Sorting or Steering: The Effects of Housing Discrimination on Neighborhood Choice

Growing evidence indicates that neighborhoods affect human capital accumulation, raising concern that the exclusionary effects of housing discrimination could contribute to persistent inequality. Using data from HUD's most recent Housing Discrimination Study and micro-level data on key attributes of neighborhoods in 28 US cities, we find strong evidence that discrimination constrains the neighborhood choices of minorities in a housing search. Minority testers are significantly more likely to be steered towards neighborhoods with lower quality schools and neighborhood human capital, and higher rates of assault and pollution exposure. Holding location preferences and income constant, discriminatory steering alone can explain a disproportionate number of minority households found in high poverty neighborhoods in the United States and could contribute to racial gaps in inter- generational income mobility. These results have important implications for the analysis of neighborhood effects and further establish discrimination as a mechanism underlying observed correlations between race and pollution exposures.