Money  /  Explainer

How Academia Laid the Groundwork for Redlining

The connections between private industry and government were much more fluid than was previously imagined.

Changing the field of economics once was not enough for Richard T. Ely. Early in his career, in 1885, Ely had transformed his discipline by helping to found the American Economic Association. In 1920, at the age of 66, Ely still had ambition. That year, he established a research institute on land economics at the University of Wisconsin, aspiring not only to create a new disciplinary subfield, but also to transform the practice of real estate development and brokerage nationwide. Five years later, with financial backing from electricity magnates Samuel Insull and Martin Insull, Ely moved his Institute for Research in Land Economics and Public Utilities to Northwestern University, determined to enact his ambitious vision.

Ely was uniquely positioned to do this work. He had trained dozens of leading economists and social scientists at Johns Hopkins and Wisconsin, among them historian Frederick Jackson Turner and future president Woodrow Wilson. Confident of his intellectual impact, Ely boasted to a friend in 1923 that his theorizations regarding land values “would be felt a hundred years from now.” Nearly a century later, as Ely predicted, we can clearly see in his work the theoretical and organizational roots of redlining: the hugely destructive practice of denying home mortgages on the basis of race (among other presumed risk factors).

Decades before the Great Migration of African Americans from the rural South would transform American cities—with accompanying conflagrations like the 1919 Chicago Race Riot—Ely and likeminded Progressives had helped cement the intellectual tyranny of eugenics and scientific racism. Now, amid shifting demographics and a frenzy of metropolitan development in the 1920s, Ely and his colleagues sought to enforce an urban racial order. In a new research article that we discuss here, we show how they strategically positioned themselves to make policy proposals that would dramatically restructure real estate and home finance in the Great Depression decade that followed, and beyond.

Ely was an experienced real estate investor as well as a professor, who pursued a collaboration with the National Association of Real Estate Boards (NAREB) emphasizing real estate education, both at the college level as well as for those lacking access to higher education. NAREB, founded in 1908 and today called the National Association of Realtors, was the leading U.S. trade organization for real estate agents and developers.