Ethnic Matching in the Housing Market

Abstract

A large body of evidence suggests that ethnic residential segregation has a negative effect on individual economic outcomes. However, the determinants of segregation are almost exclusively studied in the distinctly unique setting of the United States. In this paper, we study home purchase decisions of ethnic minorities in the Netherlands and discover the presence of ethnic networks as a possible driver for segregation. We begin by documenting a strong preference for within-ethnicity matching between migrant homebuyers and -sellers, even at the sub-neighborhood level. Next, we study transaction outcomes, and find that within-ethnicity transactions among migrants involve a substantial price discount, relative to other transactions in a neighborhood, holding fixed the unit’s assessed value. This is inconsistent with ethnic homophily and discriminatory steering, mechanisms that have previously been discussed in the literature on ethnic price differentials. Instead, additional analyses suggest that migrant homebuyers are much more likely to rely on existing social networks to access homeownership, potentially biasing their location decision towards neighborhoods in which their ethnic group is already highly represented.