Pockets of Poverty: The Long-Term Effects of Redlining Ian Appel∗ Jordan Nickersony October 2016 This paper studies the long-term effects of redlining policies that restricted access to credit in urban communities. For empirical identification, we use a regression discontinuity design that exploits boundaries from maps created by the Home Owners Loan Corporation (HOLC) in 1940. We find that \redlined" neighborhoods have 4.8% lower home prices in 1990 relative to adjacent areas. This finding is robust to the exclusion of boundaries that coincide with the physical features of cities (e.g., rivers, landmarks). Moreover, we show that housing characteristics varied smoothly at the boundaries when the maps were created. Evidence suggests lower property values may be driven by negative externalities associated with fewer owner-occupied homes and more vacant structures. Overall, our results indicate the effects of discriminatory credit rationing can persist decades after such practices are formally discontinued. JEL Classification: E5, N3, R2, R31 Keywords: Redlining, Credit Rationing, Household Finance ∗Boston College, Carroll School of Management, 140 Commonwealth Avenue, Chestnut Hill, MA 02467; telephone: (617)552-1459. E-mail:
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[email protected] History is rife with examples of discriminatory practices intended to limit access to fi- nance. A particularly notorious case was credit rationing in US housing markets. Throughout much of the 20th century, both private lenders and federal agencies limited the availability of mortgage credit to racial and ethnic minorities. Such practices, which potentially reflect the preferences of intermediaries (Becker(1957)) or information asymmetry (Arrow(1973); Phelps(1972)), were eventually outlawed in the 1960s.