In a neighborhood on the outskirts of a large metropolitan area, there are two virtually identical houses for sale. A white couple and a Hispanic couple make offers on the houses, respectively, and both are accepted. Reviewing the records, however, reveals the Hispanic couple paid thousands more for a comparably sized home with similar features. Why?
Laws exist in the United States to prohibit and prevent racial, gender or religious discrimination in housing practices. However, research out of the Duke University economics department shows that not enough has changed in the 45 years since the passage of the Fair Housing Act of 1968.
The study, published on the National Bureau of Economic Research website, analyzes more than 2 million sale prices from 1990 to 2008 for equivalent homes in the same neighborhoods purchased by white, black and Hispanic buyers. Researchers concentrate on neighborhoods in Chicago; Baltimore/Washington, D.C.; San Francisco; and Los Angeles. The data reveal, on average, that black and Hispanic buyers have spent 3 to 4 percent more on equivalent homes than their white counterparts.
The price differences did vary, with black buyers paying nearly 5.5 percent more than whites in Cook County, Illinois, which includes Chicago, but only slightly more than 1 percent more in California. Hispanic buyers also paid between 2.5 and 3 percent more in Chicago; Baltimore/Washington, D.C.; and San Francisco, but only 1.2 percent more in Los Angeles.
Although the percentages sound small, it can amount to much more than it seems, says study co-author Patrick Bayer, professor and economics department chair.
"Three to 4 percent doesn't sound like a lot, but it could be as much as $10,000 to $20,000. If blacks and Hispanics are paying that much more, that adds up to a lot over a lifetime," he says. "In our work, we're documenting that there really is a pretty large difference."
The research, he says, goes beyond earlier efforts because it takes into account previous sale prices and neighborhood appreciation rates. In doing so, they are able to compare houses that are as similar as possible.
"We compare two houses in the same neighborhood that sold for the same amount several years prior," Bayer says. "We're looking to see who pays more when the houses are re-sold to buyers of different races or ethnicities."
Although price differences are present in all four metropolitan housing markets, researchers are not able to decipher the reasons behind the apparent highs and lows, notes Bayer. He attributes the prevalence to a greater number of segregated neighborhoods in those cities, as compared to California. The reasons why, however, remain unclear.
The research does uncover and confirm several other aspects of this housing phenomenon. Some revelations are contrary to previous beliefs, Bayer says.
"Our study points to the unlikelihood that the race of sellers is important in driving this differential. No one has shown this before," he says. "We've also shown that a home seller taking a lower-price bid because a buyer has a greater chance that the mortgage will go through is inconsistent with public records."
What the data does support is the suggestion that real estate agents show blacks and Hispanics fewer houses, potentially prompting them to pay more for an attractive house, and they sometimes steer these buyers to neighborhoods that have historically been associated with their respective racial and ethnic groups. Unfortunately, says Bayer, those areas tend to offer lower quality housing. In addition, blacks and Hispanics are also more likely to be first time
Home buyers, and may end up paying more because they have less experience with house-buying negotiations.
Housing disparities extend beyond purchase prices to include environmental factors, as well. Economics professor Christopher Timmins uses the data to study the environmental justice of housing practices. Overall, he says, blacks and Hispanics are pushed more frequently to make tradeoffs in their housing decisions. To find more affordable homes, they often have to choose locations where pollution or crime levels are high or school quality is low.
Identifying the relationship between race and lower-quality housing is easy, he says. The broader question is: Why does this pattern exist? To find the answer, Timmins has several ongoing projects that are supported by the U.S. Environmental Protection Agency, the largest of which focuses on the factors creating a link between housing, race and pollution.
"Why is it this way? Whether it's polluting firms locating in those neighborhoods or poor minorities moving into places where pollution is bad largely because, by being there, they can get bigger houses, lower crime or better schools," Timmins says, "we must attack at a deeper level to fully understand their willingness to make these trade-offs."
A lack of financial liquidity could be a significant hindrance for minorities looking to escape neighborhoods with high pollution levels, he says. Overall, these groups have less accumulated wealth and resources, effectively prohibiting any moving opportunities.
The data applied in these studies can also be useful to others throughout campus. Both Bayer and Timmins are looking forward to a close partnership with SSRI-West because it will give researchers in all disciplines access to the records of more than 120 million housing purchases over the past 25 years. SSRI will house the data in a communally convenient place, eliminating the red tape that currently makes accessing this information difficult.
"We're trying to build the infrastructure so undergraduates, graduates and faculty can use this rich housing data that we have for their own research purposes," Bayer says. "Questions that touch on the environment, neighborhood evolution, housing markets -- there are a lot of details in this data that can be accessible to researchers around campus."
This article originally appeared in the fall issue of GIST, the newsletter of the Social Science Research Institute.