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Financial constraints and the racial housing gap

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  • Gupta, Arpit
  • Hansman, Christopher
  • Mabille, Pierre

Abstract

We show that financial constraints lead to spatial misallocation and contribute to racial disparities in housing and wealth accumulation. Using bunching and difference-in-differences designs, we document that down payment constraints disproportionately limit the ability of Black households to access housing in high-opportunity areas. We build a dynamic life-cycle model to examine the long-term wealth effects of these leverage distortions on group differences in wealth accumulation. Black households are more affected by financial and spatial frictions, limiting wealth building opportunities. Improving mortgage access and housing supply in high-opportunity areas helps reduce racial wealth disparities, emphasizing the need for access to geographic opportunities rather than homeownership alone.

Suggested Citation

  • Gupta, Arpit & Hansman, Christopher & Mabille, Pierre, 2025. "Financial constraints and the racial housing gap," Journal of Financial Economics, Elsevier, vol. 173(C).
    • Handle: RePEc:eee:jfinec:v:173:y:2025:i:c:s0304405x25001503
    DOI: 10.1016/j.jfineco.2025.104142
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    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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