The Damages and Distortions from Discrimination in the Rental Housing Market

Abstract

By constraining an individual’s choice during a search, housing discrimination distorts sorting decisions away from true preferences and results in a ceteris paribus reduction in welfare. This study combines a large-scale field experiment with a residential sorting model to derive utility-theoretic measures of renter welfare loss associated with the constraints imposed by discrimination in the rental housing market. Results from experiments conducted in five cities show that key neighborhood amenities are associated with higher levels of discrimination. Counterfactual simulations based on the sorting model suggest that discrimination imposes damages equivalent to 4.4% and 3.5% of the annual incomes for African American and Hispanic/Latinx renters, respectively. Damages are increasing in income for African American renters, such that impacts become stronger for economically mobile households. Renters of color must make substantial investments in additional search to mitigate the costs of these constraints. We find that a naive model ignoring discrimination constraints yields biased estimates of willingness to pay for key neighborhood amenities.