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Blockbusting is a business process of U.S. real estate agents and building developers to convince white property owners to sell their house at low prices, which they do by promoting fear in those house owners that racial minorities will soon be moving into the neighborhood. The agents then sell those same houses at much higher prices to black families desperate to escape the overcrowded ghettos. Blockbusting became possible after the legislative and judicial dismantling of legally protected racially segregated real estate practices after World War II. By the 1980s it largely disappeared as a business practice, after changes in law and the real estate market. After the turn of the millennium, claims were made that a similar but inverse practice was occurring in New York State and New Jersey on behalf of orthodox Jews, who were pressuring non-Jews into selling based on the fear they will be outnumbered by Jews, and subsequently resold at a much higher price to Jews.
Starting around 1910, over a million black Americans from the rural Southern United States moved north to work in the cities and towns of the northern U.S.. Those cities had severe labor shortages due to World War I. This became known as the Great Migration. As U.S. soldiers returned from Europe in the aftermath of World War I, scarce housing and jobs heightened racial and class antagonisms across urban United States. Many[who?] white people regarded black people as a social and economic threat, and countered their presence with local zoning laws. Such laws required them to live and reside in geographically defined areas of the town or city, preventing them from moving to areas inhabited by white people.
In 1917, in the case of Buchanan v. Warley (1917), the Supreme Court of the United States voided the racial residency statutes that were forbidding blacks from living in white neighborhoods. The court ruled that the statutes were violating the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution. In turn, whites used racially restrictive covenants in deeds, and real estate businesses informally applied them to prevent the selling of houses to black Americans in white neighborhoods. To thwart the Supreme Court's Buchanan v. Warley prohibition of such legal business racism, state courts interpreted the covenants as a contract between private persons, outside the scope of the Fourteenth Amendment. However, in the Shelley v. Kraemer (1948) case, the Supreme Court ruled that the Amendment's Equal Protection Clause outlawed the states' legal enforcement of racially restrictive covenants in state courts. In this event, decades of segregation practices were annulled, which had compelled black Americans to live in over-crowded and over-priced ghettos. Freed by the Supreme Court from the legal restrictions, it became possible to sell white housing to blacks. Real estate companies started selling houses to those who could buy, if they could find a willing white seller.
Generally, "blockbusting" denotes the real estate and building development business practices yielding double profits from U.S. anti-black racism. Real estate companies approached white home owners to aggravate their fear of mixed-race communities, to encourage them to quickly sell their houses at a loss, at below-market prices. The companies then sold that property to black Americans at higher-than-market prices. Given then-standard banking criteria for mortgage-lending, black people usually did not qualify for mortgages from banks and savings and loan associations. Instead, they resorted to land installment contracts at above market interest rates to buy a house; a discriminatory economic strategy eventually leading to foreclosure. With blockbusting, real estate companies legally profited firstly from the arbitrage (the difference between the discounted price paid to frightened white sellers and the artificially high price paid by black buyers), secondly from the commissions resulting from increased real estate sales, and thirdly from their higher than market financing of said house sales to black Americans.
The term "blockbusting" might have originated in Chicago, Illinois, where real estate companies and building developers used agents provocateurs. Those were non-white people hired to deceive the white residents of a neighborhood into believing that black people were moving into the neighborhood. The houses that became vacant in that way, enabled accelerated emigration of economically successful racial minority residents to better neighborhoods beyond the ghettos. The white residents were encouraged to quickly sell (at a loss) and emigrate to generally more racially homogeneous suburbs. Blockbusting was most prevalent on the West Side and South Side of Chicago, and also was heavily practiced in Bedford-Stuyvesant, Brooklyn, New York City and in the West Oak Lane neighborhood of Northwest Philadelphia.
The tactics included:
Such practices can be described as psychological manipulation that usually frightened the remaining white residents into selling at a loss.
Blockbusting was very common and very profitable. For example, by 1962, when blockbusting had been practiced for some fifteen years, the city of Chicago had more than 100 real estate companies that had been, on average, "changing" two to three blocks a week for years.
In 1962, "blockbusting" - real estate profiteering - was nationally exposed by The Saturday Evening Post with the article "Confessions of a Block-Buster", wherein the author detailed the practices, emphasizing the profit gained from frightening white people to sell at a loss, in order to quickly resettle in racially segregated "better neighborhoods". In response to political pressure from the cheated sellers and buyers, states and cities legally restricted door-to-door real estate solicitation, the posting of "FOR SALE" signs, and authorized government licensing agencies to investigate the blockbusting complaints of buyers and sellers, and to revoke the real estate sales licenses of blockbusters. Likewise, other states' legislation allowed lawsuits against real estate companies and brokers who cheated buyers and sellers with fraudulent representations of declining property values, changing racial and ethnic neighborhood populations, increasing crime, and the "worsening" of schools, because of race mixing.
The Fair Housing Act of 1968 established federal causes of action against blockbusting, including illegal real estate broker claims that blacks, Hispanics, et al. had or were going to move into a neighborhood, and so devalue the properties. The Office of Fair Housing and Equal Opportunity was charged with the task of administering and enforcing this law. In the case of Jones v. Alfred H. Mayer Co. (1968), the U.S. Supreme Court ruled that the Thirteenth Amendment authorized the federal government's prohibiting racial discrimination in private housing markets. It thereby allowed black American legal claims to rescind the usurious land contracts (featuring over-priced houses and higher-than-market mortgage interest rates), as a discriminatory real estate business practice illegal under the Civil Rights Act of 1866, thus greatly reducing the profitability of blockbusting. Nevertheless, the said regulatory and statutory remedies against blockbusting were challenged in court; thus, towns cannot prohibit an owner's placing a "FOR SALE" sign before his house, in order to reduce blockbusting. In the case of Linmark Associates, Inc. v. Willingboro (1977), the Supreme Court ruled that such prohibitions infringe freedom of expression. Moreover, by the 1980s, as evidence of blockbusting practices disappeared, states and cities began rescinding statutes restricting blockbusting.
The serious-comic television series All in the Family (1971-79), featured "The Blockbuster", a 1971 episode about the practice, illustrating some real estate blockbusting techniques.