Do real estate brokers choose to discriminate? Evidence from the 1989 housing discrimination study.

• Author: Ondrich, Jan

1. Introduction

   Racial discrimination in housing involves a choice by housing agents to treat racial and ethnic minorities less favorably than other customers. This paper presents evidence from the 1989 Housing Discrimination Study (HDS) concerning the extent to which this type of choice is made in the U.S.(1) To be specific, this paper estimates the incidence of discrimination against African Americans and Hispanic Americans in qualitative actions taken by real estate brokers, such as showing an advertised unit to a customer or offering to help a customer find financing. It also tests hypotheses about the causes of discrimination.

   Many previous studies have used audit data to estimate the incidence of discrimination in housing (see Wienk et al. 1979; Galster 1990b, c; Roychoudhry and Goodman 1992, 1996; Turner and Mickelsons 1992; Page 1995; and Yinger 1995). Methodological issues that arise in estimating the incidence of discrimination are discussed in Fix and Struyk (1993) and Ondrich, Ross, and Yinger (1995). As pointed out by Yinger (1986), audit-based tests of the hypothesis that discrimination exists must account for unobserved factors that audit teammates share. This paper is the first to use the Chamberlain (1980) fixed-effects logit technique, which is designed to account for such factors with a qualitative dependent variable. Tests of hypotheses about the causes of discrimination in housing have appeared in Yinger (1986, 1991, 1995), Galster (1990c), Roychoudhry and Goodman (1992, 1996), and Page (1995).(2) This paper is the first to conduct them using data on housing agents' qualitative actions, for which the fixed-effects logit technique is well suited.

   This research on discrimination in housing is part of a broader literature on the economics of discrimination, which examines alternative methods for studying discrimination and explores discrimination in several different markets. Recent surveys cover research on discrimination in mortgage markets (Yinger 1995; Goering and Wienk 1996; Ladd forthcoming) and labor markets (Fix and Struyk 1993; Darity and Mason forthcoming).(3)

   The paper is organized as follows. The next section introduces HDS, the third explains how to measure discrimination in qualitative actions by real estate brokers, and the fourth presents estimates of the incidence of discrimination against blacks and Hispanics in the home sales market. The fifth section introduces hypotheses about the causes of discrimination; it explains the principal hypotheses in the literature and shows how they can be tested with audit data. Estimation results appear in the sixth section, and the last section presents our principal conclusions.

2. The Housing Discrimination Study

   According to the 1968 Fair Housing Act, discrimination exists whenever an individual receives unfavorable treatment in the housing market solely because he or she belongs to a protected class.(4) This paper focuses on two protected classes: blacks, also called African Americans, and Hispanics. The distinction between blacks and whites is an example of a racial distinction, in which a superficial physical characteristic, in this case dark skin, gains social power, thanks to a history of intergroup conflict and oppression.(5) The distinction between Hispanics and non-Hispanic whites is an example of an ethnic distinction in which cultural differences, for example, in language, religion, or country of origin, gain social power through a nation's history. In some parts of the U.S., this distinction also has a racial dimension because many Hispanic people have dark skins. The Housing Discrimination Study was designed to determine whether people in either of these protected classes continue to encounter discrimination in housing. This section provides an overview of the HDS audit methodology and of the types of real estate broker behavior in the HDS data.

   HDS Audit Methodology

   Each audit is conducted by two teammates, a white person and either a black or Hispanic person, who are equally qualified for housing. To ensure equal qualifications, teammates are matched according to sex and age, given the same training concerning how to behave during an audit, and assigned similar socioeconomic characteristics for the purposes of the audit. Teammates successively visit a real estate broker (or landlord) to inquire about available housing and then independently record what they were told and how they were treated. Discrimination is defined to be systematically less favorable treatment of the black or Hispanic auditors.

   The HDS audits were conducted in 25 U.S. metropolitan areas, which were selected to allow valid national estimates of unfavorable treatment. Black-white audits were conducted in 20 areas and Hispanic-white audits were conducted in 13 areas (with both types of audits in 8 areas) during May through August 1989. Each audit was based on audit teammates' inquiries about the availability of an advertised housing unit, which was randomly selected from the major metropolitan newspaper. Audit teammates were assigned incomes and family characteristics that made them qualified for the advertised unit assigned to their audit.(6) The total sample sizes were 1081 for black-white sales audits and 1076 for Hispanic-white sales audits.(7) Because of the HDS sampling procedures, the results presented in this paper measure the probability that qualified black and Hispanic home seekers will encounter discrimination when they inquire about housing that is advertised in a major metropolitan newspaper.(8)

   Types of Broker Behavior

   This paper focuses on real estate broker behavior in two broad categories concerning the marketing of housing units that are for sale.(9) The first category involves information about which housing units are available. Discrimination occurs when a broker withholds information about available units from a black or Hispanic auditor but not from her white teammate. The second category involves broker actions that facilitate the sale of a unit. These actions include providing information about the terms and conditions of sale, assisting or encouraging the customer, and providing information about possible mortgages. A broker who treats black or Hispanic customers less favorably in any of these actions further constrains their access to housing.

   The types of broker behavior examined in this paper, which are listed in Table 1, can each be characterized as a qualitative action, such as a decision to show a customer the advertised unit. Because the paper focuses on qualitative actions, it excludes some types of broker behavior, such as showing different numbers of units to white and minority customers, for which discrimination has proven to be important. Furthermore, the methods employed here cannot determine whether some brokers discriminate in many actions or many brokers discriminate in a few actions.(10) Thus, the results in this paper should be interpreted as illustrative of the types of discrimination that can occur but not as representative or comprehensive indicators of racial and ethnic discrimination in urban housing markets.

3. Discrimination in Qualitative Actions by Real Estate Brokers

   The behavior considered here can be examined with a straightforward econometric procedure. This section explains that procedure and presents the basic estimates of the extent of discrimination.

   Econometric Procedure

   Discrete choices by housing agents can be characterized by the following simple model:

   Pr([A.sub.av] = 1[where]W, [Delta], X, [Beta], [Alpha]) = F([Delta][W.sub.av] + [Beta][prime][X.sub.av] + [[Alpha].sub.a]). (1)

   In this equation, a is the index for audit, v is the index for visit, and there are two visits (one by a minority auditor and one by a white auditor) for each audit. In addition, [A.sub.av] equals one if the broker takes the action and zero otherwise; [W.sub.av] equals one if the auditor is a white and zero otherwise; X is a vector of explanatory variables such as the auditor's age and the income assigned for the purposes of the audit; [[Alpha].sub.a] is a fixed effect associated with the audit; and [Delta] and [Beta] are coefficients to be estimated.

   Two aspects of this model deserve emphasis. First, [Delta] is a measure of discrimination, that is, of systematic favorable treatment of white auditors or, equivalently, systematic unfavorable treatment of minority auditors. A test for the significance of [Delta] is therefore a test of the null hypothesis that there is no discrimination. Second, the fixed effect represents unobserved factors that are shared by teammates and influence an agent's behavior. Accounting for this effect raises the efficiency of a test for discrimination (Yinger 1986).

   To estimate Equation 1, one must select a form for the F-function and account for the fixed effects. In the case of the logit specification, a procedure for estimating a discrete choice model with two visits per audit and with fixed effects is provided by Chamberlain (1980). This involves estimating a discrete-choice model for the subset of audits in which the choice (broker's action) is different for the two visits. Thus, the model is transformed into a model of the probability that the broker will choose to take the action for the white auditor but not the minority auditor, conditional on the fact that the teammates were treated differently.

   The explanatory variables in Chamberlain's discrete choice model are the differences in the underlying variables for the white and minority auditors. Because audits are explicitly designed so that most of the relevant explanatory variables are the same for the two teammates, most of the differenced X variables equal zero and, like the fixed effects, drop out of the analysis. Not all the Xs disappear, however. First, and most important, the white variable, W, does not cancel and in fact becomes the constant term in the new regressions. The auditors inevitably visit the real...