Disparities in Pollution Capitalization Rates

We examine how exogenous changes in air pollution exposure over the past two decades have altered disparities in home values between Black and White homeowners. We find that air quality capitalization rates are significantly lower for Black homeowners, so much lower that, despite secular reductions in the Black-White pollution exposure gap, housing value disparities increased. An exploration of mechanisms suggests 60% of this difference is attributable to seller race and 40% to racial neighborhood composition, robust to a range of seller, property and neighborhood characteristics. We discuss our findings through the lens of direct and systemic discrimination in housing markets.