Working Paper: NBER ID: w26142
Authors: Victor Couture; Cecile Gaubert; Jessie Handbury; Erik Hurst
Abstract: We explore the impact of rising incomes at the top of the distribution on spatial sorting patterns within large U.S. cities. We develop and quantify a spatial model of a city with heterogeneous agents and non-homothetic preferences for neighborhoods with endogenous amenity quality. As the rich get richer, demand increases for the high quality amenities available in downtown neighborhoods. Rising demand drives up house prices and spurs the development of higher quality neighborhoods downtown. This gentrification of downtowns makes poor incumbents worse off, as they are either displaced to the suburbs or pay higher rents for amenities that they do not value as much. We quantify the corresponding impact on well-being inequality. Through the lens of the quantified model, the change in the income distribution between 1990 and 2014 led to neighborhood change and spatial resorting within urban areas that increased the welfare of richer households relative to that of poorer households, above and beyond rising nominal income inequality.
Keywords: Income Inequality; Urban Gentrification; Spatial Sorting; Neighborhood Development
JEL Codes: D11; R12; R13; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| income growth (O49) | demand for high-quality amenities in downtown neighborhoods (R22) |
| demand for high-quality amenities in downtown neighborhoods (R22) | house prices (R31) |
| income growth (O49) | house prices (R31) |
| income growth (O49) | development of higher-quality neighborhoods (R28) |
| income growth (O49) | urban gentrification (R23) |
| urban gentrification (R23) | displacement of poor incumbents to suburbs (R23) |
| urban gentrification (R23) | higher rents for poor incumbents (R21) |
| income growth (O49) | increased welfare for richer households (H53) |
| income growth (O49) | reduced welfare for low-income renters (H53) |