Using Hedonic Models to Measure Racial Discrimination and Prejudice in the U.S. Housing Market

  • Jeffrey E. Zabel

Given the longstanding goal of racial equality in the USA (and elsewhere), there have been many attempts to measure the presence of racial discrimination in the housing market. In this context, racial discrimination is an action whereby nonwhites are treated differently than whites in some aspect of the housing market. Given the complexity of the housing market, racial discrimination can manifest itself in a number of ways. First, suppliers of housing can price discriminate and charge nonwhites more than whites. Second, whites can by force, threat, or collusion prevent nonwhites from living in certain areas. This can include some forms of zoning or racial covenants that can restrict the types of individuals that can purchase houses in certain areas or towns. Third, real estate agents can steer nonwhites away from white neighborhoods and hence deny nonwhites access to these areas. Fourth, nonwhites can be denied mortgages at a higher rate than whites, all else equal. Fifth, lenders can refuse to write loans in certain high minority areas; this is known as redlining. Sixth, lenders can charge higher prices to nonwhites for mortgages by offering higher interest rates or by forcing them to apply for private mortgage insurance.

The focus of this chapter is on the fourth of these methods for detecting discrimination in the housing market. Initially, a general framework for detecting discrimination based on the hedonic model of house prices will be established. Then, this framework will be used to evaluate the literature. This paper is limited to an analysis of the U.S. housing market since this is the basis of most of the research on discrimination in the housing market (but see Harrison et. al. (2005) for an analysis of housing discrimination in the European Union). The burst of energy in the 1970s devoted to estimating discrimination and prejudice in the housing market using hedonic house price models has been followed by a relative dearth of such studies in the past twenty-five years. This might be due to a change of focus to other forms of discrimination in the housing market (i.e. forms three through six above). Also, with the advent of estimable forms of the general equilibrium urban model, it is now possible to analyze the impact of racial preferences on residential patterns in urban areas in a general equilibrium framework rather than the inherently partial equilibrium framework that underlies the studies based on hedonic models.3 Another reason is that the data requirements for accurately estimating discrimination using hedonic models are particularly onerous. Given these difficulties, along with other econometric issues that arise in specifying and estimating the hedonic model, it is recommended that the focus should be on trends in racial discrimination in the housing market rather than on point estimates from crosssection data. Of course, this only adds to the data requirements for estimating these trends.


Census Tract Housing Market Racial Discrimination Metropolitan Statistical Area Racial Composition 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Aaronson D (2001) Neighborhood dynamics. Journal of urban economics 49: 1-31CrossRefGoogle Scholar
  2. Bailey MJ (1959) A note on the economics of residential zoning and urban renewal. Land economics 35: 288-292CrossRefGoogle Scholar
  3. Bajari P, Kahn ME (2005) Estimating housing demand with an application to explaining racial segregation in cities. Journal of business and economic statistics 23: 20-33CrossRefGoogle Scholar
  4. Bayer P, McMillan R, Ruben K (2004) An equilibrium model of sorting in an urban housing market. Working paper no 10865, NBER, Cambridge, United StatesGoogle Scholar
  5. Bayer P, Ross SL (2007) Identifying individual and group effects in the presence of sorting: a neighborhood effects application. Discussion paper 07-03, Center for economic studies, U.S. Census Bureau, Washington D.C.Google Scholar
  6. Becker GS (1957) The economics of discrimination. University of Chicago press, ChicagoGoogle Scholar
  7. Bobo L (2001) Racial attitudes and relations at the close of the twentieth century. In: Wilson WJ, Mitchell F (eds) In American becoming: racial trends and their consequences. Academy press, Washington DCGoogle Scholar
  8. Bond EW, Coulson NE (1989) Externalities, filtering, and neighborhood change. Journal of urban economics 26: 231-249CrossRefGoogle Scholar
  9. Card D, Ma A, Rothstein J (2007) Tipping and the dynamics of segregation. Working paper no 13052, NBER, Cambridge, United StatesGoogle Scholar
  10. Chambers D (1992) The racial housing price differential and racially transitional neighborhoods. Journal of urban economics 32: 214-232CrossRefGoogle Scholar
  11. Cicerone A (1994) An Analysis of Racial Price Differentials in the Boston Area Housing Market. Unpublished Ph.D. dissertation, Northeastern University, Boston MassachusettsGoogle Scholar
  12. Clapp JM, Nanda A, Ross SL (2007) Which school attributes matter? The influence of school district performance and demographic composition on property values. Forthcoming in Journal of urban economicsGoogle Scholar
  13. Courant PN (1978) Racial prejudice in a search of the urban housing market. Journal of urban economics 5: 329-345CrossRefGoogle Scholar
  14. Courant PN, Yinger J (1977) On models of racial prejudice and urban residential segregation. Journal of urban economics 32: 272-291CrossRefGoogle Scholar
  15. Cutler DM, Glaeser EL, Vigdor JL (1999) The rise and decline of the american ghetto, Journal of political economy 107: 455-506CrossRefGoogle Scholar
  16. Deng Y, Ross SR, Wachter S (2003) Racial differences in homeownership: the effect of residential location. Regional science and urban economics 33: 517-556CrossRefGoogle Scholar
  17. Downes TA, Zabel JE (2002) The impact of school characteristics on house prices: Chicago 1987-1991. Journal of urban economics 22: 1-25CrossRefGoogle Scholar
  18. Easterly W (2005) Empirics of strategic interdependence: the case of the racial tipping point. Working paper no 5, New York University DRIGoogle Scholar
  19. Epple D, Seig H (1999) Estimating equilibrium models of local jurisdictions. Journal of political economy 107: 645-681CrossRefGoogle Scholar
  20. Frankel DM, Pauzner A (2002) Expectations and the timing of neighborhood change. Journal of urban economics 51: 295-314CrossRefGoogle Scholar
  21. Glaeser EL, Vigdor JL (2001) Racial segregation in the 2000 census: promising news. Cen-ter on urban and metropolitan policy, The Brookings Institution, Washington D.C.Google Scholar
  22. Goodman AC (1977) A comparison of block group and census tract data in a hedonic hous-ing price model. Land economics 53: 483-487CrossRefGoogle Scholar
  23. Harrison M, Law I, Phillips D (2005) Migrants, Minorities and Housing: Exclusion, Dis-crimination and Anti-Discrimination in 15 Member States of the European Union, Eu-ropean Monitoring Centre on Racism and Xenophobia, Vienna, AustriaGoogle Scholar
  24. Ihlanfeldt KR, Scafidi B (2002) Black self-segregation as a cause of housing segregation: evidence from the multi-city study of urban inequality. Journal of urban economics 51: 366-390CrossRefGoogle Scholar
  25. Ioannides Y, Zabel JE (2007) Interactions, neighborhood selection, and housing demand. Forthcoming in the journal of urban economicsGoogle Scholar
  26. Kiel KA, Zabel JE (1996) House price differentials in U.S. cities: Household and neighbor-hood racial effects. Journal of housing economics 5: 143-165CrossRefGoogle Scholar
  27. Kiel KA, Zabel JE (1999) The accuracy of owner provided house values: the 1978-1991 american housing survey. Real estate economics 27: 263-298CrossRefGoogle Scholar
  28. Kiel KA, Zabel JE (2008) Location, location, location: The 3L approach to house price de-termination. Forthcoming in the Journal of Housing EconomicsGoogle Scholar
  29. King AT, Mieszkowski P (1973) Racial discrimination, segregation, and the price of housing. Journal of political economy 81: 590-606CrossRefGoogle Scholar
  30. Li MM, Brown J (1980) Micro-neighborhood externalities and hedonic housing prices. Land economics 56: 125-141CrossRefGoogle Scholar
  31. Munnell AH, Browne LE, Tootell GMB, McEneaney J (1996) Mortgage lending in Boston: interpreting HMDA data. American economic review 86: 25-53Google Scholar
  32. Myers CK (2004) Discrimination and neighborhood effects: understanding racial differentials in US housing prices. Journal of urban economics 56: 279-302CrossRefGoogle Scholar
  33. Pancs R, Vriend NJ (2007) Schelling’s spatial proximity model of segregation revisited. Journal of public economics 91: 1-24CrossRefGoogle Scholar
  34. Rose-Ackerman S (1975) Racism and urban structure. Journal of urban economics 2: 85-103CrossRefGoogle Scholar
  35. Rosen S (1974) Hedonic prices and implicit markets: product differentiation in pure comptition. Journal of political economy 82: 34-55CrossRefGoogle Scholar
  36. Ross SL (2005) The continuing practice and impact of discrimination. Working paper: 2005-19, Department of economics, University of ConnecticutGoogle Scholar
  37. Schelling TC (1971) Models of segregation. RM-6014-RC, The Rand Corporation, Santa MonicaGoogle Scholar
  38. Tootell GMB (1996) Redlining in Boston: do mortgage lenders discriminate against neighborhoods? Quarterly journal of economics 111: 1049-1079CrossRefGoogle Scholar
  39. Yinger J (1976) Racial prejudice and racial residential segregation in an urban model. Journal of urban economics 3: 383-396CrossRefGoogle Scholar
  40. Yinger J (1978) The black-white price differential in housing: some further evidence. Land economcs 54: 187-206CrossRefGoogle Scholar
  41. Yinger J (1979) Prejudice and discrimination in the urban housing market. In: Mieszkowski P, Straszheim M (eds) Current issues in urban economics. Johns Hopkins University press, Baltimore, MarylandGoogle Scholar
  42. Yinger J (1995) Closed door, opportunities lost. Russell Sage Foundation, New YorkGoogle Scholar
  43. Yinger J (1998) Housing discrimination is still worth worrying about. Housing policy debate 9: 893-927Google Scholar

Copyright information

© Springer Science + Business Media, LLC 2008

Authors and Affiliations

  • Jeffrey E. Zabel
    • 1
  1. 1.Tufts UniversityNewtonUS

Personalised recommendations