Stanford economists Rebecca Diamond and Tim McQuade wrote a study to be published in the Journal of Political Economy in August, arguing that affordable housing developments built in poor and heavily African-American neighborhoods can lead to greater racial and income integration.

“When a corporate developer comes in and builds nicer, new housing, it makes the neighborhood more desirable as a potential place to live,” reasons Diamond, a professor at Stanford’s Graduate School of Business.

The study scrutinizes the 7,000 developments built over a span of 31 years in 15 U.S. states as part of the Low-Income Housing Tax Credit (LIHTC) that actually results in racial segregation. The LIHTC is the federal government’s primary program to encourage private investment in developing affordable housing rental complexes for low-income communities. Since its creation in 1986, the program has helped to finance more than 2.4 million affordable rental-housing units.

affordable housing

Affordable housing in Washington DC funded by federal tax credits. Jahi Chikwendiu for The Washington Post

Diamond and Mcquade found that building affordable housing in low-income, high-minority neighborhoods lowers the share of African-American residents in the surrounding community by about 3 percentage points. It also improves racial integration in wealthier, high-minority communities. However, the benefits of affordable housing disappear when built in wealthier, white neighborhoods, the economists found.

Most of the impact occurs within half a mile of the housing development, Diamond calculates, with the most intense effect being felt within less than a quarter mile. In neighborhoods where median incomes fell below $26,000 a year, the researchers saw home values appreciate 6.5% within a tenth of a mile of the housing development. Meanwhile in wealthier neighborhoods with median incomes above $54,000, property values depreciated 2.5% within a tenth of a mile of the housing development. The affordable apartments in such neighborhoods decrease diversity without changing crime rates.

“People have a preference of who their neighbors are, and perhaps higher income people just don’t want to live with lower-income residents,” observes Diamond – an issue that Congress is currently trying to resolve. The bill the Congress is preparing would no longer require state agencies to notify local officials when siting a proposed housing development, leaving the officials with no liberty to choose who they live with in terms of financial status.