Blockbusting was a business practice of U.S. real estate agents and building developers meant to encourage white property owners to sell their houses at a loss, by implying that racial minorities were moving into their previously racially segregated neighborhood, thus depressing real estate property values. Blockbusting became possible after the legislative and judicial dismantling of legally protected racially segregated real estate practices after World War II, but by the 1980's it largely disappeared as a business practice after changes in law and the real estate market.
Beginning around 1900, with the Great Migration (1915–30) of black Americans from the rural Southern United States to work in the cities and towns of the northern U.S., many white people feared that black people were a social and economic threat, and countered their presence with local zoning laws requiring 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 forbidding blacks from living in white neighborhoods, as 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 racist laws which compelled black Americans to live in over-crowded and over-priced ghettos created economic pressures to avail black people of housing in racially segregated neighborhoods were annulled. Freed by the Supreme Court from the legal restrictions against selling white housing to blacks, real estate companies sold 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; aggravating, by subterfuge, the white home owners’ fears of mixed-race communities to encourage them to quickly sell their houses at a loss, at below-market prices, and then selling 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 recurred to land installment contracts at above market interest rates to buy a house — a racist economic strategy eventually leading to foreclosure. With blockbusting, real estate companies legally profited from the arbitrage (the difference between the discounted price paid to frightened white sellers and the artificially high price paid by black buyers), and from the commissions resulting from increased real estate sales, and from their higher than market financing of said house sales to black Americans. The documentary film Revolution '67 (2007) examines the blockbusting practiced in Newark, New Jersey in the 1960's.
The term “blockbusting” might have originated in Chicago, Illinois, where, in order to accelerate the emigration of economically successful racial minority residents to better neighborhoods beyond the ghettos, real estate companies and building developers used agents provocateurs — non-white people hired to deceive the white residents of a neighborhood into believing that black people were moving into the neighborhood, thereby encouraging them to quickly sell (at a loss) and emigrate to generally more racially homogeneous suburbs.
The tactics included hiring black women to be seen pushing baby carriages in white neighborhoods, so encouraging white fear of devalued property; selling a house to a black family in a white neighborhood to provoke white flight, before the community’s properties decline considerably; selling white neighborhood houses to black families, and afterwards placing real estate agent business cards in the neighbors’ mailboxes; and saturating the neighborhood area with fliers offering quick-cash for houses. Likewise, building developers bought houses and dwelling buildings, and left them unoccupied to make the neighborhood appear abandoned — like a ghetto or a slum — psychological manipulation that usually frightened the remaining white residents into selling at a loss. Blockbusting was a very common and very profitable form of racist exploitation; 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” between 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 surplus 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. Like-wise, 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, local 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, thus allowing black American legal claims to rescind the usurious land contracts (featuring over-priced houses and higher-than-market mortgage interest rates), as a racist real estate business practice illegal under the Civil Rights Act of 1866, which greatly reduced the profitability of blockbusting. Nevertheless, 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 1980's, as evidence of blockbusting practices disappeared, states and cities began rescinding statutes restricting blockbusting.
The serio-comic television series All in the Family (1971–79), featured "The Blockbuster", a 1971 episode about the practice, illustrating some real estate blockbusting techniques.