Mortgages & Home Loans Homeowner Guide What Is Blockbusting in Real Estate? By Hayley M. Abernathy Hayley M. Abernathy Hayley Abernathy is a freelance writer and editor with over five years of experience. She has a passion for all things related to real estate and homeownership. That passion grew from a love for house-hunting and home improvement, plus the successes and mistakes of her own homeownership journey. Hayley has a bachelor's in English literature from Bryan College, with minors in writing and Spanish. learn about our editorial policies Updated on December 6, 2022 Fact checked by Rebecca McClay In This Article View All In This Article How Blockbusting in Real Estate Works Example of Blockbusting in Real Estate Frequently Asked Questions (FAQs) Photo: The Good Brigade / Getty Images Definition Blockbusting in real estate is the illegal practice of convincing homeowners that their neighborhood is undergoing a significant change in demographics—typically portrayed as negative—so that they will sell or rent their homes at lower-than-market-value prices. Key Takeaways After World War II, blockbusting became common practice in many major U.S. cities.Blockbusters often stoked fear and racial prejudice among White homeowners in order to buy or rent their properties for reduced prices.Blockbusters then sold or rented that real estate for much higher prices, often to Black people with limited options.The Fair Housing Act of 1968 made blockbusting in real estate illegal in the U.S.The Fair Housing Act prohibits other forms of housing discrimination based on factors including race and religion. How Blockbusting in Real Estate Works Blockbusting in real estate is the illegal practice of persuading homeowners to sell or rent their properties at lower prices by convincing them that their neighborhood’s demographic makeup is changing. This strategy involves making homeowners believe the supposed changes will negatively affect property values or quality of life. Blockbusters then may resell or rent the properties with larger profit margins. Historically, the practice of blockbusting—common in many major U.S. cities just after World War II—often leveraged racial prejudice and fear among White homeowners to make them believe their neighborhoods and property values would be negatively affected by the arrival of a large number of Black residents. Due to housing supply shortages and increased demand, blockbusters were positioned to turn profits by reselling or financing those properties at much higher rates to Black people, whose options for housing and financing were more limited than their White counterparts. Blockbusting was outlawed as discriminatory in 1968 with the passing of the Fair Housing Act, which is Title VII of the Civil Rights Act. Now, the Fair Housing Act prohibits discrimination in the sale or rental of housing based on: RaceColorNational originReligionSex (including gender identity and sexual orientation)Familial statusDisability Federal regulation prohibits profiting by convincing homeowners to sell or rent because a demographic change may have negative effects such as decreasing property values, increasing crime, or general deterioration of quality of life and services. Note As long as the entity engaged in blockbusting intends to profit from the practice, they are in violation of federal regulation, even if they do not in fact make a profit. Example of Blockbusting in Real Estate An example of blockbusting can be found in 1954 in Palo Alto, Calif. At the time, the Black population in the area was growing, yet racial segregation and discrimination made finding housing extremely difficult. That is, until one White homeowner in a Whites community in East Palo Alto sold his home to a Black family, as documented in the book “The Color of Law” by Richard Rothstein. After that, Floyd Lowe, then-president of the California Real Estate Association, quickly spread propaganda that a coming “Negro invasion” would undercut property values. Subsequently, Lowe, other real estate agents, and their speculators purchased homes from White owners in East Palo Alto in large numbers at reduced prices. Then they advertised them to Black buyers and sold them with large markups. Although blockbusting and other forms of housing discrimination became illegal in 1968, various forms still persist today. If you believe you have been a victim of housing discrimination, you can file a claim with the U.S. Department of Housing and Urban Development’s Office of Fair Housing and Equal Opportunity (FHEO). Frequently Asked Questions (FAQs) What is redlining versus blockbusting? Like blockbusting, redlining is a discriminatory practice, made illegal by the Fair Housing Act. Unlike blockbusting, it is specifically about lending.Redlining is the act of refusing a person access to a loan for property in a particular neighborhood based on their race, color, religion, nationality, sex, or marital status—or those characteristics of the neighborhood’s current residents—rather than on economic factors or financial qualifications.Much like blockbusting, redlining has historically been used to discriminate against Black homebuyers. What are the penalties for blockbusting? If an individual or entity is found to have committed housing discrimination against you, they may have to:Pay damages to you, including for “humiliation, pain and suffering”Provide other “relief,” such as allowing access to loans without discriminationPay a civil penalty to the federal governmentPay your attorney’s fees and other costsPenalties may be more severe for repeated instances of discrimination. For more information on complaints and penalties, here’s a fair lending guide for borrowers. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Federal Reserve Bank of Chicago. “How Common Was Blockbusting in the Postwar U.S.?” U.S. Department of Housing and Urban Development. “Housing Discrimination Under the Fair Housing Act.” Legal Information Institute, Cornell University. “42 U.S. Code § 3604 - Discrimination in the Sale or Rental of Housing.” Legal Information Institute, Cornell University. “FR § 100.85 - Blockbusting.” Rothstein, Richard. “The Color of Law: A Forgotten History of How Our Government Segregated America.” Liveright, 2017. See Chapter 1. Federal Reserve Bank of Chicago. “The Effects of the 1930s HOLC 'Redlining' Maps (REVISED August 2020).” U.S. Housing and Urban Development. “Fair Lending: Learn the Facts.”