The Long Shadow of Housing Discrimination: Evidence from Racial Covenants

Abstract

Racial sorting and house price differentials across neighborhoods can result from household sorting or steering on the basis of neighbors’ characteristics or differences in neighborhood quality. However, it is difficult to distinguish which of these mechanisms is at play because segregated neighborhoods often differ in quality. To disentangle the two mechanisms, we leverage novel data on racial covenants—clauses in property deeds that prohibited racial, ethnic, and religious minorities from residing in a property—and build a quasi-experimental design that exploits the time to build in housing construction and the 1948 U.S. Supreme Court ruling that made racial covenants unenforceable. We find that racial covenants affected built environment quality, e.g., housing stock quality and interstate highway placement, in neighborhoods newly constructed in the mid-20th century. We show that differences in built environment quality anchor these neighborhoods over time such that 6–32% of the observed neighborhood racial sorting from 1980 to 2020 and 4–4.7% of house price differentials in the 21st century can be causally linked to racial covenants of the past. Differences in neighborhood quality resulting from disparities in the built environment can explain at least one-third of the persistent effects observed today.

Keywords: Housing Discrimination, Racial Covenants, Segregation