In his 1978 essay Racial Prejudice in a Search Model of the Urban Housing Market, Paul Courant claims that, “there are few areas in which economic theory explains economic reality more poorly than in the relationship between housing prices and race” (329). In an attempt to alleviate this problem, Courant seeks to develop a model of the housing market that can explain how aversion amongst some whites to living and dealing with blacks tends to result in a “segregated market with all blacks receiving housing on terms inferior to those obtained by whites” (330). Massey and Rothwell, who build on work by Glaeser, Gyourko, and Saks (2005), offer an alternative model. They argue that regions with more municipal governments allow residents greater control over local regulatory policies, the most important (for our cause) being density zoning regulation. Restrictive zoning regulations raise housing prices by limiting supply, making low-density neighborhoods inaccessible to low-income minorities. White residents who prefer not to live next to blacks are aware of the segregationist effect that density zoning has on a neighborhood’s racial composition and will employ the available political tools to push for it. The more local governments there are, the more accessible these political tools become.
The two models complement each other quite nicely, as Massey and Rothwell have simply improved upon Courant’s seller-aversion probability parameter. Not only should we take into account the likelihood that a black buyer will deal with an averse seller, but also the political ability of white residents to push for density zoning restrictions to keep unwanted buyers out of their neighborhood.
Courant, Paul N. “Racial Prejudice in a Search Model of the Urban Housing Market.” Journal of Urban Economics 5 (1978): 329-345. Print.
R. Muth, “Cities and Housing,” Univ. of Chicago Press, Chicago. (1969)
Rothwell, Jonathan, and Douglas S. Murray. The Effect of Density Zoning on Racial Segregation. 2008. Print.
Schelling, Thomas C. “Models of Segregation.” The American Economic Review 59.2 (1969): 488-493. Print.
Full essay available here.