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Can Wealth Explain Neighborhood Sorting by Race and Income?

Why do high-income blacks live in neighborhoods with characteristics similar to those of low-income whites? One plausible explanation is wealth, since homeownership requires some wealth, and black households hold less wealth than white households at all levels of income. We present evidence against this hypothesis by showing that wealth does not predict sorting into neighborhood quality once race and income are taken into account. An alternative explanation is that the scarcity of high-quality black neighborhoods increases the cost of living in a high-quality neighborhood for black households with even weak race preferences. We present evidence in favor of this hypothesis by showing that sorting into neighborhood racial composition is similar across wealth levels conditional on race and income.

Keywords: Neighborhood, Income, Wealth, Race Preference.
JEL Classification Codes: H72, J15, J18, R11, R21.

Suggested citation: Aliprantis, Dionissi, Daniel Carroll, and Eric Young, 2018. “Can Wealth Explain Neighborhood Sorting by Race and Income?” Federal Reserve Bank of Cleveland, Working Paper no. 18-08.

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