How the New Deal Created Whites-Only Suburbs

The New Deal programs launched between 1932 and the end of World War II transformed society. But when it came to supporting home ownership, Black Americans reaped far fewer benefits than white Americans. Federal Housing Administration rules from that era recommended that the way to preserve the value of newly constructed subdivisions was to keep Black homebuyers from living there, a policy that continues to slow Black families’ ability to build wealth.

“The New Deal expanded government capacities in a way that provided economic rights for people – the right to capital, the right to a job, the right to health care, the right to old-age pension,” Darrick Hamilton, a professor of economics at the New School, told Retro Report. “What was problematic is, that right was not inclusive.”

New Deal agencies divided communities into zones according to risk on color-coded maps in a practice that became known as redlining. Neighborhoods with a majority of Black residents were coded red, indicating that they were too risky to insure mortgages, cutting off Black buyers from affordable borrowing.

Race restrictions were sometimes explicit. Guidelines for banks in a Federal Housing Administration lending manual recommended “Prohibition of the occupancy of residences except by the race for which they are intended.”

When Sonoo Thadaney-Israni bought a house in the Ladera neighborhood of California’s Silicon Valley, she discovered that her property deed contained racist restrictions from decades ago.

“The language that I read basically said the only people allowed to live in this community, in these homes, are white, unless you’re a servant,” she told us.

The rules are no longer enforceable or legal, but they’ve been on the books since the neighborhood was established 70 years ago. By the 1950s, federal policy and private discrimination left few options for Black Americans.

Instead, Black Americans were directed to rent or purchase homes in areas that lacked amenities available in predominantly-white suburbs, like paved sidewalks, well-funded schools or a city government that would allow them to improve these conditions.

The ripple effects have been long-lasting. For example, we found that East Palo Alto, one of the few areas open to Black American property buyers under New Deal rules, today is 70 percent Black and Latino and more than 10 percent of families live in poverty. But in nearby Ladera, built in the 1950s as a whites-only suburb, 75 percent of residents are white and the poverty rate is 1 percent.

The effects of these race restrictions continue to resonate on a large scale. Home ownership is a leading factor in the wealth gap between white and Black Americans today, economists say, a disparity that was magnified by New Deal housing programs.

CHRISTINE BAE contributed reporting. Christine, a Retro Report intern, is a journalism major at Northwestern. Subscribe and receive lessons from history in your mailbox. Follow us on Twitter @RetroReport.