Sorting or Steering: Experimental Evidence on the Economic Effects of Housing Discrimination

NBER Working Paper No. 24826

Issued in July 2018, Revised in October 2019

NBER Program(s):Environment and Energy Economics, Public Economics



Housing discrimination is illegal. However, paired-tester audit experiments have revealed evidence of discrimination in the interactions between potential buyers and real estate agents, raising concern about whether certain groups are systematically excluded from the beneficial effects of healthy neighborhoods. Using data from HUD's most recent Housing Discrimination Study and micro-level data on key attributes of neighborhoods in 28 US cities, we find strong evidence of discrimination in the characteristics of neighborhoods towards which individuals are steered. Conditional upon the characteristics of the house suggested by the audit tester, minorities are significantly more likely to be steered towards neighborhoods with less economic opportunity and greater exposures to crime and pollution. We find that holding location preferences or income constant, discriminatory steering alone can explain a disproportionate number of minority households found in high poverty neighborhoods in the United States and could be an important contributor to the gap in intergenerational income mobility found between black-white households. The steering effect is also large enough to fully explain the differential found in proximity to Superfund sites among African American mothers. These results have important implications for the analysis of neighborhood effects and establish discrimination as a mechanism underlying observed correlations between race and pollution in the environmental justice literature.

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Document Object Identifier (DOI): 10.3386/w24826