Historical Redlining and Unequal Environmental Risks

We find evidence of causal effects of historical redlining on present-day exposure to environmental and climate risks in six large U.S. cities.

Some economic policies can have lasting effects on societies even well after their modification or removal. A prominent example is the "redlining" policy pursued by the Home Owners' Loan Corporation (HOLC) in the 1930s. This practice used maps to demarcate neighborhoods according to their perceived lending risk.

Although these maps were supposed to reflect lending risk characteristics (such as housing age and prices), the racial composition of neighborhoods also played a prominent role in assigning grades. Redlining was outlawed in the 1960s, but studies show that its legacy continues to shape present-day income and wealth inequality: The maps have led to decreased home ownership, house values and rents in redlined neighborhoods.¹

In the new working paper "Long-Term Effects of Redlining on Environmental Risk Exposure," my co-authors — Claire Conzelmann, Arianna Salazar-Miranda and Jeremy Hoffman — and I document what appears to be another consequence of such policies: Properties in neighborhoods assigned lower credit grades by the HOLC almost a century ago have significantly higher present-day exposure to climate and environmental risks.

Properties in Redlined Neighborhoods

We reach this conclusion through some steps. We first link historical maps to present-day environmental data, obtaining HOLC maps from the Mapping Inequality database at the University of Richmond's Digital Scholarship Lab. Figure 1 below provides an example of such maps for Baltimore, where the colored neighborhoods were assigned grades from A (lowest lending risk, colored green) to D (highest lending risk, colored red).

We then digitize those maps and combine them with several new datasets that provide measures of climate-related risks (flood risk and heat exposure) and environmental quality (tree canopy coverage, street-level vegetation and ground surface perviousness).

We then identify the causal effects of redlining policies on environmental risks by exploiting grades assigned by HOLC maps to discrete areas throughout cities. The discrete nature of this policy provides a natural experiment, where otherwise similar properties would end up on opposite sides of HOLC boundaries, thus receiving different risk grades.

We use an econometric method known as the boundary design to compare the environmental risks of houses in contiguous HOLC areas with different grades. We select HOLC boundaries separating areas with different grades and decompose each boundary into straight segments, or borders. Our boundary sample includes properties or cells within a 100-meter buffer of these borders, as seen in the right panel of Figure 2 below.

Redlining and Environmental Risks

We find evidence that flood risk and heat exposure significantly increase as the HOLC grade worsens from A to D, as seen in Figure 3a below.

Similarly, we see that heat exposure increases as HOLC grade worsens.

Why Does Redlining Correspond With Environmental Effects?

What are some potential explanations for these effects? We explore the idea that redlining policies led to lower investment in environmental capital (or the stock of environmental factors that mediate and determine risk). We view our measures of perviousness, tree canopy and street vegetation as capturing the ability of a community to invest in its environmental capital. As shown in Figure 3b below, our results show that all three measures of environmental capital are lower for B-graded, C-graded and D-graded neighborhoods when compared to A-graded neighborhoods.

Taken together, our findings provide new evidence of a long-defunct economic policy — in this case the redlining housing policy of the 1930s — that may have cast long shadows. Our analysis suggests persistent causal impact on present-day exposure to environmental and climate risks.

Toan Phan is a senior economist in the Research Department of the Federal Reserve Bank of Richmond.

To cite this Economic Brief, please use the following format: Phan, Toan. (December 2022) "Historical Redlining and Unequal Environmental Risks." Federal Reserve Bank of Richmond Economic Brief, No. 22-51.

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Views expressed in this article are those of the authors and not necessarily those of the Federal Reserve Bank of Richmond or the Federal Reserve System.