Seminar: Brian Higgins (IIES)

Abstract

This paper studies racial segmentation in the US housing market since 1960. I document large differences in housing outcomes for Black and White households. In 1960, Black households on average are 20 percentage points less likely to own a house (relative to White
households with the same income); if they owned, their house values are lower by the equivalent of almost one year of annual income; and even when renting they spend less by the equivalent of one month of rental expenditures. By 2019, the rent and price gaps have declined by about half, whereas the gap in ownership rates has not changed. To interpret these facts, I use a dynamic housing assignment model with a choice to buy or rent housing. I estimate the degree of market segmentation by inferring differences in the quality of housing available to Black and White households, and the resulting differences in rents, prices, and the
cost of owning a home. The model infers that Black households pay higher quality-adjusted rents and prices, especially at higher qualities, and thus sort into lower quality homes. In terms of lifetime consumption-equivalent welfare, relative to an integrated market, the average Black household is five percent worse off in 1960 and remains one percent worse off in 2019.