Blockbusting was made illegal in 1968. A couple of decades earlier, it worked like this: a real estate company chose a predominantly white area in the city. He’ll start touting the neighborhood, saying it’s “changing,” to say the least, or more explicitly that blacks are buying houses in the neighborhood. Some white residents sold their homes and moved. The real estate firm sold these houses to blacks, often at a significant markup. White residents of these neighborhoods were clearly unwilling or unable to sell directly to blacks, and therefore settled for lower prices on their homes. From that point on, the process turned around, and the real estate firm was increasingly able to play on white fanaticism to buy houses cheaply, and then play on limited real estate opportunities for blacks to sell them at higher prices.
To be clear, “blockbuster” doesn’t just mean changing the racial makeup of an area. It’s about how the shift happened. Katherine Bennett, Daniel Hartley and Jonathan Rose talk about the history of the question “How prevalent are blockbusters in the postwar US?” (Chicago Fed Letter, Federal Reserve Bank of Chicago, July 2022). They searched for “scientific stories, media reports, official reviews, and other materials” in the 1950s and 1960s. Remember, the blockbuster wasn’t illegal for most of that time, so it was often discussed openly. They write: “Ultimately, we identified 950 specific census tracts in 39 cities that were the sites of the alleged lockdowns. These tracts make up about 8% of all census tracts that did not yet have a black majority by 1950.
cities. Given the somewhat limited availability of historical records on the subject, this figure
may represent an underestimation of the true scale of blockbusters in major US cities during this time period.”
As a specific example, they focus on the Edmondson Village area of Baltimore:
In Baltimore, the Edmondson Village area depicted in Figure 2 is the site of one of the most infamous blockbuster cases in American history. Using property-level data, we analyze all housing transactions in 2,600 properties in the area from January 1954 to December 1975. We found that real estate companies [more likely to be blockbusters than individual buyers] acquired about two-thirds of all property, mostly during the period 1955–65. Most of the remaining objects also changed hands, but without the participation of blockbusters. As a result, a comparison of the 1950 US Census with the 1970 US Census reveals a staggering population turnover among the area’s original 20,000 residents, with the black population in the area rising from nearly 0% to 96%.
Based on real estate transaction prices in this dataset, we calculated that when reselling this property to new black homebuyers, blockbusters charged an average markup of about 45% on home prices—a markup that community groups at the time referred to as “black.” tax”. This markup also reflected the relatively low prices at which blockbusters were acquiring residential properties, possibly due to the panic of existing residents. …
To complete these real estate deals, blockbusters in Baltimore often resorted to aggressive and sometimes fraudulent activities, many of which became illegal after the passage of the Fair Housing Act of 1968. ads suggesting a racial transition is taking place in the area. … Another set of aggressive practices included installment agreements, which blockbusters often used to finance home sales, especially for homeowners who otherwise couldn’t get a mortgage. Unlike mortgages, installment contracts allowed the blockbuster to legally retain ownership of the house until the buyer made a series of payments. Until they paid off their debt, these homebuyers were essentially functioning as tenants, leaving them vulnerable to losing their capital without the protection of mortgage laws. In terms of fraud, two blockbusters were sentenced to prison after being found guilty of defrauding the Veterans Administration by arranging false customer testimonials in loan applications. One result of the financial structure created by the blockbusters has been a high rate of foreclosures from new homeowners.