Essays on the Economics of Residential Segregation and Affordable Housing

Abstract

There is a growing consensus in the literature suggesting that where one lives has critical and significant implications for economics, education, and health outcomes for both adults and children. In addition, neighborhoods play a crucial role in shaping children's intergenerational mobility rates, contributing to the speed of generational convergence for historically unequal groups. In the United States, unfortunately, low-income and minority households are disproportionately segregated into neighborhoods characterized by low levels of economic resources and lower opportunities, such as low-quality schools and higher crime rates. Thus, recent policy debates have focused on how we, as a society, can better design various housing policies to effectively improve low-income households' access to higher-quality neighborhoods and reduce residential segregation. This dissertation documents such pervasive patterns of residential segregation haunting the American housing market and examines the effectiveness of the rental voucher program, the largest federally run housing subsidy program in the U.S., that improves access for low-income families to live in higher-rent neighborhoods. Chapter 2, coauthored with Patrick Bayer and Kerwin Kofi Charles, first shows the extensive degree of residential segregation prevalent across major U.S. metropolitan areas. We find that Black and white households with identical incomes live in neighborhoods characterized by vastly different economic resources. We then discuss the potential explanatory mechanisms for neighborhood inequality, including decentralized racial sorting, discrimination in the housing market, and racial differences in wealth and home ownership. Chapter 3 studies the equilibrium effect of improving low-income and minority households' access to high-rent, high-opportunity neighborhoods. I leverage a re-design of the rental voucher program, named the Small Area Fair Market Rents (SAFMR), that increased subsidies given to voucher families living in high-rent neighborhoods. While this policy incentivized them to take their vouchers to higher-rent neighborhoods than before, the reshuffling of the voucher households brought about changes in the residential equilibrium. I find that it created a more polarized rental market: rents rose in high-rent areas but declined in low-rent areas. However, it reduced income and racial stratification across neighborhoods, fostering a more egalitarian residential equilibrium. This chapter highlights the potential spillover effects on the residential equilibrium of housing policies that successfully relocate a significant mass of low-income households from high-poverty areas to high-opportunity areas. Chapter 4 assesses the welfare effects of SAFMR on the unsubsidized part of households as the residential equilibrium has changed as documented in Chapter 3. I find that while high-income non-voucher households experienced a modicum of welfare loss due to increased living costs in high-rent neighborhoods, low-income counterparts benefited from reduced rents in low-rent neighborhoods. This result shows that SAFMR was much more progressive than initially thought because it not only increased access of voucher households to high-rent neighborhoods but also indirectly helped the unsubsidized part of low-income households to have more affordable homes in low-rent neighborhoods. I also find that, compared to the traditional design, the SAFMR allows a more equitable implementation of the voucher program by spreading the welfare incidence more evenly across the income distribution within the metropolitan area. This chapter illustrates the broader implications of housing vouchers, underscoring the need to balance affordable housing, societal integration, and overall welfare.