Metropolitan Growth and Neighborhood Segregation by Income

U.S. metropolitan neighborhoods have become increasingly segregated by income over the past thirty years. The metropolitan areas with the largest rises in income segregation include a number of distressed cities in industrial decline, as well as a subset of rapidly growing metropolitan areas. I propose a simple model based on the notion that rising income inequality creates market pressure (or “demand”) for segregation by income in the housing market. Housing markets in rapidly growing areas easily respond to changing preferences, so rising inequality translates into residential segregation. On the other hand, because housing is durable and existing housing may cost less than the price of new construction, slow growth areas witness rising segregation only if the change in demand for segregated housing is sufficient to overcome construction costs. Several implications of the model are supported empirically. First, higher levels of income inequality are associated with higher levels of residential segregation by income. Second, inequality (at the top of the distribution, but not the bottom) has a bigger effect on segregation in rapidly growing areas than in slowly growing areas. Third, large increases in segregation are coupled with higher than expected housing construction in slow-growth areas but not rapidgrowth areas. Finally, income segregation levels are persistent, and the persistence is more pronounced in cities with older housing stocks. The model helps to explain the U-shaped relationship between residential segregation by income and metropolitan area growth.