Finance seminar presented by Morris Davis (Rutgers)

Abstract: We develop a new model of the demand for neighborhoods and use the model to forecast the long-run impact of new low-income housing units on neighborhood demographic composition and housing rents. We estimate the utility that each of a large number of observable “types” of households derive from neighborhoods (Census tracts) in MSAs throughout the U.S. using detailed panel data on the location choices of 5% of the U.S. population. We then estimate each type’s preferences over the share of low-income and black residents of the neighborhood, exploiting a new instrumental variables approach that combines the implications of our model with two discontinuities in the formula used by the the department of Housing and Urban Development (HUD) for determining eligibility for federal low-income housing development credits. With knowledge of each type’s preferences for neighborhoods and demographics, we simulate the impact of newly built low-income housing units on the long-run level of rent and the share of black and low-income residents in the tracts receiving the units. Finally, we combine the new Opportunity Atlas data set of Chetty, Friedman, Hendren, Jones, and Porter (2018) with simulations of our model to study the degree to which newly built low-income housing units impacts the adult earnings of children.