THE ECONOMIC AFTERMATH of the 1960S RIOTS in AMERICAN CITIES: EVIDENCE from PROPERTY VALUES William J. Collins and Robert A

THE ECONOMIC AFTERMATH OF THE 1960s RIOTS IN AMERICAN CITIES: EVIDENCE FROM PROPERTY VALUES William J. Collins and Robert A. Margo Vanderbilt University and NBER December 2005 Abstract: In the 1960s numerous cities in the United States experienced violent, race-related civil disturbances. Although social scientists have long studied the causes of the riots, the consequences have received much less attention. This paper examines census data from 1950 to 1980 to measure the riots’ impact on the value of central-city residential property, and especially on black-owned property. Both ordinary least squares and instrumental variables estimates indicate that the riots depressed the median value of black-owned property between 1960 and 1970, with little or no rebound in the 1970s. A counterfactual calculation suggests about a 10 percent loss in the total value of black-owned residential property in urban areas. Analysis of household-level data reveals that the racial gap in property values widened in riot-afflicted cities during the 1970s. Census tract data for a small sample of cities suggest relative losses of population and property value in tracts that were directly affected by riots compared to other tracts in the same cities. JEL Codes: R0, N92, J15 Mail: Department of Economics, Box 351819-B, Vanderbilt University, Nashville, TN 37235 Email: [email protected]; [email protected]. THE ECONOMIC AFTERMATH OF THE 1960s RIOTS IN AMERICAN CITIES: EVIDENCE FROM PROPERTY VALUES Abstract: In the 1960s numerous cities in the United States experienced violent, race-related civil disturbances. Although social scientists have long studied the causes of the riots, the consequences have received much less attention. This paper examines census data from 1950 to 1980 to measure the riots’ impact on the value of central-city residential property, and especially on black-owned property. Both ordinary least squares and instrumental variables estimates indicate that the riots depressed the median value of black-owned property between 1960 and 1970, with little or no rebound in the 1970s. A counterfactual calculation suggests about a 10 percent loss in the total value of black-owned residential property in urban areas. Analysis of household-level data reveals that the racial gap in property values widened in riot-afflicted cities during the 1970s. Census tract data for a small sample of cities suggest relative losses of population and property value in tracts that were directly affected by riots compared to other tracts in the same cities. I. Introduction The course of racial politics in the United States changed abruptly between the passage of the Civil Rights Act of 1964 and the Fair Housing Act of 1968. In August 1965, the torching and looting of Watts, a predominantly black section of Los Angeles, ushered in an unusually violent period in American urban history.1 In subsequent years scores of riots broke out in urban black neighborhoods, including widespread disturbances following the murder of Martin Luther King in April, 1968. The riots stood in sharp contrast to the carefully orchestrated, non-violent components of the early Civil Rights Movement, and in that sense they were a political turning point. But were they also an economic turning point for many American cities? Forty years after Watts, the economic significance of the riots remains largely undocumented.2 The question is important and interesting for several reasons. First, the riots may have influenced a wide variety of urban economic phenomena that preoccupied scholars and policymakers at the time and continue to do so today. “White flight”, the concentration of poverty in urban black neighborhoods, the fiscal problems of inner cities, crime, and racial disparities in housing outcomes are often linked anecdotally to the 1960s riots, but without rigorous evidence of causality or estimates of magnitude.3 The economics and sociology literatures have discussed many factors that influenced urban economic and demographic trends after 1960, including changes in technology, crime, and housing and transportation policy (Weaver 1948, Kain 1968, Wilson 1987, Galster 1991, Massey and Denton 1993, Sugrue 1996, Cutler and Glaeser 1997, Cullen and Levitt 1999, and Yinger 2001). In our view, however, nowhere does the existing literature adequately address or isolate the role of riots in the evolution of urban areas. Casual impressions have outstripped quantitative evidence in assessing the riots’ legacy. Second, economic and sociological models demonstrate theoretically that a geographically concentrated negative shock, such as a riot, can promulgate or reinforce neighborhood decline, especially 1 During the Watts riot, 34 people were killed, more than 1,000 people were injured, and more than 3,000 instances of arson were recorded. The riot erupted after police arrested a young black man for allegedly driving while intoxicated. Elsewhere, there had been much smaller riots prior to the explosion in Watts, including Philadelphia and New York City in 1964. 2 There are few quantitative studies from the 1970s or 1980s that consider the riots’ economic effects, even as a secondary matter of interest. See, for example, Frey (1979) or Kelly and Snyder (1980). 3 For recent examples, see the exchange about the 1965 Watts riot in the Washington Post between Roger Wilkins (2005) and John McWhorter (2005), or Ze’ev Chafets on post-riot Detroit in the New York Times (1990). 1 in the context of residentially segregated urban areas (Massey and Denton 1993, Cutler and Glaeser 1997).4 From a macroeconomic perspective, it has been argued that political unrest may depress economic activity, as shown by Abadie and Gardeazabal (2003) in a study of separatist violence in Spain’s Basque Country and by others in cross-country analyses (e.g., Barro 1991, Mauro 1995, Alesina and Perotti 1996). In contrast, a growing empirical literature highlights the resilience of cities in the aftermath of episodes of violence and destruction (e.g., Davis and Weinstein 2002, Miguel and Roland 2005). By examining the 1960s riots, we provide new evidence on how collective violence affected cities and black neighborhoods in the United States. Our view of the riots emphasizes the role of expectations and uncertainty in determining how potential residents, businesses, and investors interpret and react to locally concentrated destructive events. Third, and at the center of this paper, we are especially interested in how property values changed in the wake of the riots. In part, this is because home equity is a major component of most households’ wealth, and racial differences in wealth are large (Wolff 1998). Further, it is known that prior to 1970, racial differences in the value of owner-occupied housing were decreasing, but the convergence slowed abruptly and even reversed direction in central cities, in the 1970s (Collins and Margo 2003). On grounds of timing alone, the possibility that the riots may have widened further the racial gap in housing values deserves careful scrutiny. Beyond the evolution of racial disparities in wealth, we are concerned with property values because they reflect a broad range of city and neighborhood characteristics and amenities. Like other assets, the current value of a house represents the discounted value of the expected net flow of utility associated with its ownership, including not only the physical quality of the structure, but also security, proximity to work, family, friends, and entertainment, the quality of municipal services, and the taxes required to support such services. A significant change in property value therefore reflects a significant change in the perceived value of the flow of housing services, and therefore, a change in quality of life associated with residence in a particular location. 4 Cutler and Glaeser (1997) find a large negative cross-city correlation between segregation and young blacks’ socioeconomic status in 1990, which they interpret as an effect of “bad ghettos”. Collins and Margo (2000) find that this correlation is much weaker before the 1970s. Massey and Denton (1993) construct a simulation model and demonstrate that a negative race-specific shock can promulgate by causing a deterioration in neighborhood quality. 2 In this framework, if a riot causes a sustained decline in perceived amenities (broadly defined) in one location relative to others, we should be able to detect a relative decline in property values. It is entirely plausible, however, that a riot’s effect on perceived amenities is small and short-lived, in which case any impact on property values would be transitory. Further, under certain conditions (e.g., with large transfers of federal or state resources), a riot’s effect might even be positive. Indeed, surveys suggested that many central-city residents thought so at the time (Welch 1975). The goal of this paper is to determine empirically if the riots affected urban property values for several years after their occurrence, and if so, by how much. In answering these questions, we rely primarily on city-level measures of riot severity and changes in median property values for each decade from 1950 to 1980, supplemented to the extent possible with evidence from household-level and census tract-level data. The potential endogeneity of riots is a central concern for our estimation strategy, and we discuss the issue at length below. Ultimately, simple cross- city comparisons, ordinary least squares estimates, and two-stage least

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