E F F E C T S OF RACE ON PROPERTY VALUES: THE CASE OF DALLAS Walter E. Mullendore and Kathleen M. Cooper I Many r e a s o n s are advanced by whites for retaining neighborhoods which ar e s e g r e g a t e d by r a c e , but the most commonly encountered is that black entrance causes lower property values. Another equally plausible theory is that blacks are linked to lower p r o p e r t y values because of the social p r e s s u r e s which force them into the same a r e a s with the poor, whether they are poor or not. The purpose of this study is to test whether r a c e has a significant effect on p r o p e r t y values in m i d d l e - i n c o m e neighborhoods of Dallas, Texas. Middleincome neighborhoods a r e chosen in o r d e r to eliminate the effect of low income and the o v ercro wd e d conditions that often accompany it. Additionally, since the a ve rag e economic position of blacks has improved in r e c e n t y e a r s and will probably continue to do so, m o r e housing in the m i d d l e - i n c o m e group will continually be demanded; and thus the effects of r a c e on values in this type of neighborhood are of substantial in te r e s t . Studies of this g e n e r a l nature have been conducted in s e v e r a l northern and w e s t e r n ci t i es , but not much work has been completed for southern cities. In fact the only other study f a m i l i a r to the authors which was conducted in a southern city was also conducted in Dallas by Lapham. 2 However, the Lapham study was c o n s i d e r e d different f r o m the p r e s e n t one because it ignored neighborhood effects, used a different time period, and had a different h y p o t h e s i s - - t h a t blacks pay m o r e for equivalent housing. Additionally, while the sample in the Lapham study was drawn f r o m approximately one-half of the Dallas census t r a c t s with varying m i x e s of black and white, the sample for this study was li m i t ed to four r e l a t i v e l y s m a l l a r e a s - - t w o of which w e r e almost al l - b l ack and two of which were all-white by the end of the study period (early 1971). Another r e a s o n these two studies are not s t r i c t l y comparable is that the f o r m e r t e s t was conducted on sales which o c c u r r e d in 1960. Since that time t h e r e has been a considerable i n c r e a s e in the demand for and supply of black housing of all types but e s p e c i a l l y in the m i d d l e - i n c o m e bracket. Thus, it s e e m s beneficial to see what effect this change has had on p r o p e r t y values in a portion of the affected a r e a s . A cl ari fi cat i o n of t e r m s is perhaps in o r d e r . By property value is meant the actual p r i c e for which a house is sold, i . e . , m a r k e t value. In addition, only s i n g l e - f a m i l y dwellings are dealt with in this study since they are m o r e homogeneous in the s e r v i c e they provide than a r e m u l t i - f a m i l y units and since they are of p r i m e concern to the individual family " i n v e s t i n g " in its home. 1The authors, W. Mullendore, Associate P r o f e s s o r of Economies, U n i v e r sity of Texas at Arlington, and Mrs. Cooper, R e s e a r c h Economist, United Banks of Colorado, would like to thank M. K. Carney and P. A. Hayashi, both A s s o c iate P r o f e s s o r s of Economics at the University of Texas at Arlington, for t h e i r suggestion s in developing the models used in this paper. 2Lapham, Victoria, " P r i c e Differences for Black and White Housing, " unpublished Ph.D. t h e s is , Southern Methodist University, Dallas, 1970.
61
Procedures
P r i m a r y sales data were obtained from r e a l t o r s , the F e d e r a l Housing Adm i n i s t r a t i o n , and Dallas County deed r e c o r d s ; c u r r e n t ~ssessed valuations were obtained from Dallas tax records. Two m a j o r types of analysis were used to test for the effects of race: 1. The sales prices of houses which sold twice during the given period (approximately 1960-71) were compared to obtain an average rate of r e t u r n (in real terms) for each of the four study a r e a s mentioned above. 2. Using all observations (239) for the four areas, r e g r e s s i o n analysis was employed to test (a) whether or not race is a significant variable in determining market price, and (b) whether m a r k e t p r i c e s in the integrated neighborhoods are significantly affected by the race of the buyer and s e l l e r in each transaction or by the state of the housing m a r k e t (stable or panic selling). The methodology used in this study is to some extent a combination of techniques used by Laurenti 3 and Ladd. 4 L a u r e n t i ' s technique of choosing test and control a r e a s is adopted. However, no price indices are constructed; instead Ladd's technique of using houses which sold more than once during the given time period is employed in determining the rate of price change in each area. The Study Area Two relatively small areas of Dallas were chosen as test areas, and the test was conducted on sales over a period of approximately ten years. The requirements for such an area were (i) that it was all-white in 1960 and (2) that it was integrated at some point between 1960 and early 1971 (the period covered in the study). A control area was then selected for each test area. The major criteria for each control area were (i) that the area remained all-white during the entire period of the study and (2) that physical characteristics of the houses and other price-determining factors of the neighborhoods (except raee) be similar to those of the respective test area. The control area was then used to judge the price performance of the transition area. The boundaries of the study areas are shown in Figure i. Singing Hills is on the southern edge of Dallas. It underwent rapid transition from white to black during the approximate period of 1965-68. It contains approximately 850 single-family homes. The average sales value of homes in this neighborhood at the time is thought to range from approximately $16,000-$20,000 and most of the homes are about 8-10 years old.
3Laurenti, Press, 1960.
Luigi,
Property
Values
and Race , University
4Ladd, W. M., "effect of Integration Economic Review, September 1962.
62
on Property
of California
Values,"
The American
FIGURE 1.
Location of Study Areas
Singing Hills Western Park
m
Cedar Crest Glen Oaks
63
W e s t e r n P a r k s e r v e d a s the c o n t r o l a r e a f o r Singing H i l l s . T h i s a r e a is l o c a t e d n e a r t h e s o u t h w e s t e r n edge of D a l l a s and c o n t a i n s a p p r o x i m a t e l y 700 h o m e s . W h i l e W e s t e r n P a r k w a s t h o u g h t to b e of h i g h e r q u a l i t y r e g a r d i n g s h o p ping f a c i l i t i e s and l o c a t i o n a l a d v a n t a g e s , t h e a v e r a g e h o u s i n g q u a l i t y and age a r e a p p r o x i m a t e l y the s a m e . T a b l e s I and 2 show t h e s a l e s v a l u e s of h o u s e s w h i c h s o l d m o r e t h a n once in t h e r e s p e c t i v e a r e a s d u r i n g the g i v e n t i m e p e r i o d . T h e a c t u a l m a r k e t v a l u e s a r e r e c o r d e d a n d t h e n t h e v a l u e s d e f l a t e d f o r i n c r e a s e s in t h e c o s t s of c o n s t r u c t i o n . T h e d i f f e r e n t l e n g t h of t i m e t h a t e a c h h o u s e w a s h e l d m u s t o b v i o u s l y b e t a k e n into a c c o u n t . By d i v i d i n g t h e r e a l c h a n g e in v a l u e b y the p e r i o d of t i m e e a c h h o u s e w a s h e l d , a v e r a g e r a t e s o f r e a l c h a n g e in p r i c e w e r e c o m p u t e d f o r e a c h a r e a . T h e a v e r a g e r a t e of r e a l c h a n g e w a s $ 1 6 2 . 9 p e r y e a r f o r Singing H i l l s and - $ 1 3 4 . 5 p e r y e a r f o r W e s t e r n P a r k . The f a c t t h a t the a v e r a g e m a r k e t v a l u e s of t h e two a r e a s a r e d i f f e r e n t s h o u l d a l s o b e t a k e n into a c c o u n t . T h i s m a y b e done b y d i v i d i n g the r a t e of r e a l c h a n g e in e a c h a r e a b y i t s a v e r a g e m a r k e t v a l u e , t h u s o b t a i n i n g a " r a t e of r e t u r n on i n v e s t m e n t " f o r e a c h a r e a . The r a t e of r e t u r n on i n v e s t m e n t is 1 . 2 p e r c e n t p e r y e a r f o r Singing H i l l s and - 1 . 1 p e r c e n t p e r y e a r f o r W e s t e r n P a r k . C e d a r C r e s t w a s c h o s e n a s t h e s e c o n d t e s t a r e a b e c a u s e it u n d e r w e n t t r a n s ition s o m e w h a t e a r l i e r t h a n Singing H i l l s a n d is a d i f f e r e n t type of n e i g h b o r h o o d . The a r e a c o n t a i n s a b o u t 750 h o m e s , w i t h t h e age r a n g i n g f r o m 8-20 y e a r s and average prices ranging from $12,000-$25,000. The G l e n O a k s is the c o n t r o l a r e a f o r C e d a r C r e s t a l t h o u g h i t s c o m p a r a b i l i t y w i t h C e d a r C r e s t is l i m i t e d . T h e r a n g e of t h e age of h o m e s in G l e n O a k s is a l s o a b o u t 8-20 y e a r s , w h i l e t h e a v e r a g e p r i c e r a n g e is c o n s i d e r a b l y h i g h e r - a p p r o x i m a t e l y $ 1 9 , 0 0 0 - $ 3 5 , 0 0 0 . W h i l e t h e r e a r e m a n y h o u s e s in t h i s a r e a w h i c h a r e e v e n h i g h e r - p r i c e d , only h o u s e s w i t h v a l u e s u n d e r $ 3 1 , 0 0 0 a r e u s e d in o r d e r t h a t the a v e r a g e m a r k e t v a l u e s f o r the d a t a in the two a r e a s would b e more nearly the same. T a b l e s 3 and 4 show the s a l e s v a l u e s f o r h o u s e s w h i c h sold m o r e t h a n once in the a b o v e - m e n t i o n e d a r e a s f o r t h e g i v e n p e r i o d . The a v e r a g e r a t e of r e a l c h a n g e p e r y e a r w a s - $ 2 2 7 . 9 f o r C e d a r C r e s t and - $ 2 7 3 . 2 f o r G l e n O a k s . It is n o t i c e a b l e t h a t t h e r a t e of d e c l i n e i s s o m e w h a t f a s t e r in t h e a l l - w h i t e a r e a ; h o w e v e r , the a v e r a g e p r i c e in t h a t a r e a is h i g h e r . T h i s b i a s is r e m o v e d by c o m p u t i n g the r a t e of r e t u r n on i n v e s t m e n t f o r e a c h a r e a . T h e r a t e s of r e t u r n a r e - 1 . 6 p e r c e n t and - 1 . 5 p e r c e n t p e r y e a r r e s p e c t i v e l y f o r C e d a r C r e s t a n d Glen Oaks. As m a y b e d e t e r m i n e d f r o m e x a m i n a t i o n of the a b o v e d a t a , the only a r e a w h i c h h a s a p o s i t i v e a v e r a g e r a t e of c h a n g e in r e a l v a l u e is the Singing H i l l s a r e a . W e s t e r n P a r k (which not only h a s s o m e s h o p p i n g and l o c a t i o n a l a d v a n t a g e s b u t a l s o h a s l e s s c r o w d e d s c h o o l s t h a n d o e s Singing Hills) did not show t h e p r i c e i m p r o v e m e n t t h a t Singing H i l l s did. In c o m p a r i n g the C e d a r C r e s t a r e a with its c o n t r o l a r e a , it is n o t i c e a b l e t h a t t h e r a t e of r e a l d e c l i n e in v a l u e s is g r e a t e r in the a l l - w h i t e a r e a ; b u t the r a t e s of r e t u r n on i n v e s t m e n t in the two n e i g h b o r h o o d s a r e a l m o s t e q u a l . T h e a b o v e a n a l y s i s t e n d s to s u p p o r t t h e o r i e s t h a t b l a c k s h a v e a p o s i t i v e i n f l u e n c e on v a l u e s . F u r t h e r a n a l y s i s of t h i s c o n c l u s i o n will now b e p r e s e n t e d . 64
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TABLE 3.
Souse # i 2 3 4 5 6 7 8 9 i0 ii 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Years of Sale '63 '67 '64 '65 '64 '62 '67 '65 '63 '63 '65 '65 '63 '62 '63 '63 '62 '67 '69 '63 '59 '63 '63 '64 '66 '64
SALES DATA FOR CEDAR CREST AREA
ACTUAL I~[aJ{KETVALUE First Second~ Sale Sale Difference
'70 $10,726 $13,850 I '69 8,25C 10,651 I '71 9,25C 13,550 I '69 9,00( ii,000 '70 24,50C 25,450 '64 14,60( 17,180 '67 13~50C 12,O00 '71 16,500 22,850 '66 ~2,600 13,200 '67 14,000 13,500 '66 13,500 17,000 '69 11,678 15,000 '71 15,100 19,000 '65 19,000 17,500 '70 24,400 24,550 '66 28~000 27,5OO~ '66 187500 19,6601 '71 1570001 19,500 I '71 20,000 21,000 I '71 14,500 24,161 '62 15,000 16,500 '65 23,222 20,500 '68 12,004 16,500 '66 14,586 17~000 '67! 17~485 19,000 '65 17,217 17,500
+3124 +2401 +4300 +2000 + 950 +2580 -1500 +6350 + 600 - 500 +3500 +3322 +3900 -1500 + 150 - 500 +1160 +4500 +i000 +9661 +1500 ~2722 +4496 +2414 +1515 + 283
First Sale
DEFLATED MARKET VALUE I Rate of Real Second Difference Change/Year Sale i
$ 9,886 $ 8,850 6,476 7,197 8,289 8,406 7,813 7,432 21,953 16,262 13,735 15,394 10,597 9,419 14,323 14,175 11,613 10,909 12,903 10,597 11,719 14,050 i0,137i 10,135 13,9171 11,787 17,874; 15,!91 22,488 15,687 25,806 22,727 17,404 16,248 11,774 12,097 13,514 13,027 13,364 14,988 14,851 15,522 21,403 17,795 11,064 12,070 13,070 14,050 14,450 14,917 15,427 15,191
-1036 + 721 + 117 - 381 -5691 +1659 -1178 - 148 - 704 -2306 +2331
2 -2130 -2683 -6801 -3079 -1156 + 323 - 487
+1624 + 671 -3608 -1006 + 980 + 464 - 236
+ + ~ I i, + i -
148.O 346.1 18.0 108.9 922.9 1106.0 3534.0
27.8 206.0 - 564.7 + 2331.0 0.6 290.5 766.6 971.6 947 .4
283.1 ~+
+
79.1 307.6
221.5 191.7
- 2062.0
232.2 + +
560.0 348.0 217.7
The R e g r e s s i o n Models In order to test further whether Negroes have a positive effect o~ property values in the areas considered, two regression models are developed--one which tests the general effect of Negroes on property values and one which separates the effect according to the race of the buyer and seller and the state of the housing market (stable or panic selling). Both regressions utilize 239 observations: 76 from Singing Hills, 53 from Western Park, 52 from Glen Oaks, and 58 from Cedar Crest. Model I. A simple linear model is formulated to explain variations in m a r ket values in the study areas. Assessed value is used as the major independent
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v a r i a b l e because it is a m e a s u r e of the value of the physical c h a r a c t e r i s t i c s of the house and d e s i r a b i l i t y of the neighborhood (in t e r m s of shopping f a c i l i t i e s , locational advantages, and other amenities) as determined by p r o f e s s i o n a l r e a l estate a p p r a i s e r s . By using the a s s e s s e d value, neighborhood quality is taken into account. A dummy v a r i a b l e f o r r a c e is used to sort out the effect of r a c e on m a r k e t value. Sales which o c c u r r e d after mid-1965 in Singing Hills and after mid-1962 in Cedar C r e s t a r e considered to be sal es to blacks. 5 Estimation of the model yielded the following: (I) M V = 2 8 2 + 1 . 5 6 A V (513) (. 054)
+ 919 R (269)
R2 = . 7 7 9
where MV = m a r k e t value AV = a s s e s s e d value R - dummy v a r i a b l e f o r r a c e (assigned a z e r o value for white and a value of one for non-white) The F - t e s t indicates that both independent v a r i a b l e s and the r e g r e s s i o n as a whole are significant at the 1% level. It is evident then that this sample supports the hypothesis that blacks have a significantly positive influence on the value of housing in the two transition a r e a s . Model II. The second r e g r e s s i o n model tests the effects of the r a c e of both buyer and s e l l e r upon the sales p r i c e s of houses. It is often t h eo r i zed that blacks pay a higher p r i c e for housing when they purchase f r o m other blacks o r than whites pay when they purchase f r o m other whites. The reasoning usually given is that blacks want into the neighborhood (with its supposed higher quality of property and s e r v i c e s ) enough to pay the higher p r i c e s . Another argument is that, if this is the f i r s t opportunity that blacks have had to purchase into m i d d l e - i n c o m e white neighborhoods, they may not r e a l i z e that they ar e paying higher than n o r m a l p r i c e s . In e i t h e r case whites have a bargaining advantage o v e r blacks.
5At f i r s t glance it might appear that the effects of race are already included in the a s s e s s e d value v a r i a b l e because changes in the r a c e of the r e s i dents may be taken into account by a s s e s s o r s - - t h u s preventing isolation of the race v ar i ab l e. However, the last m a j o r r e - e v a l u a t i o n in each transition a r e a chosen o c c u r r e d p r i o r to black entrance into the neighborhood, and a check was made in the City of Dallas tax office of the blocks where sample houses were located to see if any of these blocks had r e c e n t l y been r e - a s s e s s e d . It was d i s c o v e r e d during this s e a r c h that the a s s e s s e d values of seven of the s a m ple houses f r o m the Cedar C r e s t a r e a w e r e actually d e c r e a s e d in 1960 due to Negro "encroachment. " At this time no Negroes had actually bought any of these houses; they had m e r e l y moved much c l o s e r to the a r e a than a few y e a r s before. None of the other houses in e i t h e r a r e a were noted in this way, n o r had they been r e - a s s e s s e d since Negro entrance into the r e s p e c t i v e neighborhoods.
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A n o t h e r t h e o r y o f t e n r e p e a t e d is t h a t p r i c e s f a l l d u r i n g a p a n i c p e r i o d b e c a u s e of i n c r e a s e d supply. T a b l e 5 s h o w s t h e n u m b e r of F H A - i n s u r e d h o u s e s w h i c h w e r e r e p o s s e s s e d d u r i n g t h e r e l e v a n t p e r i o d in Singing H i l l s , W e s t e r n P a r k a n d a l l of D a l l a s . 6 T h e d a t a a r e c o m p a t i b l e w i t h r e a l t o r s ' b e l i e f s t h a t i n c r e a s e d s u p p l y of h o u s i n g w a s a p r o b l e m in t h e Singing H i l l s a r e a d u r i n g transition. TABLE 5 N U M B E R O F HOUSES R E P O S S E S S E D BY FHA
Year 1963 1964 1965 1966 1967 1968 1969 1970 Source:
Singing Hills 4 13 29 66 45 16 7 4 D a l l a s County Deed Index
Western Park 1 1 8 6 1 1 1 0
Approximate Total for Dallas as a Whole 800 1200 1520 3040 2180 1200 880 1760
In o r d e r to t e s t the a b o v e t h e o r i e s , a m o d e l w a s d e v e l o p e d w h i c h u s e s d u m m y v a r i a b l e s to divide the o b s e r v a t i o n s into s u b s a m p l e s a c c o r d i n g to t h e r a c e of the b u y e r a n d s e l l e r in e a c h t r a n s a c t i o n a n d the s t a t e of t h e h o u s i n g m a r k e t at t h e t i m e of the t r a n s a c t i o n : 7 T 1 : transaction between a white seller and a white buyer T 2 = transaction between a white seller and a black buyer under non-panic housing conditions T 3 = transaction between a white seller and a black buyer under panic housing c o n d i t i o n s
6 T h e s e r e p o s s e s s i o n s w e r e t h o u g h t to b e c a u s e d m a i n l y b y w h i t e o w n e r s who c o u l d not o r did not t r y to s e l l t h e i r h o u s e s , b u t s o m e w e r e t h o u g h t b y r e a l t o r s to b e t h e r e s u l t of r e l a x e d s t a n d a r d s on F H A ' s p a r t d u r i n g t h e e a r l y p a r t of t r a n s i t i o n - r e s u l t i n g in s a l e s to p e r s o n s who did not h a v e s u f f i c i e n t i n c o m e to m a i n t a i n t h e h o u s e s and who g a v e up a f t e r a s h o r t p e r i o d of t i m e . 7The n u m b e r of t r a n s a c t i o n s in e a c h c a t e g o r y w e r e a s follows: T 1 - 105, T 2 - 18, T 3 - 28, T 4 - 88. F o r a d i s c u s s i o n of t h e j u d g m e n t u s e d in c l a s s i f y ing t r a n s a c t i o n s in e a c h of t h e c a t e g o r i e s s e e K a t h l e e n M. C o o p e r , " E f f e c t s of R a c e on P r o p e r t y V a l u e s , " u n p u b l i s h e d M a s t e r , s t h e s i s , U n i v e r s i t y of T e x a s a t A r l i n g t o n , A r l i n g t o n , T e x a s 1971. 70
T 4 = t ran s act i o n between a black s e l l e r and a black buyer. There is no c l a s s i f i c a t i o n for t r a n s a c t i o n s between black s e l l e r s and white buyers since t h ere w e r e none. Results of the second model are: (II) M V = l . 4 7 AV + 1 0 4 2 T 1 + 4 6 7 1 T 2 + ].391T 3 + 1519 T 4 (. 052) (490) (703) (553) (454)
R2 = . 8 1 0
The r e g r e s s i o n as a whole and all independent v a r i a b l e s except T 1 are significant at the 1% level; T 1 is significant at the 5% level. 8 The p a r a m e t e r s of the T i v a r i a b l e s may be i n t e r p r e t e d as subsample influences as deviations f r o m zero . The equation as a whole can be in te rp r et ed as a l i n e a r r e g r e s s i o n of MV on AV, the intercept of which v a r i e s f r o m subsample to subsample. 9 By far the l a r g e s t coefficient in Model II is for sales f r o m whites to blacks with a nonpanic housing m a r k e t and the next l a r g e s t is f o r transactions between blacks. The p a r a m e t e r for t r a n s a c t i o n s between whites is even lower than that for t r a n s a c t i o n s f r o m whites to blacks under panic conditions--indicating that whites " l o s t " money by selling to whites r a t h e r than blacks at any t i m e, but e s p e c i a l l y during nonpanic p e r i o d s , i . e . , when blacks w e r e f i r s t p e r m i t t e d into the housing m a r k e t of the a r e a s . Conclusions This study was undertaken to test whether r a c e has a significant effect on p r o p e r t y values. We have a s s u m e d that the p r i c e paid for a housing unit is a function of its a s s e s s e d value and e i t h e r the r a c e of the buyer (Model I) or the r a c e of both buyer and s e l l e r and the state of the housing m a r k e t (Model II). On the b as i s of these models, the evidence f r o m our sample is that (1) blacks have a positive influence on housing p r i c e s and (2) the r a c e s of both buyer and s e l l e r and the state of the housing m a r k e t a r e significant in explaining housing p r i c e s . The r e s u l t s obtained, of c o u r s e , pertain only to Dallas an may be p e c u l i a r to the p a r t i c u l a r time period used. The black population of Dallas i n c r e a s e d from 19% in 1960 to 25% in 1970. The rapid i n c r e a s e in black population, if taken as a fairly accurate m e a s u r e of i n c r e a s e in housing demand, indicates a r e l a t i v e l y large i n c r e a s e in black housing demand during the period. In
SAlter examining the r e s i d u a l s of both models, the hypothesis of nonautoc o r r e l a t i o n was accepted and h e t e r o s c e d a s t i c i t y did not appear to be a problem. However, it was noticed that some of the r e s i d u a l s in the Cedar C r e s t a r e a were much l a r g e r than in the other a r e a s studied, perhaps due to the fact that Cedar C r e s t and the a r e a s surrounding it are m o r e heterogeneous than any of the other a r e a s studied. 9See Daniel Suits, "Use of Dummy Variables in Regression Equations, " Journal of the American Statistical Association, December 1957, pp. 548-51.
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addition the two black a r e a s provided the f i r s t m a j o r supply of middle-income housing to blacks in the southern half of the c i t y - - e a s i n g the suppressed demand for black middle-income housing. These two factors help to explain how black demand (25% of the population) was able to more than make up for the loss of white demand (75% of the population) in the a r e a s studied. Another factor which may have affected the r e s u l t s was the unstable Dallas housing market during the 1960's. The market fluctuated between oversupply and undersupply r a t h e r than reaching equilibrium.
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