The Damages and Distortions from Discrimination in the Rental Housing Market

By constraining an individual’s choice during a search, housing discrimination dis- torts 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 neighbor- hood amenities are associated with higher levels of discrimination. Results from the structural model indicate that discrimination imposes costs equivalent to 4.7% of annual income for renters of color, and that search behavior results in greater welfare costs for African Americans as their incomes rise. 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 significantly biased estimates of willingness to pay.