Research Spotlight: Single-Family Rentals and Neighborhood Racial Integration

Neighborhood racial segregation remains to be an important social issue within America’s metropolitan areas. Extensive research has shown that segregation is associated with a wide range of disparities, including unequal access to education, employment, health care, and public goods. One possible contributing factor to segregation is that many minority households cannot afford housing in White neighborhoods, which tend to be relatively expensive, owner-occupied, single-family homes.

In recent years, many of America’s neighborhoods have experienced a considerable increase in the number of single-family rental units as a share of the total number of single-family homes. From 2005 to 2017, the rental percentage climbed from 13 to 17 percent at the national level. During the same period, Florida’s growth in rentals was particularly strong, increasing seven percentage points from 13 to 20 percent. The share of single-family rentals in the total number of housing units also increased notably. The growth in single-family rentals has come mainly from the conversion of previously existing owner-occupied homes and increasingly from new construction. Conceptually, the increase in single-family rental shares improves housing affordability through two pathways. First, rentals lower the cost of neighborhood entry by allowing minorities to avoid the transaction costs and down payment requirements associated with homeownership. Second, rentals may emit negative spillover effects that lower the cost of housing within the neighborhood. Therefore, in light of this recent shift in the housing makeup, it is of interest to investigate whether an increase in the share of single-family rentals results in a more racially integrated neighborhood.

To address this question empirically, we construct a six-year longitudinal data set covering thousands of neighborhoods (census block groups) within nine of Florida’s ten largest urban counties. The racial groups under consideration are non-Hispanic Whites and minorities, which are broken down into non-Hispanic Blacks and Hispanics. We first consider neighborhood compositional models, which relate a shift in a neighborhood’s housing stock in favor of single-family rentals over the years 2008—2013 to the average racial composition within the neighborhood over the current and next four years. The models allow changes in single-family rental shares to have a relatively long-run effect on the neighborhood’s racial composition. The estimation results show that within neighborhoods where Blacks have historically been underrepresented, a rise in the share of single-family rentals increases the percentage of Black residents, resulting in greater racial integration. The effect is both statistically and economically highly significant. Interestingly, the effect can be found regardless of neighborhood income level and whether the dominant racial group within the neighborhood is Whites or Hispanics.

To investigate whether the increase in Black share in response to growth in single-family rentals is driven by minority entry or White exit, we estimate models that reveal the underlying migratory patterns across racial groups. The results show that the increase in integration is primarily due to Black entry rather than the exit of Whites or Hispanics. A closer look at the changes in housing tenure reveals that the increase in Black share comes from renters instead of homeowners.

Analogous analysis for Hispanics as the minority group shows that an increase in the share of single-family rentals has varying effects on the percentage of Hispanic residents across different neighborhood types. These effects, in contrast with those for Blacks, are generally statistically insignificant or negative. Further exploration that treats Hispanics differently depending on their origin would be desirable if such data become available.

In sum, our key findings suggest that single-family rentals reduce neighborhood racial segregation for Blacks. The results were obtained by controlling for nonresidential neighborhood attributes, unobserved time-invariant neighborhood heterogeneity, and common time effects. From a policy perspective, our results indicate that providing more single-family rental units within higher-quality neighborhoods may improve racial integration and help Black families move to opportunity.

You can read more about this research here.

Source for featured image: https://www.pexels.com/photo/person-walking-on-the-road-1563256/

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