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The housing shortage makes housing discrimination much easier

As buyers scramble to prove they are “nice, normal people,” the door opens to increased fair housing violations.

New townhomes under construction in Carlsbad, California, on April 14. Buyers are getting into bidding wars due to a scarcity in the housing market.
Bing Guan/Bloomberg/Getty Images

On Tuesday, Glenn Kelman, CEO of real estate brokerage firm Redfin, tweeted out a bizarre anecdote: “A Bethesda, Maryland homebuyer working with Redfin included in her written offer a pledge to name her first-born child after the seller.”

The story is so weird — Why would anyone want a stranger to name their kid after them? Perhaps it’s a joke? — but it reveals one way that housing scarcity can incentivize desperate buyers to open the door to housing discrimination.

And housing truly is scarce in the US right now, as Kelman’s thread was pointing out. Freddie Mac calculated a shortage of 3.8 million housing units at the end of 2020; the federal reserve bank of St. Louis (FRED) found that housing supply had steeply declined over the last year; the Urban Institute has found similarly low numbers; and Redfin’s own data shows that the number of homes for sale has decreased nearly 50 percent since last year. All this is to say there are very, very few homes available for sale relative to the number of people looking to buy.

In a healthy, nondiscriminatory housing market, buyers will compete for homes by raising their bids. American housing markets are neither healthy nor nondiscriminatory, and with supply at historic lows, sellers have increasing power to legally and illegally discriminate among buyers.

A property could get multiple offers well over asking price, which means that (while it’s obviously most relevant) the amount of money is not the only metric that sellers use to choose an offer. In addition to offering high prices, buyers have turned to a bevy of creative methods to distinguish themselves from their competitors — all-cash offers, waiving inspections and other important contingencies, and writing personal cover letters.

It’s this last strategy that raises flags for anyone familiar with fair housing law. Personal cover letters ask the buyer to sell themselves, their family, as a product for the seller to consider.

Hobart, a lawyer who lives in a suburb of Pittsburgh, told Vox this is what happened when he and his wife were looking for a home last summer: “I emphasized that we would be good neighbors and be committed to the community ... trying to have some way of standing out by saying that we’re nice, normal people.”

Hobart, whose last name is being withheld to protect his privacy, felt weird about the experience, noting to me that, as a lawyer, writing a persuasive letter didn’t feel hard to him, nor did researching (before he’d ever even seen the house!) who the owners were and how to appeal to them. But not everyone has that background.

“If that wasn’t your strength,” he said to me, “well, is that really what it takes [to buy a house]?”

Redfin data from 2018 shows that these types of cover letters could be very effective: Looking at “thousands of offers” Redfin agents wrote between 2016 and 2018, they report that writing a personal cover letter increases the odds of winning a bidding war by 52 percent (the firm actually stopped tracking this, out of concern it might encourage their use and thereby raise fair housing concerns).

The Fair Housing Act protects Americans from discrimination based on race, color, national origin, religion, sex, familial status, and disability. What personal cover letters ask is for people to show that they’ll be “nice, normal people” — a family you’d be happy to live next to if your neighbors were to move.

This opens the door to people’s subjective measures of what that means — if you’re more likely to feel a connection to someone who looks like you and who has a similar background, that can lead to discriminating against people based on any one of the protected classes the Fair Housing Act is meant to safeguard.

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

A Compass real estate agent told the Wall Street Journal that her clients won a bidding war after the buyers “wrote a letter describing their two-year hunt for a home in the Noe Valley neighborhood, and praising the home’s architecture and adjacent playground.” The listing agent confirmed to the Journal that “emotion won over my clients.”

In other cases, the potential for racial discrimination becomes even more likely as buyers include photos with their cover letters, posed with their children or pets. Marketplace reported on one such couple who won against several other offers despite not being the highest. The couple’s agent mentioned that the sellers “loved the fact that we were locals.” In a country where residential segregation is rampant, being a local can often correlate with being a specific race or ethnicity.

This is a well-known problem. Just last year, the National Association of Realtors warned that “buyer love letters” could open up realtors and clients to legal liability:

Consider where a potential buyer writes to the seller that they can picture their children running down the stairs on Christmas morning for years to come in the house. This statement not only reveals the potential buyer’s familial status, but also their religion, both of which are protected characteristics under fair housing laws. Using protected characteristics as a basis to accept or reject an offer, as opposed to price and terms, would violate the Fair Housing Act.

While there isn’t data showing that these types of letters have increased over the last year, as buyers continue to vastly outnumber sellers, we should expect discrimination to become more common. In a healthy housing market where buyers could feel confident that they would find multiple potential homes in the area where they want to live, a seller demanding they pen an ode to a house they haven’t seen yet would be a weird nuisance to ignore.

But in American housing markets right now, sellers can demand pretty much anything.