Choosing the right place? An experimental examination of ethnic preferences in housing decisions

Abstract

Residential preferences are often treated as exogenous causes of social and ethnic segregation. In this paper, this assumption is challenged. Instead, this contribution proposes and evaluates how residential preferences are shaped by the conditions of one's neighbourhood. This approach acknowledges the mutual dependence of experienced neighbourhood and housing conditions, residential preferences, and segregation patterns. Doing so, an alternative explanation for the often documented ethnic preferences in housing decisions is elaborated and tested by applying multilevel generalized linear latent and mixed logit models to unique, geocoded data from a choice experiment. Results indicate that people differ in their evaluation of the social and ethnic composition of housing alternatives' residential surroundings. Moreover, these heterogeneous evaluations are largely independent of respondents' own ethnic background. Instead, the observed taste heterogeneity varies over respondents' bespoke neighbourhoods. However, the evaluation of the social and ethnic composition of the housing alternatives does not vary over larger administrative neighbourhoods. This result highlights the importance of proximate, small-scale geographic processes in shaping people's residential preferences.