Line of Inquiry: Milena Almagro on Public Housing Demolition and Urban Inequality

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The HOPE VI program was a program that was funded by the federal government and it was run by the Department of Housing and Urban Development, the HUD. And the intention of the program was to redevelop disadvantaged areas, to invest in these areas, especially through the development of mixed-income housing after the demolition of public housing.

So in this project, we are trying to think about the effect of place-based policies. Place-based policies is when governments . . . either the local government or the federal government is putting money into some areas, such as the HOPE VI program, and trying to restimulate those distressed areas. And the cost of these programs are not negligible. It is estimated that on an annual basis, the federal government and local governments spend roughly $100 billion to stimulate redevelopment in these disadvantaged areas.

The first question that we need to ask is: Who are the winners and losers of these local investments, of these place-based policies? And we still don’t have a good answer for that.

So for this project, we have three sources of data. The first one is census data. And what we’re gonna do is we’re going to look at the census tracts for the city of Chicago—for Cook County actually, which is where the city of Chicago is. And we’re gonna follow how tracts are changing from 1990 until 2010. The second source of data is the location of public-housing demolitions, the date of these demolitions, and the number of units that were demolished.

And the last data set that we are going to use is a sample of 5,000 individuals who were living in public housing and faced this demolition. Some of them were forced to be displaced somewhere else because the unit in which they were living was demolished. Some of them decided to voluntarily move somewhere else. So we are tracking where these people are living one year after these demolitions happen.

So in particular for the city of Chicago, there were roughly 40,000 public-housing units. And with the money that the CHA got from this HOPE VI program, 23,000 units were demolished. That accounts for 1 percent of the housing stock in the city of Chicago. Overall, these demolitions displaced 15,000 families that were predominantly African American, typically single mom, and their annual income was roughly $6,000 per year. And this $6,000 was not actually labor income. This was social benefits, like government assistance, things such as SNAP or other forms of social assistance.

So the first step that we take in our paper to understand what the effects are of public-housing demolition is to start looking at what’s happening to the areas that are experiencing these demolitions. These areas are becoming less African American, more white. The level of the Hispanic population seems to be constant. We see that income in these areas, the average income of the residents is going up. And we also see that rents and house values are going up in response to these demolitions.

And for the people who were living in public housing, for the households that we observed living in public housing at the beginning of the ‘90s, what we saw is that these people look very different from the rest of the population. Even when we compare them to groups that are similar in principle, such as low-income African Americans, these people are going to drastically different tracts. And what we see from our data is that they are moving into places that are poorer, are cheaper, have a higher share of African American families, and also have more presence of public housing back in 1999.

For the HOPE VI program in the city of Chicago, the program was not only focused on demolishing public-housing units. What they also wanted to do is to have some form of redevelopment in the areas with public-housing projects. Why was that? Because there was a lot of opposition from the communities of people living in public housing against these demolitions, spurred or motivated by the fact that these demolitions were going to destroy their communities. So these redevelopments were so important for these people because this was a promise that was given to them to actually preserve those communities that they were attached to.

When we go into the data and we see what’s happening to the areas that experienced demolitions, we see that 40 percent of the lots that had public housing back in 1990 and were demolished, 40 percent of them remain completely vacant. And you can actually Google and search for the name of some of these projects back in the day and you would see that there is an empty lot with grass and everything. And this was kind of surprising to us because some of the promises that were made as part of the program were never fully materialized.

What our analysis reveals is that even though public-housing demolitions were meant to target very specific areas—and just to give you some context, only 5 percent of the tracts experienced some form of public-housing demolition—we do see effects at the city level. So locally, the literature found that public-housing demolitions led to a rent increase from 9 percent to 20 percent. In our analysis, we see a price increase of 13 percent, a house price increase of 13 percent, but this aggregates up to 2.4 percent at the city level. So the city of Chicago is becoming 2.4 percent more expensive when it comes to housing prices.

Our analysis also reveals that everybody dislikes living in places that have public housing. So when you put the two things together, first you have destruction of public housing. And in principle, people are gonna be better off by this because they dislike public housing. But second, as a response to that, we also face higher housing prices.

The next question that we wanted to answer is how you put the two things together in order to measure the final welfare or the changes in well-being of the residents of the city of Chicago. And what we found is that the average resident in the city of Chicago is better off by 1 percent. So the well-being, your well-being is better, is increasing by 1 percent, but there is a huge gap. This is very unevenly distributed across demographic groups.

We see that high-income, non-Hispanic white families are gaining roughly $120 per year in terms of rental prices. So they’re willing to pay like $120 more per year to live in a city, in the city of Chicago postdemolition. But this is not the case for low-income African Americans. African Americans are losing by $75 per year. So you see a welfare gap between high-income whites and low-income African Americans of $200 per year.

Now, when we go into public-housing residents, what we see is that these people are losing a lot. This cost we estimated to be of the order of $15,000. As part of the policy, what the CHA did was to give these people rental vouchers, which is just a discount on the rent. And what we find in our analysis is that even after these discounts, these people are losing by $1,200 per year.

What we wanted to do is to start thinking about policy that could help mitigate this increase in the inequality gap that we see after demolitions. And what we find is that if you only redevelop 20 percent of the units that were demolished, you can actually make everybody better off. There’s not gonna be any loser from public-housing demolitions if this is accompanied by a redevelopment of 20 percent of those demolished units. Why is that? Because remember that I told you that prices, housing prices were going up by 2.4 percent. So you can curve that increase in prices just by the construction of more housing.

Something that is even more interesting is that if you redevelop . . . if you’re willing to redevelop 50 percent of these units that were demolished, it’s not only that everybody is gonna be better off, but actually the inequality gap completely closes off. So there’s not gonna be any disparity between high-income whites and low-income African Americans.

When policymakers think about place-based policies, they should not only think about the local effects of these place-based policies, and not only the direct effects of these place-based policies, we should also think about what economists call equilibrium effects, how housing prices are responding to these interventions and how you should create a framework to evaluate everything that is happening together, at the same time.