Housing Markets and Racial Discrimination: A Microeconomic Analysis

The recent housing literature contains important differences in opinion as to the reasons for and implications of racial segregation in U.S. cities. There is fairly general agreement that racial segregation ultimately results from racial prejudice. The disagreement lies in the question of whether prejudice alone produces segregation or whether prejudice leads to discrimination. The question is an important one since the two explanations have radically different implications for the distribution of the welfare cost of prejudice. If it is simply a matter of whites' aversion to living with blacks, then voluntary segregation will result in generally higher prices in white neighborhoods and lower housing prices to blacks (and unprejudiced whites) than in a market without prejudice. However, if whites seek to avoid the associated welfare losses via formal or informal restrictions on the housing choices of blacksthat is, practice discrimination-blacks may now incur welfare losses as a result of higher house prices and/or their inability to purchase or rent units which given prevailing prices they would so choose to buy. Thus, the central empirical questions are the extent to which blacks are observed to pay higher prices than whites for comparable housing and e recent housing literature contai s ortant dif erences in opinio as to reasons for and implications of racial regation in U.S cities. There is fairly eral agre ment hat raci l segr ation i ately results from raci l prejudice. e disagre ment lies in the question of ether prejudice alone produces s greion or whether prejudice leads to disi ination. The question is an import one since the two explanations have ical y dif erent implications for the tribution of the welfare cost of prejue. If it is simply a matter of whites' the extent to which observed demand behavior is consistent with the hypothesis that discrimination-independent of the possible price effects-alters blacks' housing choices.