Pockets of Poverty: The Long-Term Effects of Redlining

53 Pages Posted: 17 Oct 2016

See all articles by Ian Appel

Ian Appel

UVA Darden; European Corporate Governance Institute (ECGI)

Jordan Nickerson

University of Washington - Department of Finance and Business Economics

Date Written: October 15, 2016

Abstract

This paper studies the long-term effects of redlining policies that restricted access to credit in urban communities. For empirical identification, we use a regression discontinuity design that exploits boundaries from maps created by the Home Owners Loan Corporation (HOLC) in 1940. We find that "redlined" neighborhoods have 4.8% lower home prices in 1990 relative to adjacent areas. This finding is robust to the exclusion of boundaries that coincide with the physical features of cities (e.g., rivers, landmarks). Moreover, we show that housing characteristics varied smoothly at the boundaries when the maps were created. Evidence suggests lower property values may be driven by negative externalities associated with fewer owner-occupied homes and more vacant structures. Overall, our results indicate the effects of discriminatory credit rationing can persist decades after such practices are formally discontinued.

Keywords: Redlining, Credit Rationing, Household Finance

JEL Classification: E5, N3, R2, R31

Suggested Citation

Appel, Ian and Nickerson, Jordan, Pockets of Poverty: The Long-Term Effects of Redlining (October 15, 2016). Available at SSRN: https://ssrn.com/abstract=2852856 or http://dx.doi.org/10.2139/ssrn.2852856

Ian Appel (Contact Author)

UVA Darden ( email )

United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jordan Nickerson

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
Seattle, WA 98195
United States

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