Banning the unemployed will not improve the neighborhood

Recently, several countries have introduced laws that prohibit disadvantaged people from moving into public housing in certain areas, for example, because they are unemployed or have very low incomes, to avoid ghetto formation and unwanted spatial disparities in standards. This Residence column examines one such law in the Netherlands and finds that it has not been effective in targeting high-income families. Furthermore, it has significant negative side effects due to the stigma attached to the targeted neighborhood.

One of the most important principles of modern society is that residents can live wherever they want Article 13 of the Universal Declaration of Human Rights asserts that: “Everyone has the right to freedom of movement and residence within the borders of every State”. Only in extreme circumstances do countries introduce laws that violate this principle, such as in the case of sex offenders and criminals.

Recently, however, several countries, including Sweden, Denmark and the Netherlands, have introduced laws that prohibit disadvantaged people from moving into public housing units in certain areas, for example because they are unemployed or have very low incomes. The general idea behind these laws is that a high concentration of disadvantaged residents in a neighborhood creates ghettos and leads to undesirable spatial disparities in living standards (Diamond and Moretti 2022).

This raises two questions: Are these laws effective? And do they have unwanted side effects? Our new study for the Netherlands (Koester and van Ommeren 2022) sheds light on both of these questions. We show that the laws are not particularly effective in targeting households at higher income levels. What is perhaps more important is that we also show that laws have significant negative side effects. These side effects come into being because a negative stigma is created by these laws, as evidenced by the lower home values ​​in targeted neighborhoods. A negative stigma effect makes sense. Given the prominent advertising of targeted deprived neighborhoods in the media, who wants to live in a neighborhood that is now known as a bad place to live?

Exclusionary policies do not improve social cohesion

By analyzing the impact of our research Dutch law on extraordinary measures for urban problems. The law, introduced in 2003, allows local governments to ban unemployed families from moving into public housing in targeted neighborhoods. The law was first implemented in Rotterdam, the second largest city in the Netherlands, in 2006, followed by other cities.

In the Netherlands, about 30% of the population lives in public housing, but this percentage is much higher in targeted neighborhoods, where it is around 60%. Especially for low-income families, who are more likely to be unemployed, public housing is important.

Using register data for the entire population and an event-study type of analysis focusing on areas near the boundaries of the treated area, we show in Figure 1 that the law slightly reduced unemployment in the targeted area. After implementing the law in certain deprived neighborhoods or streets, the unemployment rate fell by an average of 0.4 percentage points each year that the law was implemented. So, after five years, the share of unemployed has decreased by about 2 percentage points, which is about one-sixth of the average unemployment rate in this neighborhood.

Figure 1 The impact of the Dutch law on extraordinary measures for urban problems on unemployment

The law appears to be largely ineffective in changing the composition of neighborhood populations by improving social mix. If policymakers expected the law to significantly improve incomes in deprived neighborhoods, they would be disappointed, as the average income of those living in public housing in targeted neighborhoods increased by a modest 1.5%. Other measures of social structure (such as the share of immigrants, the share of single households or the average level of education) are even less affected by the law.

In other words, we find that the policy led to a ‘mechanical’ reduction in the share of the unemployed, but the surrounding social structure did not change or improve.

Exclusionary policies can lead to stigma

At the same time, because of prominent advertising of targeted neighbors, a stigma can be created. The presence of place-based stigma due to targeted neighborhood announcements has been overlooked in discussions about whether policies should be people- or place-based (Einiö and Overman 2016, Garcilazo et al. 2010, Gill 2010).

To investigate the presence of a stigma effect, we focus on changes in house prices, which is a standard, and specific, way to investigate changes in the perceived attractiveness of neighborhoods. More specifically, the idea is that if potential homebuyers perceive that the law has improved a neighborhood (for example, due to improved social mixing), then it will increase home prices. On the other hand, if potential buyers feel that the law has created a negative stigma, because of the many negative reports in the media in the neighborhood where they live, one would expect prices to drop.

The results show that house prices fell by about 3-5% after the law was announced. We show this by comparing price changes over time for houses that are close (within 100 m) but on different sides of the neighborhood boundary (see Figure 2 for an example in the city of Rotterdam).

Figure 2 Dutch law on extraordinary measures in parts of Rotterdam

Of course, evidence of a stigma effect based on a specific law does not imply that the presence of a stigma effect due to prominent advertising in the targeted area holds more generally. We show that this stigma effect adds external validity to the results, of similar magnitude, in two other national place-based policy programs.

Exclusionary policies should be banned

In sum, we show that laws that infringe the right to freedom of movement by banning the unemployed from certain areas are largely ineffective, because they do not materially change the demographic composition of a neighborhood. Furthermore, these laws appear to create a negative stigmatizing effect on targeted neighborhoods. Hence, all residents living in targeted neighborhoods – the poor in public housing as well as the rich in private housing – are likely worse off at the end of the day.

reference

Diamond, R and E Moretti (2022), “Quality of Living Geographic Differences Across US Cities”, VoxEU.org, 17 March.

Einiö, E and HG Overman (2016), “Effectiveness of place-based policies: UK evidence”, VoxEU.org, 7 April.

Garcilazo, JE, JO Martins and W Thompson (2010), “Why policies must be place-based to be people-centred”, VoxEU.org, 20 November.

Gill, I (2010), “Regional Development Policy: Place-Based or People-Centered?”, VoxEU.org, 9 October.

Koster, HR Aand JN Van Ommeren (2022), “Neighborhood stigma and place-based policy”, CEPR Discussion Paper 17132.

Leave a Reply

Your email address will not be published.