Blockbusting in real estate: What to know

When you hear the word “blockbusting,” your mind may go to the defunct video store or the movie theater. But blockbusting is a lot less fun. Similar to the more well-known real estate practice of redlining, blockbusting is an illegal, discriminatory practice that has overwhelmingly been targeted toward Black people historically.

What is blockbusting?

Blockbusting, also known as panic selling, is the discriminatory practice of encouraging homeowners to sell their homes below market value due to the neighborhood’s changing demographics. A more colloquial name for blockbusting is “white flight,” referencing the common practice of white real estate agents and speculators convincing white homeowners that Black people moving in is “bad for the neighborhood.” By making homeowners believe that changing demographics will negatively impact property values, agents and speculators convince them to sell quickly, at a below-market-value price, only for the predatory buyers to then resell or rent the properties at a much higher profit margin. This price manipulation affects both buyers and sellers.

While blockbusting has historically been targeted mostly at Black people moving into predominantly or traditionally white neighborhoods, it also applies to other races, religious beliefs, sex, gender identity, age, familial status, and more.

A brief history of blockbusting

Blockbusting became particularly rampant in U.S. cities during the economic boom following World War II. As cities grew and suburbs sprung up across the nation, opportunistic real estate predators frequently leveraged racial prejudice and white fear by convincing them that the arrival of any Black person in a neighborhood was cause to get out while they still could. This deeply discriminatory practice negatively impacted many individuals with racist beliefs, but its most harmful consequences were felt by the Black community.

As white people were manipulated into leaving traditionally white neighborhoods, the people moving in faced much higher home prices and rents, as well as higher interest rates from lenders engaged in redlining. Considering many white people refused to sell or lend to Black homebuyers, in most parts of the country, Black people’s only options for housing were in blockbusting or redlining neighborhoods.

Blockbusting wasn’t outlawed as discriminatory until the 1968 Fair Housing Act, Title VII of the Civil Rights Act. This law prohibits discrimination in the sale or rental of housing based on:

• Race
• Color
• National origin
• Religion
• Sex (including gender identity and sexual orientation)
• Familial status
• Disability

Likewise, the law prohibits profiting by convincing homeowners to sell or rent their homes because demographic changes will have negative impacts on the neighborhood.

All that said, blockbusting can be a difficult thing to prove in court, and it still happens frequently in the U.S.

Examples of blockbusting in real estate

To better understand what blockbusting looks like in practice, let’s examine a couple of examples, one historical and one fictional.

Example 1

Richard Rothstein's book The Color of Law provides a historical example of blockbusting.

In 1954 in Palo Alto, CA, the growing Black population faced enormous discriminatory hurdles to finding housing. After one white homeowner in East Palo Alto sold his home to a Black family, then-president of the California Real Estate Association Floyd Lowe began spreading propaganda that a “Negro invasion” would destroy property values. Simultaneously, Lowe and a network of co-conspirators bought homes from white racists at panic prices, immediately making them available to Black buyers at large markups.

Example 2

Today, blockbusting is more insidious. Many American cities remain segregated, presenting speculators with frequent opportunity to engage in blockbusting — especially in areas where gentrification is taking place.

For instance, say a new luxury commercial/residential property opens up in a traditionally Black neighborhood. Suddenly, the Whole Foods and luxury apartments raise property values and rents skyrocket, pricing many of the existing residents out. One homeowning Black family decides to capitalize on the property value increase, making a nice profit.

However, when the family buys a house in an adjacent, traditionally white neighborhood, a pre-eminent local property owner begins writing Op-Eds and speaking loudly to whomever will listen that the gentrification in the nearby neighborhood will kill property values in his. The subtext, of course, is that displaced Black people will move into his neighborhood, making it less desirable.

Although the property owner may not be “saying the quiet part out loud,” it’s heavily implied that the reason he believes property values will decrease is because of incoming Black residents, and the reason he’s complaining so loudly is to influence white homeowners to panic sell.

This is how blockbusting happens outside the enforcement purview of the Fair Housing Act.

What are the penalties for blockbusting?

If an individual or entity is found guilty of blockbusting or other forms of housing discrimination, they may have to:

• Pay damages to the impacted party, including for “humiliation, pain and suffering.”
• Provide other “relief,” like granting access to non-discriminatory loans.
• Pay a penalty fee to the federal government.
• Pay the impacted party’s attorney fees and other costs.

Penalties are typically more severe for repeated incidents.

How to avoid blockbusting

Blockbusting can be both obvious or subtle. Some blockbusters are remarkably savvy and are very careful to avoid being caught saying or writing anything that could be construed as discrimination. 

The definition is also broad and somewhat vague, making it very possible for real estate agents, especially, to accidentally brush up against blockbusting. Using the wrong word in a marketing postcard could lead someone to accuse an agent of trying to push homeowners to sell due to changing socioeconomic circumstances.

Agents who want to avoid blockbusting must treat everybody the same. Park your biases at the door, avoid commenting or answering questions from buyers or sellers about the race, religion, color, sex, familial status, disability, or national origin of people in a neighborhood, and focus on the numbers. 

To be extra safe, don’t directly answer questions about crime rates, school quality, or demographic makeup and instead steer the inquirer to third-party sources.

Related article: What is steering in real estate?

As a buyer or seller, be wary of agents or speculators who have a lot to say about a neighborhood's socioeconomic or demographic makeup. Legally, they’re prohibited from speaking so bluntly and if they aren’t acting outright illegally, they may at least acting unethically and immorally.

FAQs

Still have more questions? We’ve got answers.

What is the practice of panic selling by a real estate agent called?

When real estate agents encourage clients to panic sell due to a neighborhood’s changing demographic or socioeconomic makeup, it’s called blockbusting.

What’s the difference between blockbusting and panic selling?

Blockbusting and panic selling are two sides of the same coin. Blockbusting is the practice of encouraging homeowners to sell their homes due to changing socioeconomic conditions in the neighborhood, which leads to panic selling.