MARKET FACTORS AFFECTING SPATIAL HETEROGENEITY AMONG URBAN NEIGHBORHOODS

Institutional factors perpetuating segregation in urban neighborhoods-redlining by lenders and insurers, steering by brokers, and discrimination by owners-have attracted much attention recently. But natural market forces (demand, supply, and equilibrium price adjustment) can also create neighborhood heterogeneity in income, race, and housing characteristics. This article establishes a framework to examine the market forces that create spatial clustering of households. On the demand side, differences in resident preferences and incomes lead to clustering; on the supply side, differences in cost functions, created by market specialization or location-specific features, are important. Equilibrium price adjustment reinforces tendencies toward heterogeneity and leads to differential affordability patterns. Bid-rent and other models of residential location, discrimination in urban housing markets, and the Tiebout model are discussed. A research agenda is proposed to measure neighborhood heterogeneity, isolate its influence on educational and employment opportunities, and evaluate policies for ameliorating its adverse effects.