Ruhr Economic Papers

Ruhr Economic Papers #819

Endogenous Segregation Dynamics and Housing Market Interactions: An ABM Approach

by Said Benjamin Bonakdar

RUB, 08/2019, 34 S./p., 8 Euro, ISBN 978-3-86788-950-6 DOI: 10.4419/86788950

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Abstract

In contrast to previous research, I hypothesize that residential segregation patterns do not only result from an individual’s perception of different ethnicities, but is rather affected by housing market interactions and socioeconomic endowment, like income and education. I implement a theoretical agent-based model, which contains three main features: agents’ socioeconomic endowment, the quantification of one’s Willingness-to-Stay within a neighborhood and housing market interactions if an agent decides to move. The results indicate that housing market interactions, the valuation of socioeconomic factors, but also the increasing share of minority groups diminish the absolute level of racial segregation. The analysis shows that house price clusters dominate urban areas, since individuals have an incentive to stay in more expensive neighborhoods in which they made a bargain. An increase in house price segregation can be observed if individuals strongly undervalue their own house and if individuals have higher access to credit. I can show that these market interactions lead to lock-in effects for low-income individuals, since they lack the necessary budget and suffer under negative equity. Thus, residential segregation shows a strong dependency on housing market interactions and is more complex than presumed by Schelling’s Spatial Model or the White Flight
Hypothesis.

JEL-Classification: C63, R21, R23

Keywords: Agent-based modelling; residential choice; housing demand; neighborhood characteristics; segregation

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