The Damages and Distortions from Discrimination in the Rental Housing Market
By constraining an individual’s choice during a search, housing discrimination distorts sorting decisions away from true preferences and results in a ceteris paribus reduction in welfare. This study combines a large-scale field experiment with a residential sorting model to derive utility-theoretic measures of renter welfare loss associated with the constraints imposed by discrimination in the rental housing market. Results from experiments conducted in five cities show that key neighborhood amenities are associated with higher levels of discrimination. Results from the structural model indicate that discrimination imposes costs equivalent to 4.7% of annual income for renters of color, and that search behavior results in greater welfare costs for African Americans as their incomes rise. Renters of color must make substantial investments in additional search to mitigate the costs of these constraints. We find that a naïve model ignoring discrimination constraints yields significantly biased estimates of willingness to pay.
We thank seminar participants at Arizona State University, the Kelley Business School, the University of California at Berkeley, the University of California at San Diego, the University of California at Santa Cruz, the University of Chicago, the Duke-Kunshan University, the University of Miami, the University of Nevada at Las Vegas, the University of Pennsylvania, the University of Pittsburgh, the University of Wisconsin, and participants at the AEA 2021 Meeting and the UEA 2020 Virtual Meeting for their excellent comments. We also thank students in the University of Illinois Big Data and Environmental Economics and Policy (BDEEP) Group and the Duke Environmental Justice Lab for research assistance. We acknowledge generous support from the National Science Foundation Economics Program and the Russell Sage Foundation Social, Political and Economic Inequality Program. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.