Association for Public Policy Analysis & Management

Why do high-income black households live in neighborhoods with characteristics similar to those of low-income white households? This paper shows that neighborhood sorting by income and race cannot be explained by wealth but can be explained by race-specific preferences. We demonstrate the following stylized facts: (i) Neighborhood quality is independent of wealth conditional on income and race. (ii) Neighborhood racial composition is independent of wealth and income conditional on race. (iii) The racial gap in neighborhood quality can be explained at all income levels by black households sorting into black neighborhoods. (iv) When looking across metros, black residents' neighborhood quality does not depend on the overall supply of high quality neighborhoods, but does increase as the supply of high quality black neighborhoods increases.