Working Paper

What Explains Neighborhood Sorting by Income and Race?

Abstract: Why do high-income black households live in neighborhoods with characteristics similar to those of low-income white households? We find that neighborhood sorting by income and race cannot be explained by financial constraints: High-income, high-wealth black households live in similar-quality neighborhoods as low-income, low-wealth white households. We provide evidence that black households sort across neighborhoods according to some non-pecuniary factor(s) correlated with the racial composition of neighborhoods. Black households sorting into black neighborhoods can explain the racial gap in neighborhood quality at all income levels. The supply of high-quality black neighborhoods drives the neighborhood quality of black households.

Keywords: Race; Income; Neighborhood; Wealth;

JEL Classification: H72; J15; J18; R11; R21;

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2019-10-08

Number: 18-08R

Note: First version June 2018 with the title “Can Wealth Explain Neighborhood Sorting by Race and Income?”