How the housing bubble increased segregation

Black and Hispanic homebuyers received a disproportionate number of subprime mortgages during the housing boom, leading some to theorize that easy credit may have helped desegregate low-income neighborhoods as minorities became more upwardly mobile. But two economists have discovered that the opposite actually happened: between 1995 and 2006, the country’s top metropolitan areas became more segregated, not less so.
Kostoryz Elementary School students perform during a Black History Month celebration in Corpus Christi, Tex. (Rachel Denny Clow - AP)

How did this happen? In a VoxEU paper, Amine Ouazad and Romain Ranciere found that while black families tended to move to more integrated neighborhoods, upwardly mobile Hispanics were more likely to self-segregate. They tended to use easy credit “to buy houses in predominantly Hispanic neighbourhoods with the consequence of enrolling their children in schools with fewer black peers, and more Hispanic and white peers,” the authors write. By 2006, black students had 2 percent fewer Hispanic peers as a result. By contrast, Hispanic students moved to school districts “with about 1,600 fewer black students.”

Secondly, while blacks and Hispanics received more subprime mortgages, richer home buyers — who are more often white — received even more leverage, prompting them to move as well and reducing potential residential integration. So the racial segregation that’s linked to the wealth gap also continued.

The overall impact was dramatic: Researchers conclude that the segregation that resulted from the credit boom overshadowed what court-ordered desegregation plans had achieved from 1971 to 1986. “The net effect is that credit markets increased racial segregation,” they conclude, effectively wiping out the gains in integration made in recent history. The researchers don’t address whether these changes have continued during the housing bust and the current recession. But as black families and homeowners have been one of the hardest-hit groups, it seems plausible that residential segregation would continue.