In a study I coauthored with my colleagues Jonathan Rothwell of the survey company Gallup and David Harshbarger, also at Brookings, we examined how prices in Black-majority neighborhoods convey value; we compared home prices between Black-majority neighborhoods and White neighborhoods. We examined homes of similar quality in neighborhoods that were comparable—except for the racial demographics—to make an apples-to-apples comparison between places where the share of the Black population is 50 percent or higher and those where there are few to no Black residents. After controlling for factors such as housing and neighborhood quality, education, and crime, we found that comparable homes in neighborhoods with similar amenities are worth 23 percent less in Black-majority neighborhoods, compared to those with very few or no Black residents. The percent difference is the devaluation. In real dollars, owner-occupied homes in Black neighborhoods are undervalued by $48,000 per home on average, amounting to a whopping $156 billion in cumulative losses nationwide.
Take the metropolitan statistical area (the urban core and surrounding areas) of Rochester, New York, for example. With a Black population of 11.5 percent, this metro area sees a 65 percent difference between the actual price of a home in a Black neighborhood and the adjusted rate for equivalent housing in one of the area’s White neighborhoods, amounting to a $53,000 loss in price per home. In the Durham-Chapel Hill metro area of North Carolina, which has a Black population of 26.8 percent, there is a 12.5 percent difference, resulting in $26,000 loss in price per home. In the Pittsburgh metro area, which has a Black population of 8.2 percent, there is an 11.6 percent difference, resulting in $12,000 loss in price per home. And in the homes in the Detroit metropolitan area—Detroit being the largest Black-majority major city in the nation—there is a 37 percent difference, resulting in $28,000 in average loss per home to a sum of $4.36 billion.
Let’s break all this down. Most people intuitively know that homes in Black neighborhoods are priced lower than those in White areas. This is certainly true. In the average U.S. metropolitan area, homes in neighborhoods where the share of the population is 50 percent Black are priced at roughly half the amount of homes in neighborhoods with no Black residents. There is a strong and powerful statistical relationship between the share of the population that is Black and the market value of owner-occupied homes (figure 2-1). Location in a Black neighborhood predicts a large financial penalty for 117 out of the 119 metropolitan areas with Black-majority neighborhoods, though the valuation gap varies widely between them.
Federal and local governments as well as private citizens, as explicated in the Detroit example, certainly had a role in degrading property. The practice of redlining didn’t formally end until 1977 with the passage of anti-housing discrimination policy, the Community Reinvestment Act. That loss of revenue kept individuals and municipalities from investing in neighborhoods, which negatively impacted the housing stock.
Most people will attribute the price difference to perceived flaws in people and communities. Many will say lower school quality, crime, poor housing stock, and other problems with either the home or the neighborhood are the reasons for the lower prices. We controlled statistically for many of those variables. Taking the common beliefs about what lowers home prices off the table, we found that differences in home and neighborhood quality do not fully explain the lower prices of homes in Black neighborhoods. Black-majority neighborhoods do exhibit features associated with lower property values, including higher crime rates, longer commute times, and less access to high-scoring schools and well-rated restaurants. And these factors do have a negative impact on price. Yet, these factors explain only roughly half of the undervaluation of homes in Black neighborhoods.
FIGURE 2-1. NEIGHBORHOOD MEDIAN HOME VALUE BY BLACK POPULATION SHARE, U.S. METROPOLITAN AREAS, 2012–2016.
SOURCE: Zillow and 2016 American Community Survey five-year estimates.
Given that homes in Black-majority neighborhoods are devalued by 23 percent as compared to White ones, with a cumulative loss of $156 billion nationally, we need to reframe the “it all starts at home” refrain. It does start at home, but what that means is bigotry and implicit bias impose a “Black tax” on residents of Black-majority neighborhoods that White neighborhoods simply don’t have to pay. To put it plainly, racial bias is taking away money from Black families that could be put toward college tuition or a small business. Notwithstanding the elimination of discrimination in employment, policing, education, and other areas, if homes in Black neighborhoods bought and sold at market rates, our neighborhoods would have significantly more resources. Home sellers don’t get their proper value, and certain buyers don’t necessarily get the return on investment they deserve. Devaluation also means municipalities with a significant percentage of African Americans lose tax revenue that could be put toward government services and infrastructure. This is a vicious cycle: Devaluation leads to divestment, which leads to people moving out of the community; social services decline and crime and unemployment rise. Given the large amount of money that is stripped from communities because of racism, it’s illogical to think Black folk should be faulted for community decay.
Put that $156 billion in cumulative, national losses into perspective. That $156 billion could have started 4.4 million Black-owned businesses, based on the average amount of $35,205 Blacks use to start a company.19 It could have paid for 8.1 million four-year degrees based on the average tuition of $19,189 at public universities in 2016.20 These are real wealth-building opportunities that could have catapulted the Black population to greater heights.
More perspective: The cost of replacing all the water pipes in Flint, Michigan, was estimated to be about $55 million, and the cost of the damage related to hurricane Katrina was $161 billion. That means the $156 billion could have replaced pipes in Flint nearly 3,000 times over and paid for the nearly all (97 percent) the damage caused by Hurricane Katrina.21 The nation’s yearly economic burden due to opioid abuse, dependence, and overdose is an estimated $70 billion (excluding criminal justice costs, which account for 10 percent of the total). The $156 billion is a sum large enough to more than double our efforts to combat the opioid crisis, according to a 2013 analysis of Centers for Disease Control data published in the academic journal Medical Care.22 All this is to say that 23 percent and $156 billion are big numbers.
Our study also looked at devaluation in the same neighborhoods studied by lead author Harvard economist Raj Chetty, which linked records from the Internal Revenue Service to the Census Bureau to understand intergenerational income mobility for people age thirty-one to thirty-seven who were born between 1978 and 1983.23 We found that Black children born into low-income families could achieve higher incomes as adults if they grew up in metro areas where homes were less devalued. If properties in Black neighborhoods were priced equally to those in White neighborhoods, Black children coming of age in the 1990s and 2000s would have had much more wealth to draw upon to pay for tutoring, travel, and educational experiences, as well as higher education and greater access to other neighborhoods. Greater property wealth also may have facilitated higher rates of entrepreneurship among Black parents, which may have positively affected children.