The Free Market 17, no. 10 (October 1999)
The politics of discrimination have been a major force for statism for decades. Only recently have some politicians yielded to public pressure to pull back from their absurd enforcement of quotas.
Californians rescinded their preferential treatment for protected minorities in state colleges. Courts overturned pro-minority-biased admissions policies at the University of Texas Law School as unconstitutional.
And yet these measures only take us so far. So long as the government has the power to declare voluntary action illegal on grounds that it is discriminatory, liberty and property rights will continue to suffer at the hands of social engineers.
The so-called fair housing program provides a good example. Under it, HUD provides grants to private “fair housing groups.” The grant contract requires these local groups to log in a minimum number of unfair housing complaints and to file a minimum number of lawsuits. Predictably, these government incentives encourage fair housing centers to manufacture complaints and create meritless and costly litigation.
Local fair housing groups are also given incentives to clone themselves into other communities so that the number of local centers keeps growing. More groups means more lawsuits and more “discrimination.”
President Clinton has recently announced a big increase in funding for the program and wants the number of lawsuits doubled. This will certainly provide more income for lawyers, and help keep racism and sexism alive as political issues two crucial goals of the left. When a fair housing group brings a lawsuit against a property owner, the accused is at a significant disadvantage, even though the vast majority are innocent of violating either the letter or the spirit of HUD’s complex laws and regulations. The legal cost of defending yourself in such lawsuits can exceed the value of your real estate business. For that reason, the accused usually concede and hope for a reasonable settlement with the fair housing center. Essentially, this is a form of extortion.
Fair-housing law puts the accused even further behind the eight ball by requiring those convicted to pay the legal costs of the fair housing groups, often more than $1 million. This makes it easy for the groups to find plenty of high-priced lawyers to represent them on a contingency-fee basis.
In contrast, the accused does not recoup legal costs when he is found to be innocent. This makes it all but impossible for business to fight back and forces a company to settle the case before trial. This legal advantage makes the policy seem necessary and successful, and keeps the workings of the groups hidden from public scrutiny.
The recent case litigated in federal court in Montgomery, Alabama, Central Alabama Fair Housing Center v. Lowder Realty Company, has help shed light on the nature of the fair housing program, its lawsuits, and the horrendous cost that it imposes. Several allegations were levied against Lowder Realty. One person claimed the company rejected an offer on a new house based on race, while another complained that an agent would not provide a price and floor plan information to a customer because of his race. These are curious accusations for anyone familiar with the real estate business. When it comes to listing and selling houses, real estate agents do not see brown or pink; they see green.
To gather evidence, the fair housing group used “testers” to infiltrate Lowder Realty and manufacture a case against the company. On the basis of this testing, an Alabama fair housing center claimed that Lowder Realty was guilty of “steering,” which means that black clients are only shown houses in predominately black neighborhoods. Posing as customers, these testers can use fake names and phony financial information. This “fair” housing policy therefore involves entrapment and fraud as well as extortion.
Testing is supposed to provide evidence that real estate companies discriminate against minorities by comparing the treatment given to otherwise identical black and white spies. But the trial revealed that the testing procedure itself was flawed. The black/white pairs of testers were not identical and therefore real estate agents would have been justified in selecting different homes and neighborhoods based on differences in price affordability. In fact, the testimony from black testers demonstrated that the accused real estate agents encouraged them on numerous occasions to look at homes in predominantly white areas of town and were told the agent would show them any house in the city.
The fair housing center also used complaints by real customers to bolster its case of discrimination. One black woman claimed she had been steered away from her preferred neighborhood. However, testimony showed that the agent did show her homes and presented an offer for her on a house in her preferred neighborhood; however, the owner did not accept the offer because it was below his asking price.
Testimony further showed that the agent gave the client an entire multiple listing directory with every house in Montgomery for sale at the time. Ultimately, the client found a home and called the agent to put together a deal for that home. Another charge claimed that a black customer had been steered away from a white neighborhood. However, testimony showed that not only had the customer failed to respond to the home owner s counteroffer, but that the same real estate agent had sold the house to another black customer a few weeks later.
In the charge involving the failure to provide a minority customer with price and floor plan information, testimony revealed that the real estate agent only worked part time and did not have access to price and floor plan information for the custom-built home. Further evidence demonstrated that the customer was not really interested in buying the home and only wanted a copy of the floor plans in order to build a similar home on acreage she and her husband already owned.
Despite all the fair housing center’s legal and public relations advantages, the jury found Lowder Realty innocent of all the numerous charges brought against them. Even in the pre-trial discovery process, the case was shown to be a weak one, but the housing group relentlessly pushed its case to trial past a federal judge who apparently was willing to give the plaintiffs wide latitude on evidentiary issues because of the racial nature of the case.
To keep the issue alive, the individual plaintiffs have appealed the verdict charging that the jury was improperly chosen, presumably because it was not black enough. The housing group also appealed, using a new attorney, on the basis of improper interpretation of case law by the court.
The real reason for the trial was to grow the group’s anti-discrimination business. The group never approached Lowder Realty to discuss or mediate discrimination claims against it. In fact, Lowder Realty only heard of the complaints when reporters called to get a response to the group s press conference announcing the lawsuit. Despite their innocence, Lowder Realty offered to settle to avoid the cost and negative publicity of a trial, but were told that any settlement would involve millions of dollars including more than $1 million for the center s attorneys.
Of course, the housing group had no incentive to resolve the matter because the trial would generate a tremendous amount of publicity for them and their nasty business. Most importantly, it would generate new complaints from citizens against real estate agencies that would help fill the center s quota of complaints, and serve as the basis of future lawsuits and monetary settlements. The trial was a win-win proposition for them.
In contrast, Lowder Realty was put in a no-win situation and ran up more than $1 million in expenses and attorney fees to prove their innocence. Despite a finding of complete innocence, the trial has done significant damage to the company s business and reputation. The trial extended for almost two years, and the center issued regular press releases to keep the story hot and in the news with a leftist media.
Over the period of the trial, Lowder Realty was prominently mentioned on the radio and in the newspaper for 50 days in connection with racial discrimination, but only on one or two days was its innocence mentioned. This must have taken a tremendous toll on the company s morale and reputation, and on its ability to recruit new real estate agents.
This negative publicity also harmed their business of listing and selling houses. Would a black homeowner living in a predominantly black neighborhood, or any neighborhood for that matter, list his or her home for sale with Lowder Realty after this trial?
This isn t fairness. It is extortion on a monumental scale, and contrary to the ethics of a free society. If sanity is going to return to issues of discrimination, we must go well beyond forbidding the race-based quotas imposed by anti-discrimination law. Government should not be permitted to interfere with the freedoms of contract and association.
Mark Thornton teaches economics at Columbus State University, Columbus, Georgia.
