Housing discrimination is systemic in the U.S., but it's hard to tell if the same holds true in Canada

Special to Financia

A person walks by a row of houses in Toronto.© Provided by Financial Post


Racial biases and discrimination in housing markets have been a longstanding concern in the United States, where systematic examples include refusing mortgage loans to homebuyers in minority neighbourhoods, known as redlining, and comparatively lower appraisal values of homes sold by racial minorities.

But are these biases also common in Canada? Given the lack of methodical research probing biases in appraisals and mortgage underwriting, there may not be a definitive answer here, yet there’s plenty of evidence of it down south.

For example, a Black family in California last year was shocked to learn the appraised value of the home they thoroughly renovated was less than half what they were expecting. They suspected race may have played a role and insisted on a second appraisal. But this time they had a white friend pose as the owner and they replaced their family pictures before the appraiser arrived. The result was a valuation of almost $500,000 more.

In Baltimore, Nathan Connolly, a history professor at Johns Hopkins University, had a similar experience when his house was appraised for much lower than expected. His family bought the house for US$450,000 in 2017 and spent additional funds renovating the place. An appraisal company in 2021 valued the house at just US$472,000, even though housing prices had significantly increased since he bought the house.

Connolly then removed his family photographs and had a white professor from John Hopkins pose as the owner. The second appraisal put the value at US$750,000. Connolly and his wife, Shani Mott, also a lecturer at John Hopkins, believe the 59-per-cent difference in valuations was motivated by racial biases and have sued the appraiser and the loan company that arranged the first appraisal.

Federal Home Loan Mortgage Corp., known as Freddie Mac, studied more than 12 million appraisals and found that homes in predominantly Black or Latino neighbourhoods were “ more likely to receive an appraisal lower than the contract (transaction) price.”

More than 97 per cent of property appraisers in the U.S. are white . Therefore, the racial differences between the appraisers and the appraised could have contributed to the lower valuation of minority-owned properties.

Brent Ambrose, a professor at Pennsylvania State University, and others recently studied the interplay between the racial backgrounds of appraisers and borrowers by analyzing a sample of refinanced mortgages from 2000 to 2007. They identified the race of the appraisers and borrowers and compared the appraised values against those generated by automated valuation models.

They also observed “systematically lower appraised values” for minority-owned homes. But they did not find the lower appraised values to differ by the appraiser’s race. Homes owned by Black families received lower appraised values by Black and white appraisers alike. But relative to white appraisers, Black appraisers gave a higher valuation to homes owned by white families. The research also showed that white appraisers conducted 86 per cent of the appraisals.

Given such evidence in the U.S., one wonders whether racial biases in appraisals and underwriting are also prevalent in Canada. As noted earlier, studies exploring racial prejudices in appraisals are not readily available here. But similar research on rental outcomes suggests racial minorities experience either deliberate or subconscious discrimination.

The Canadian Broadcasting Corp. (CBC) last year conducted an interesting experiment where three white, Black and South Asian employees posed as owners of a semi-detached house in Oakville, a suburb of Toronto. CBC booked two appraisals for each employee. The two appraised values for the white and South Asian employees were similar, but they differed by $350,000 when the Black employee posed as the homeowner.

That’s just one example, and the appraisal industry in Canada has said it has received hardly any complaints of racial bias in the past, which is good news. But this is insufficient evidence against possible subconscious biases adversely impacting the valuation of minority-owned real estate. A systematic study exploring racial and other biases in appraisals would help clear the air.

Murtaza Haider is a professor of real estate management and director of the Urban Analytics Institute at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com .