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Title: Endogenous Gentrification and Housing-Price Dynamics
Citation Type: Working Paper
Publication Year: 2013
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Abstract: In this paper, we begin by documenting substantial variation in house-price growth across neighborhoods within a city during citywide housing price booms. We then present a model which links house-price movements across neighborhoods within a city and the gentrifi cation of those neighborhoods in response to a citywide housing-demand shock. A key ingredient in our model is a positive neighborhood externality: individuals like to live next to richer neighbors. This generates an equilibrium where households segregate based upon their income. In response to a citywide demand shock, higher-income residents will choose to expand their housing by migrating into the poorer neighborhoods that directly abut the initial richer neighborhoods. The in-migration of the richer residents into these border neighborhoods will bid up prices in those neighborhoods, causing the original poorer residents to migrate out. We refer to this process as “endogenous gentrifi cation.” Using a variety of data sets and using Bartik variation across cities to identify city-level housing demand shocks, we fi nd strong empirical support for the model’s predictions.
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Authors: Guerrieri, Veronica; Hartley, Daniel; Hurst, Erik
Series Title: FRB of Cleveland Working Paper
Publication Number: 10-08R
Institution: Federal Reserve Bank of Cleveland
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Data Collections: IPUMS USA
Topics: Housing and Segregation, Poverty and Welfare
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