The New Housing Discrimination: Realtor Minority Steering

2018 marks the 50^th anniversary of the Fair Housing Act—an important victory for activists in the Civil Rights era—but this historic legislation did not eradicate discrimination in the housing market. Evidence shows that real estate agents today still steer buyers into same-race neighborhoods—a phenomenon where realtors show only selected neighborhoods based on client demographics. But is this practice discrimination or is it simply the result of agents responding to the preferences of their clients? New research by Christensen and Timmins delves into this question, testing whether homes recommended to minority buyers were systematically in worse neighborhoods than white buyers, despite clients having the same housing preferences and buying power. The study adds to growing concerns that housing practices are, intentionally or not, excluding certain minority groups from the benefits that safe, clean, prosperous neighborhoods provide.

A 2012 Department of Housing study simulated which homes are shown to two theoretical buyers (“testers”)  who are identical in all preferences and characteristics except race. By linking this data to location data on measures of neighborhood violence, school quality, pollution and poverty, the researchers attempted to disentangle evidence of illegal discrimination from individual preferences of buyers.

The study found that minorities were significantly more likely to be steered toward disadvantaged neighborhoods despite being virtually identical to white buyers. White testers were shown homes in areas with more desirable amenities, such as low poverty rates, highly skilled and educated residents, and quality schools. Compared to their white counterparts, African American testers were steered toward homes in neighborhoods with higher poverty rates (+1.24 percent) and lower shares of skilled (-2.72 percent) and college-educated residents (-3.04 percent).  The disparities between white and Hispanic testers were even greater in terms of poverty rate (+2.16 percent) and high-skilled residents (-3.48 percent).  The homes shown to all minority groups were located in lower-quality school districts than their white counterparts; however, the difference was not statistically significant.

The presence of two undesirable qualities—assaults and pollution—were not statistically different between white and minority testers, though minority groups were shown homes in areas with more of both. However, when considering only African Americans, assault rates and measures of pollution were substantially higher and statistically significant.

The study also looked at differences for mothers. For this group of testers, disparities are magnified. African American and Hispanic mothers were steered into neighborhoods with a five percent higher poverty rate than white mothers. African American mothers were shown homes in areas with 35 percent more assaults, 52 percent more Superfund sites (land contaminated by hazardous waste), and 37 percent more air toxins. While this study does not attempt to quantify the extent to which these neighborhood characteristics harm residents, the health effects would be significant.

The researchers ruled out several explanations for these disparities and the prevalence of racial segregation. For example, it is possible that realtors discriminated against African American buyers by discounting their financial credentials and steering them toward lower-priced neighborhoods. The data show no difference between the prices of homes shown to white and minority testers, all else being equal.

The researchers highlighted how minority home buyers may not be “free to choose” in the housing market, because their options were determined by real estate agents who did not fully account for buyers’ housing preferences. For example, it might appear, based on where they choose to locate, that minority buyers don’t value air quality as much as white buyers. However, because their choice set is distorted by realtors’ discriminatory steering, buyers’ purchases don’t accurately reflect how they value clean air. If buyers aren’t given the option to purchase a home in a low-pollution neighborhood, it is impossible to know the price they’d be willing to pay. When making policy decisions, analysts often attempt to impute the value of non-market goods (such as clean air) using market goods (housing prices). As this study shows, minority residents’ preferences for pollutant-free air would be undervalued using this method because they may not have been given the option to live in a less polluted neighborhood. Policymakers should be wary of interpreting minority groups’ location choices as valuations of communities’ characteristics.

Fifty years after the Fair Housing Act, American cities still suffer the effects of segregation.  Some argue that this is a result of “self-sorting”, where different races choose to live separately because they have disparate preferences. This study refutes the self-sorting argument by showing that one characteristic—race—determines buyers’ options, despite identical preferences. More research is needed to quantify the harm that housing discrimination inflicts on the wellbeing of minority communities, but it is unquestionably detrimental.

Article source: Christensen, Peter & Christopher Timmins. “Sorting or Steering: Experimental Evidence on the Economic Effects of Housing Discrimination,” NBER, No. 24826 (July 2018).

Featured photo: cc/(Feverpitched, photo ID: 153829507, from iStock by Getty Images)