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The Long-Run Effects of Low-Income Housing on Neighborhood Composition

Morris Davis (), Daniel Hartley () and Jesse Gregory
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Jesse Gregory: University of Wisconsin

No 70, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a new model of the demand for neighborhoods and use the model to forecast the long-run impact of new low-income housing units on neighborhood demographic composition and housing rents. We estimate the utility that each of a large number of observable “types” of households derive from neighborhoods (Census tracts) in MSAs throughout the U.S. using detailed panel data on the location choices of 5% of the U.S. population. We then estimate each type's preferences over neighborhood demographics, exploiting a new instrumental variables approach that combines the implications of our model with two discontinuities in the formula used by the department of Housing and Urban Development (HUD) for determining eligibility for federal low-income housing development credits. With knowledge of each type's preferences for neighborhoods and demographics, we simulate the long-run impacts of various low-income housing development policies. If a relatively large amount of low-income housing is placed in only one tract, the share of low-income and African-American residents increases, but the results vary by tract and the range of possible outcomes is quite large. If a small number of low-income units are simultaneously placed in a targeted tract and many adjacent tracts, only small changes to tract demographic composition occur.

Date: 2019
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