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Credit Standards and Segregation

Author

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  • Rancière, Romain
  • Ouazad, Amine
Abstract
How do credit standards on the mortgage market affect neighbourhood choice and the resulting level of urban segregation? To answer this question, we first develop a model of neighbourhood choice with credit constraints. The model shows that a relaxation of credit standards can either increase or decrease segregation, depending on racial income gaps and on races' preferences for neighbourhoods. We then estimate the effect of the relaxation of credit standards that accompanied the 1995-2006 mortgage credit boom on the level of school segregation. Census tract racial composition is strongly correlated with the racial composition of the 10 closest schools in the cross section. Matching a national data set of mortgage originations with annual racial demographics of each of the public schools in the United States from 1995 to 2006, we find that the relaxation of credit standards has caused an increase in the segregation of blacks through a lower exposure of blacks to Hispanics and whites.

Suggested Citation

  • Rancière, Romain & Ouazad, Amine, 2011. "Credit Standards and Segregation," CEPR Discussion Papers 8300, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8300
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    Cited by:

    1. Loayza,Norman V. & Ouazad,Amine & Ranciere,Romain, 2017. "Financial development, growth, and crisis: is there a trade-off ?," Policy Research Working Paper Series 8237, The World Bank.
    2. Amine Ouazad & Romain Rancière, 2019. "City Equilibrium With Borrowing Constraints: Structural Estimation And General Equilibrium Effects," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(2), pages 721-749, May.
    3. Rancière, Romain & Ouazad, Amine, 2015. "Structural Demand Estimation with Borrowing Constraints," CEPR Discussion Papers 10866, C.E.P.R. Discussion Papers.
    4. Murphy, Daniel, 2024. "Housing cycles and gentrification," Journal of Monetary Economics, Elsevier, vol. 144(C).
    5. Florent Dubois, 2017. "The Sources of Segregation," AMSE Working Papers 1720, Aix-Marseille School of Economics, France.
    6. Amine Ouazad, 2020. "Resilient Urban Housing Markets: Shocks vs. Fundamentals," Papers 2010.00413, arXiv.org, revised Oct 2020.
    7. Ihlanfeldt, Keith & Mayock, Tom, 2018. "School segregation and the foreclosure crisis," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 277-290.
    8. Rémi Bazillier & Jérôme Héricourt & Samuel Ligonnière, 2017. "Structure of Income Inequality and Household Leverage: Theory and Cross-Country Evidence," Working Papers 2017-01, CEPII research center.
    9. W. Ben McCartney & John Orellana & Calvin Zhang, 2021. "“Sort Selling”: Political Polarization and Residential Choice," Working Papers 21-14, Federal Reserve Bank of Philadelphia.

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    More about this item

    Keywords

    Lending standards; Mortgage; Segregation;
    All these keywords.

    JEL classification:

    • H0 - Public Economics - - General
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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