Why do Black households live in neighborhoods with much lower socioeconomic status than the neighborhoods of white households with similar incomes?

What explains neighborhood sorting by income and race? Dionissi Aliprantis, Daniel R.Carroll, Eric R.Young. Journal of Urban Economics, December 20 2022, 103508. https://doi.org/10.1016/j.jue.2022.103508

Abstract: Why do Black households live in neighborhoods with much lower socioeconomic status (SES) than the neighborhoods of white households with similar incomes? The explanation is not wealth. High-income, high-wealth Black households live in neighborhoods with similar SES as low-income, low-wealth white households. Instead, we provide evidence that many Black households prefer low-SES neighborhoods with Black residents to high-SES neighborhoods without Black residents. The variety of neighborhood SES available in a metro’s Black neighborhoods, which is typically low, drives the neighborhood SES of Black households.

Keywords: NeighborhoodIncomeWealthRaceHomophily

JEL J15J18R11R23

5 Conclusion

This paper documented new facts about neighborhood sorting in the US. It was previously known that Black and white households of similar incomes live in neighborhoods with different levels of socioeconomic status (SES). It was also previously known that the racial composition of neighborhoods affects location choices. What was not known before this paper was whether wealth or the price of neighborhood SES were omitted variables that could explain racial differences in neighborhood SES, and the extent to which racial composition affects African Americans’ neighborhood SES. We have shown that financial constraints related to wealth or the price of housing do not explain neighborhood sorting by income and race, and that race is a central determinant of the neighborhood externalities experienced by African Americans. Future research will be needed to quantify the relative importance of psychological costs and benefits, white flight, and racial discrimination. Our results draw attention to what we consider to be an under-appreciated phenomenon, the psychological costs of being “Black in white space” (Anderson (2020)). The psychological costs of living in predominantly-white neighborhoods are large enough for many African Americans to outweigh any educational, labor market, or safety benefits they might experience due to living in a higher-SES neighborhood. Interpreted in terms of this mechanism, our results provide one way of quantifying how costly it is for Black people to interact with white people. As suggested here at the level of neighborhoods, and in other studies at the levels of schools and workplaces (Fletcher et al. (2020), Ananat et al. (2020), Hellerstein and Neumark (2008)), making “white spaces” more welcoming for Black people appears to be an important step in achieving racial equality. By showing that race outweighs economic factors for neighborhood sorting in the US, this paper highlights that public policy should not be focused entirely on access and economics, but should also be designed with attention to race. In the case of generating integrated neighborhoods, the success or failure of policies will hinge on understanding precisely which factors matter the most in determining neighborhood choices. The preferred policy might be very different depending on whether neighborhood choices are driven more by discrimination in the housing market (Turner et al. (2013), Ross and Yinger (2002)); the related inertia of past practices (Courchane and Ross (2019), Nowak and Smith (2018)); information (Bergman et al. (2020)); family and social networks (B¨uchel et al. (2019), van der Klaauw et al. (2019)); racial hostility (Harriot (2019)); white flight (Shertzer and Walsh (2019), Derenoncourt (2018), Card et al. (2008), Ellen (2000)); amenities (Caetano and Maheshri (2019)); preferences for same-race neighbors or communities (Bayer and Blair (2019), Wong (2013)); or the supply of new housing (Monkkonen et al. (2020)); and the extent to which these mechanisms have changed over time (Blair (2019), Mallach (2019)).