Capitalisn’t: Surprising New Insights on How Children Succeed
Harvard’s Raj Chetty discusses new findings on social and economic mobility in the US.
Capitalisn’t: Surprising New Insights on How Children SucceedRazing Public Housing Led to Gentrification
- By
- October 03, 2023
- CBR - Inequality
In many US cities—including Atlanta, Baltimore, Chicago, and Philadelphia—many public-housing buildings have been demolished. Over two decades, the federally funded HOPE VI program provided more than 400 grants to tear down distressed housing, with the premise of revitalizing neighborhoods and settling residents into better, safer homes.
But a study of what happened in Chicago, home to one of the country’s largest public-housing systems, finds that tearing down public housing increased inequality. Chicago Booth’s Milena Almagro, University of Texas’s Eric Chyn, and the Federal Reserve Bank of Philadelphia’s Bryan A. Stuart write that when the buildings were razed, the primary beneficiaries were white families who moved in and drove up the cost of housing.
The researchers conducted a broad economic analysis that considered the direct and indirect effects of the teardowns. Almagro says the approach they used can also be applied to other place-based economic investments, such as transit projects.
In the United States, federal and local governments spend almost $100 billion a year on revitalizing economically distressed communities, according to research by University of California at Berkeley’s Patrick Kline and Enrico Moretti. But Almagro, Chyn, and Stuart note that, in some cases, increasing economic activity and amenities in an area can also raise housing costs and drive low-income residents out through gentrification.
Chicago built high-rise housing developments (often called “projects”) in predominantly Black neighborhoods on the city’s South and West Sides, and then neglected them for decades. By the end of the 1980s, the aging housing needed serious renovation and repair, and Chicago became one of the largest recipients of financing from the HOPE VI program, receiving $83.4 million. In the 1990s and 2000s, more than 20,000 housing units were destroyed in just 5 percent of Chicago’s neighborhoods, the researchers report.
According to their analysis, changes in the aesthetics of the neighborhoods after the projects were razed is an example of a direct, local effect of the demolition. When residents of other neighborhoods moved in and subsequently priced out longtime residents, that was an indirect spillover effect. Such effects extended to surrounding neighborhoods, which also saw property values increase.
“If you care about inequality, you have to not only think about the direct effects but also think about these indirect effects,” says Almagro.
In 1990, the typical neighborhood with public housing was 70 percent Black, on average, with an annual household income that was in the bottom quartile for the city. Residents were given a Section 8 housing voucher to rent in the private market.
The winners and losers of public-housing demolitions
Most of the gains in well-being accrued to white households, while poor Hispanic and Black households experienced a decline.
At the time, Chicago pledged to build mixed-income housing in the affected neighborhoods through new construction of public-housing and market-rate units, but officials failed to meet these stated goals. By 2015, 35 percent of the demolished sites still stood vacant, according to the study. Black and Hispanic populations declined.
However, the areas saw a substantial increase in the white population, along with growth in median household income and median rents, the researchers write. Property values increased by 9–20 percent in areas where demolished units made up more than 50 percent of housing stock. Across the city, rent prices rose by an average of about 2 percent, while rents in neighborhoods nearest to the demolitions saw average prices increase by almost 14 percent.
All households located near public housing viewed the housing as a negative. People of all types tended to prefer neighborhoods with a greater proportion of higher-income residents, although they also preferred their neighborhood have lower rents and more residents of their own race or ethnicity, the study finds. The researchers determined these preferences using US census data from 2000 to 2010 and by comparing changes in Chicago’s housing market both near and far from the demolitions.
However, white households benefited the most from the demolitions, further widening the inequality gap, according to the research. In terms of well-being, rich households experienced a change in their level of happiness equivalent to paying $230 less in housing costs annually, according to the analysis. Poorer white households gained $113 annually. Hispanic households lost out on $41 annually, and Black households lost $75.
The disparity makes sense when factoring in who is more likely to own or rent, Almagro explains. In 2010, 81 percent of white households in Chicago making more than $20,000 annually owned a home. But of Black households making less than $20,000, only 19 percent were homeowners.
Even moderate increases in new construction could have reversed the negative effects of the demolitions, the study finds, since new housing construction keeps prices low. More specifically, the researchers’ model indicates that rebuilding only 30 percent of the destroyed housing stock with market-rate housing would have eliminated rent increases in neighborhoods with demolitions. To counter negative effects, the study argues, governments could incentivize construction by offering credits for new projects or relaxing zoning restrictions.
The researchers say the spillover effects in Chicago suggest that demolitions of affordable housing likely similarly reshaped neighborhoods in other large US cities. Beyond the United States, Almagro says, the findings could apply in any situation where a government stops investing in residential buildings in neighborhoods that are segregated by race and have a high concentration of poverty.
- Milena Almagro, Eric Chyn, and Bryan A. Stuart, “Urban Renewal and Inequality: Evidence from Chicago’s Public Housing Demolitions,” Working paper, January 2023.
- Patrick Kline and Enrico Moretti, “People, Places, and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs,” Working paper, November 2013.
More from Chicago Booth Review
A Nobel Laureate on the Limits of Evidence-Based Policy
Lars Peter Hansen and Kevin M. Murphy discuss how data can inform policymaking.
A Nobel Laureate on the Limits of Evidence-Based Policy
Capitalisn’t: The Most Important Guidelines You Didn’t Know About
Susan Athey, chief economist at the US DOJ’s antitrust division, joins hosts Bethany McLean and Luigi Zingales to discuss new draft merger guidelines.
Capitalisn’t: The Most Important Guidelines You Didn’t Know AboutMore from Chicago Booth
Your Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.