DP17969 Housing, Neighborhoods and Inequality
This chapter provides an up-to-date review of the literature on housing, inequality, and neighborhoods while highlighting their many intersections. Inequality across and within countries is generally high and growing, particularly in terms of wealth. Levels and trends in inequality depend on multiple factors, such as institutions and varying exposure to shocks, and cannot be understood without accounting for the role of housing. Housing is a major component of households’ expenditures and the most important and evenly distributed asset in the population. Moreover, regional inequalities may not be as severe as they initially appear after accounting for differences in housing costs across geographies. Conversely, the negative outlook on these inequalities may be exacerbated when considering the implications of households’ uneven sorting within cities – with the most disadvantaged individuals predominantly residing in neighborhoods with lower-quality local public goods and amenities. Sorting endogenously arises due to multiple factors and impacts the dynamics and persistence of inequality through neighborhood effects, with schools playing a crucial role. National housing policies and interventions at the local level can help revert segregation and undesirable inequality dynamics. Housing allowances, tax incentives to build affordable housing in high-income neighborhoods, and school desegregation policies appear to be the most promising avenues to that goal.