What does “blockbusting” mean in real estate?

On Behalf of | May 9, 2023 | Real Estate |

Real estate transactions in Tennessee and across the United States must follow certain laws set forth by state and federal government agencies. Anyone who violates these laws faces any number of potential penalties. One such example of these illegal activities is blockbusting.

What is blockbusting?

According to the letter of the law, blockbusting is an illegal practice that involves trying to convince someone to sell or rent their home for a lower price because of alleged changes in the local demographic. Blockbusters then resell or rent the properties at a higher rate later. In almost every case, the demographic changes are described as negative, prompting people to want to get out of the neighborhood.

The Fair Housing Act

Blockbusting became illegal because of the Fair Housing Act of 1968. The Fair Housing Act is Title VII of the Civil Rights Act. While the details changed some over the years, the Fair Housing Act prohibits discrimination in a real estate transaction based on:

  • National origin
  • Race
  • Color
  • Familial status
  • Religion
  • Sex
  • Disability

Typically, blockbusting involves trying to convince property owners that people who receive protection under one of these criteria are lowering property values in the neighborhood. They rely on fearmongering by telling property owners that crime rates will increase, property values will decrease and more.

An example of blockbusting

A famous case of blockbusting took place in 1954 in Palo Alto, California. While there was growth among the Black population in the area, segregation and discrimination were still serious problems. The California Real Estate Association president spread propaganda, stating that the integration of the area would diminish home values, and convinced people to sell him their homes, which he eventually sold at a profit.

Most penalties for blockbusting involve financial penalties. However, those considered “repeat offenders” may face more significant punishment.

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