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June 29, 2015

Inequality isn’t just about money; it’s also about where you live

June 29, 2015

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It’s no secret that American inequality is growing: income inequality is at or near its highest levels since the 1920s, and wealth gaps are even higher than income gaps. Income inequality within metro areas is also higher than ever, and evidence suggests that high inequality can hamper growth at the metropolitan level as it does at the national level.

What about inequality at the neighborhood level? Using census data from our newly completed 2010 Neighborhood Change Database—funded by The Rockefeller Foundation—we identified the nation’s most privileged and most distressed neighborhoods and analyzed how they changed over time.

We first gave every census tract a neighborhood advantage score based on household income, homeownership rates, housing values, and college attainment. We then compared the top 10 percent of census tracts to the bottom 10 percent and found that, in 2010, household incomes and median housing values were over three times higher in the top tracts. Also, homeownership rates were twice as high in top tracts and college completion was six times higher, compared with the bottom tracts in 2010.

Looking at changes over time, we found that neighborhood-level inequality increased sharply between 1990 and 2010:

  • Adjusted for inflation, the average household income in the bottom tracts nationally grew by about $500 in 2012 dollars, but that of the top tract grew by over $15,000.
  • While inflation-adjusted home values gained almost $50,000 in the bottom neighborhoods, homeownership fell in these neighborhoods from 45 percent to less than 41 percent.
  • Housing values soared by almost $130,000 in the top neighborhoods as homeownership increased by five percentage points, to over 82 percent.
  • As for college attainment rates, bottom neighborhoods gained less than three percentage points while top ones gained almost 11.

Which areas have the greatest neighborhood inequality?

To determine the areas with the greatest inequality between neighborhoods, we compared the top and bottom 10 percent of tracts within commuting zones, which are metropolitan and rural areas with shared economies and housing markets. For each commuting zone, we computed a neighborhood inequality index, which is the difference between the average neighborhood advantage scores of the top and bottom 10 percent of census tracts.

The results reinforce the picture of high and increasing inequality. Among commuting zones (CZs) with at least 250,000 people, Dallas has the highest neighborhood inequality index. On all four of our indicators, inequality is much higher between the top and bottom in Dallas than it is across all census tracts nationally. Compared with the bottom tracts, incomes in the top tracts are nearly 6 times higher, housing values over 6 times higher, homeownership 2.4 times higher, and college completion 9 times higher. Erie, Pennsylvania, is close to the other end of the scale. Income and ownership gaps are less than 3 to 1 and top neighborhoods’ housing values and college completion rates are only 3.3 and 4.2 times those of bottom neighborhoods, respectively.

What drives high inequality?

Like income inequality in the nation, inequality among CZs is driven by the people and places at the top of the distribution. Dallas has higher inequality than Erie because its top neighborhoods have incomes, housing values, and college attainment rates two to three times those in Erie. Dallas’s bottom neighborhoods, meanwhile, had incomes, homeownership rates, and college attainment levels around those of Erie. (Housing values in Dallas’s bottom neighborhoods were higher than those in Erie.)

Conditions in top neighborhoods don’t just drive inequality among neighborhoods today; they also control most of the recent change in inequality. On average, real income in Dallas’s top neighborhoods rose by over $30,000 over these two decades while falling in its bottom neighborhoods by over $3,000. Housing values, homeownership, and college attainment also grew rapidly at the top while barely changing at the bottom. Erie’s story was almost the opposite: incomes dropped in the top neighborhoods while increasing a little at the bottom. (The other socioeconomic indicators barely budged in either group of neighborhoods).

On the other hand, Dallas’s economy boomed from 1990 to 2010 while Erie’s faltered. So does this mean that our regions have to choose between growth and equality? No. Other stories in the past two decades illustrate that equitable growth is possible—stories we’ll get to over the next few weeks.

The nonprofit Urban Institute is dedicated to elevating the debate on social and economic policy. Urban Institute work utilizing the Neighborhood Change Database is funded by The Rockefeller Foundation. Funders do not determine research findings or influence scholars’ conclusions. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

As an organization, the Urban Institute does not take positions on issues. Scholars are independent and empowered to share their evidence-based views and recommendations shaped by research.

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Illustration by Tim Meko, Urban Institute