Financial Constraints and the Racial Housing Gap

The authors show that financial constraints lead to spatial misallocation and contribute to racial disparities in housing and wealth accumulation. Using bunching and difference-in-differences designs, they document that down payment constraints disproportionately limit the ability of Black households to access housing in high-opportunity areas. The authors build a dynamic life-cycle model to examine the long-term wealth effects of these leverage distortions on group differences in wealth accumulation. Black households are more affected by financial and spatial frictions, limiting wealth building opportunities. Improving mortgage access and housing supply in high-opportunity areas helps reduce racial wealth disparities, emphasizing the need for access to geographic opportunities rather than homeownership alone.