How helping families relocate could increase economic mobility

By C.K. | WASHINGTON, DC

SEGREGATION IN AMERICA is becoming less about race and more about money. The trend towards greater racial integration sparked by the 1968 Fair Housing Act, which banned discrimination in sales and rentals, is continuing. In 2000, according to data from the Census Department, the average white resident of America’s 100 largest metropolitan areas lived in a neighbourhood that was 79% white. By 2017 it was 72% white. But over the same period economic segregation has increased as impoverished and wealthy Americans are increasingly sorted into different neighbourhoods. Rich Americans are more likely than ever to live near the rich; poor near poor.

In a recent study, Alessandra Fogli and Veronica Guerrieri, economists at the Federal Reserve Bank of Minneapolis and the University of Chicago, studied the gap between rich and poor within metropolitan areas and the gap between rich and poorer metropolitan areas across America. They found both gaps have increased since 1980: poorer parts of the country have fallen behind richer areas, while inequality has grown within individual regions. Metropolitan areas that have seen the most rapidly rising segregation have also seen the most rapidly rising inequality overall, and the researchers argue that growing segregation is one cause of increased inequality.

The impact is likely to spill over into the next generation, suggests earlier research by Raj Chetty, an economist at Harvard, and colleagues. They found that children born to families with the same household characteristics, such as income, but in different neighbourhoods of a city had markedly different prospects of finishing high school, staying out of prison and enjoying a high income as an adult.

Now, a striking new study by Mr Chetty and a team of researchers suggests that public policy can reverse the trend towards income segregation by helping families move to places where their children are more likely to thrive. The researchers defined high-opportunity neighbourhoods as those with higher rates of upward mobility for children from low-income families.

The framework for such interventions is already in place. Housing Choice Vouchers, a $20bn federal programme that provides rental assistance to low-income families, provides higher payments for families that decide to move to more expensive neighbourhoods. But while high-opportunity neighbourhoods are not, in fact, uniformly more expensive, most voucher recipients remain in low-opportunity neighbourhoods that tend to produce poorer outcomes for children.

To address this, the researchers worked with local non-profit groups and local authorities to provide a bundle of services to randomly selected recipients in an area of Seattle and its suburbs. Those services included help finding a place to rent and filling out the necessary forms, short-term financial assistance to cover expenses including deposits and application fees and assistance communicating with landlords.

Some 54% of families moved to high-opportunity neighbourhoods with this extra help, compared to 15% of families who received Housing Choice Vouchers alone. Those families reported greater satisfaction with their new neighbourhood: 68 % declared themselves “very satisfied” compared to 33% of those who received vouchers alone.

It is too early to know precisely how the project will affect the lives of the children involved. But the benefits are likely to be big: the researchers estimate that moving from a low- to a high-opportunity neighborhood increases the average low-income child’s lifetime household income by $210,000. The future incremental tax revenues generated by children who moved as a result of the programme should more than offset its costs (of $2,600 per family).

Can such an intervention be introduced more widely? Providing high quality targeted support at scale can be a challenge: administrators of a bigger programme could, for example, find it hard to secure enough rental properties in high-opportunity neighbourhoods. But the fact that a majority of families, given this assistance, chose to move to areas with more opportunity suggests poor families do not stay in low-opportunity areas because of money or proximity to family or friends, reasons that are often posited for their failure to move. “We conclude that redesigning affordable housing policies to provide customised assistance in housing search could reduce residential segregation and increase upward mobility substantially”, the researchers wrote.