Another Look at Racial Differences in Housing Prices

Abstract

The existence of segregated housing has sparked interest in the question of whether blacks pay more for housing. That racial segregation exists is not in doubt. The effect of segregation on housing prices in black versus white submarkets is less clear. The empirical evidence is not conclusive. Past studies have yielded disparate results because they applied different models to one or a few markets. In addition earlier studies often used data from samples taken a decade or more ago, while evidence exists that submarket price differentials change significantly over time. This paper presents estimates of racial submarket price differentials in 39 large Standard Metropolitan Statistical Areas (SMSAs). The household level data used are from the Annual Housing Survey, and are both recent (1974-76 data) and extensive (700 to 2,000 degrees of freedom in each of 78 regressions). Separate equations are estimated for owners and renters. The same two models, based on the method of hedonic equations, are employed in every SMSA. We find that in most markets blacks pay less for comparable housing than non-blacks. The average discount for blacks is about 15 per cent for owners and 6 per cent for renters. We also find, as expected, that variation does exist in the estimate for the differential among metropolitan areas.