A Bid-Rent Analysis of Housing Market Discrimination

The elimination of racial discrimination has long been a dominant American social concern. Laudably, economists have contributed many studies which have attempted to identify and quantify such discrimination, particularly in the area of the housing market. The research reported here, while following in this tradition, employs a new approach in attempting to discover not only the magnitude of housing price discrimination, but how its burden is incident upon different types of nonwhite households. A model of urban housing markets will be developed from the bid-rent theory which allows one to isolate empirically the distinct contributions to interracial housing price differentials made by variations in households' preferences, incomes, and housing packages versus those made by discriminatory actions. Bid-rent functions will be econometrically estimated for individual household observations stratified into groups of comparable age, family size, education, socioeconomic class, and race. These functions will be used to estimate what the various nonwhite strata would be willing to bid for typical white-occupied units. The divergencies between such bids and prices actually paid by whites will provide a measure of the existence and magnitude of discrimination confronting nonwhite groups.