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The housing scarcity makes housing discrimination a lot simpler

On Tuesday, Glenn Kelman, CEO of real estate brokerage firm Redfin, tweeted a bizarre anecdote: “A Bethesda, Maryland homebuyer who works with Redfin agreed in their written offer to name their firstborn child after the seller.”

The story is so strange – why would anyone want a stranger to name their child after them? Maybe it’s a joke – but it shows a way in which housing shortages can stimulate desperate buyers to open the door to housing discrimination.

And housing is really scarce in the US right now, as Kelman’s thread pointed out. Freddie Mac expected a shortage of 3.8 million residential units at the end of 2020; the Federal Reserve Bank of St. Louis (FRED) noted that housing supply has declined sharply over the past year; the Urban Institute found similarly low numbers; and Redfin’s own data show the number of homes for sale has declined nearly 50 percent since last year. All of this means that there are very, very few homes for sale relative to the number of buyers who want to buy.

1 in 15: It was hard to use anecdotes or data to convey just how bizarre the U.S. housing market has become. For example, a homebuyer in Bethesda, Maryland who works with @Redfin included in their written offer to name their firstborn child after the seller. She lost.

– Glenn Kelman (@glennkelman) May 25, 2021

In a healthy, non-discriminatory housing market, buyers compete for housing by raising their bids. The American real estate markets are neither healthy nor non-discriminatory, and at an all-time low, sellers have increasing power to legally and illegally discriminate against buyers.

A property could receive multiple offers well above the asking price, meaning that (although it is obviously the most relevant) Amount of money isn’t the only metric sellers use to select an offer. In addition to offering high prices, buyers have turned to a variety of creative methods to differentiate themselves from their competitors – cash offers, waiving inspections and other critical contingencies, and writing personal cover letters.

It is this final strategy that raises the flag on anyone familiar with fair housing. Personal cover letters encourage the buyer to sell themselves, their family, as a product for the seller to consider.

Hobart, a lawyer who lives in the suburbs of Pittsburgh, told Vox that this happened when he and his wife were looking for an apartment last summer: “I emphasized that we are good neighbors and we stand up for the community would … to somehow get noticed by saying that we are nice, normal people. ”

Hobart, whose last name is withheld to protect his privacy, felt strange about the experience and noticed for me that as a lawyer it was not difficult for him to write a convincing letter, nor to research (before he even made it). saw the house!) who the owners were and how to address them. But not everyone has this background.

“If that wasn’t your forte,” he said to me, “is that really necessary? [to buy a house]? “

Redfin data from 2018 shows that this type of cover letter could be very effective: if you look at the “thousands of offers” Redfin agents wrote between 2016 and 2018, they report that writing a personal cover letter can help Chances of winning in a bidding battle increased by 52 percent increases (the company actually stopped doing this out of concern that they could promote their use and thereby raise concerns about fair living)

The Fair Housing Act protects Americans from discrimination based on race, color, national origin, religion, gender, marital status, and disability. What personal cover letters require is that people show that they will be “nice, normal people” – a family that you would love to live with if your neighbors move.

This opens the door to people’s subjective assessments of what that means – if you are more likely to feel a connection with someone who looks like you and has a similar background, it can lead to people being discriminated against based on one of the protected classes that are the Fair Housing Act aims to protect.

It’s also incredibly difficult to spot this type of discrimination.

A Compass real estate agent told the Wall Street Journal that their clients won a bidding war after buyers “wrote a letter describing their two-year search for a home in the Noe Valley neighborhood, and the architecture of the home and adjacent playground praised ”. The listing agent confirmed to the journal that “the emotions have convinced my customers”.

In other cases, the potential for racial discrimination becomes even more likely when buyers include photos of their children or pets with their cover letter. Marketplace reported one such pair, which won against several other offers, even though it wasn’t the highest. The couple’s agent mentioned that the sellers “loved the fact that we were locals”. In a country where residential discrimination is widespread, belonging to a local can often correlate to a particular race or ethnicity.

This is a known problem. As recently as last year, the National Association of Realtors warned that “buyer love letters” could hold brokers and customers legally liable:

Think about where a potential buyer will write to the seller that they can imagine their children running down the stairs around the house on Christmas morning for years to come. This statement reveals not only the family status of the potential buyer, but also his religion, both protected features of fair housing law. Using proprietary characteristics as a basis for accepting or rejecting an offer in contrast to the price and terms would violate the Fair Housing Act.

While there is no data to show that this type of letter has increased over the past year as buyer numbers remain far superior to sellers, we should expect discrimination to become more prevalent. In a healthy housing market where buyers could be sure they would find multiple potential homes in the area they wanted to live in, it would be an odd nuisance to ignore when a seller demands an ode to a home to write that they haven’t seen yet.

But sellers can ask for pretty much anything in the American real estate markets right now.

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