner-city neighborhoods with no access to the same opportunities.

This pattern hit cities like Chicago, Detroit, and Philadelphia especially hard. In Chicago, large sections of the South and West sides, places where black families had moved during the Great Migration, were redlined. North Philadelphia, home to many black people and immigrants, was also redlined. Because banks refused to issue loans in those areas, the buildings aged without repairs. Over time, these areas were left to deteriorate.

Social and Economic Effects

Redlining didn’t just affect individual families trying to buy a home: It harmed entire neighborhoods. When banks pulled out, businesses followed. Grocery stores, banks, and other services stopped opening in redlined communities. Cities often chose not to maintain basic infrastructure like roads, parks, and streetlights in those neighborhoods because they were considered “undesirable” for development.

Public schools suffered, too. Since many schools are funded by local property taxes, neighborhoods with lower home values collected less money for education. That led to overcrowded classrooms, fewer resources, and lower overall school quality, making it even harder for the next generation to succeed.

The Lasting Impact on Urban Landscapes

The effects of redlining didn’t end when the HOLC maps were officially retired. Many of the neighborhoods that were once marked in red still carry the consequences today. The patterns of disinvestment, unequal access, and segregation set in motion decades ago are still deeply embedded in the layout of American cities.

Formerly redlined neighborhoods tend to have lower property values, aging housing stock, and underfunded public services. Public transportation options are often limited, and access to things like libraries, grocery stores, or quality health care is still uneven. These gaps in basic resources can contribute to worse health outcomes and higher rates of crime, not because of who lives there but because of decades of disconnection from opportunity and investment.

Green spaces such as parks and tree-lined streets are also less common in many formerly redlined areas. Studies show that the lack of greenery and public gathering spaces can negatively affect mental and physical health. At the same time, disrepair of roads, sidewalks, and public facilities signals a continued neglect of these communities by local governments and developers.

Even when homes in these areas are comparable in size and quality to those in other neighborhoods, their market value often remains lower. This slows down wealth-building for families who live there and limits the funding available for local schools and infrastructure, since many city services rely on property tax revenue.

The urban landscape, including the placement of highways, the rise and fall of business districts, and the boundaries of school zones, still reflects decisions made during the redlining era. Those maps may no longer be in use, but their influence is still visible in who has access to what and where.

Redlining’s Role in the Racial Wealth Gap

Because families in redlined neighborhoods were blocked from buying homes with fair, affordable loans, many remained renters for generations. Renters don’t build home equity, which meant families couldn’t use their housing as a tool for financial stability or pass down assets to their children. Meanwhile, white families in higher-rated neighborhoods were able to buy property, benefit from rising home values, and build generational wealth.

This unequal access to homeownership helped create what we now call the racial wealth gap, a wide financial divide between white households and non-white households. It wasn’t just that black families couldn’t buy homes; they were excluded from the financial foundation that allowed other families to pay for college, start businesses, or retire comfortably.

Even today, that divide hasn’t closed. Many of the homes purchased by white families in the 1940s or 1950s are now worth hundreds of thousands of dollars or more. In contrast, black homeowners in formerly redlined areas often saw little appreciation in home values, even after decades of ownership. Redlining set that gap in motion, and its effects have only deepened over time.

Legal Challenges and the End of Official Redlining

The Civil Rights Movement in the 1960s led to major changes in housing policy. In 1968, the Fair Housing Act made it illegal to discriminate in housing based on race, religion, or national origin. Banks could no longer deny loans purely because of where someone lived or the racial makeup of a neighborhood.

Still, the law didn’t erase decades of damage, and it didn’t stop discrimination entirely. Some banks and real estate agents used subtle methods to keep people of color out of certain neighborhoods, such as offering worse loan terms, steering buyers away from certain areas, or using vague reasons to deny applications. These unofficial forms of discrimination continued to echo the same patterns as redlining, just under a different name.

Ongoing Effects and Modern-Day Redlining

Even though redlining is now illegal, its legacy still shows up in new forms. One example is digital redlining, where companies use data and algorithms to avoid serving certain ZIP codes. This might mean that housing ads don’t appear for Internet users in predominantly black or Latino areas or that services like broadband Internet and food delivery are less available in those areas.

Modern mortgage lending also shows signs of bias. Studies have found that black and Latino applicants are still more likely to be denied home loans than white applicants, even when they have similar income and credit histories. Appraisals are also part of the problem: Homes in majority-black neighborhoods are often valued lower than similar homes in white neighborhoods, which affects how much buyers can borrow and how much equity owners can build.

In some cities, gentrification adds another layer of difficulty. As developers move into formerly redlined areas, they often build new housing and raise property values. But this can lead to rising rents and property taxes that push out longtime residents who can’t afford the new cost of living. While redevelopment brings investment, it can also displace the very communities that were once excluded from it.

Efforts Toward Equity and Reinvestment

There are efforts across the country to repair the damage redlining caused. Some cities are directing public funds toward affordable housing, infrastructure upgrades, and community-led planning in historically neglected neighborhoods. Community land trusts, nonprofits that own land and keep housing affordable, are helping to protect longtime residents from displacement. Advocacy organizations are also working to hold lenders and real estate companies accountable while pushing for fair appraisals and equitable lending practices.

At the same time, education projects like Mapping Inequality are making the history of redlining more visible so that students, policymakers, and community members can see the connection between past policies and present-day inequality. Increasing awareness of what redlining was and how it still affects people’s lives today can help to motivate communities to work toward positive change. But fixing what redlining broke will take more than awareness: It requires lasting investment, fair policies, and a commitment to making sure that every neighborhood has access to opportunity.

Alex Capozzolo

Co-founder of Brotherly Love Real Estate, Alex Capozzolo, is recognized as a trusted real estate expert in the greater Philadelphia, PA market. Alex, and his partner Jon Sanborn, have been buying houses in Philly for eight-plus years. They’ve helped +100 families successfully sell their houses. Alex and Jon continue to be viewed as reliable resources in the real estate industry.