Disparities in Pollution Capitalization Rates: The Role of Direct and Systemic Discrimination

We examine how exogenous changes in exposure to air pollution over the past two decades have altered the disparities in home values between Black and White homeowners. We find that air quality capitalization rates are significantly lower for Black homeowners. In fact, they are so much lower that, despite secular reductions in the Black-White pollution exposure gap, disparities in housing values have increased during this period. An exploration of mechanisms suggests that roughly one-quarter of this difference is the result of direct discrimination while the remaining three-quarters can be attributed to systemic discrimination through differential access to complementary amenities. Joshua S. Graff Zivin University of California, San Diego 9500 Gilman Drive, MC 0519 La Jolla, CA 92093-0519 and NBER jgraffzivin@ucsd.edu Gregor Singer London School of Economics Grantham Research Institute Houghton Street London WC2A 2AE United Kingdom g.a. singer@lse.ac. uk While racial segregation in the United States formally ended more than half a century ago, the existence of predominantly Black and White neighborhoods persists, and they continue to differ on a wide range of dimensions. One important dimension is pollution, where Black communities are disproportionately exposed to poor air quality relative to their White counterparts (Jbaily et al. 2022). Since the harms from air pollution, which include health as well as other human capital impairments (Graff Zivin & Neidell 2012), has been shown to capitalize into housing values (Chay & Greenstone 2005, Grainger 2012, Bento et al. 2015, Sager & Singer 2022) it may also contribute to the well-documented racial disparities in housing values across and within neighborhoods (Myers 2004, Faber & Ellen 2016, Bayer et al. 2017, Perry et al. 2018, Kermani & Wong 2021, Kahn 2021). In this paper, we examine this relationship directly by examining how changes in exposure to air pollution over the past two decades have altered the disparities in home values between Black and White homeowners. We begin by noting that there are good reasons to be optimistic. The CleanAir Act Amendments and other secular trends have led to significant air quality improvements (Colmer et al. 2020), and those improvements were larger in black communities thereby reducing the black-white exposure gap (Currie et al. 2020, Sager & Singer 2022). Whether this also reduced disparities in housing values, however, depends not only on relative exposure, but also on whether this amenity capitalizes similarly across communities. To estimate this relationship, we rely on three distinct datasets that include detailed information on housing values, pollution exposure, and the racial composition of homeowners in the US at a fine level of spatial resolution. In particular, we utilize address-level housing characteristics and transaction data from Zillow, data on fine particulate matter (PM2.5) concentrations measured at a 1km-by-1km gridded scale, and the count of Black, Non-Hispanic White, and Other homeowners at the Census block level, which corresponds to approximately 14 owner-occupied households or 37 individuals in a given neighborhood. Our study sample includes all households in residential homes for those Census blocks for which we have reliable data on both transaction level house prices and square footage in the period 2000-2019, comprising 92 million individuals in 33 million owner-occupied households in the contiguous US. Our core analysis is focused on homeowners for whom the implications of housing price changes are directly interpretable.1 Our primary estimation strategy relies on a longdifferences design that controls for time-invariant factors that differ across communities. Despite the richness of our data, there are twomain challenges to estimation of pollution capitalization rates by racial groups. 1Increasing house values are generally good for homeowners and landlords, but bad for renters, as house appreciations are at least partially passed through to renters.