The effects of neighbourhood segregation on house prices

Professors Christoph Görtz and Professor Danny McGowan are continuing their housing segregation study, exploring for the first time whether segregation influences specific economic outcomes through the housing market. Last year’s Annual Report summarised their findings that living in proximity to people from different backgrounds may promote tolerance and understanding between cultures, and create subsequent economic benefits, including house price appreciation.

Going further, the study now estimates the premium or discount buyers pay for housing assets in a multicultural neighbourhood, with a focus on housing in Northern Ireland. Buyers in Northern Ireland pay a 9.6% premium to purchase a house in a multicultural neighbourhood, and this equates to an additional £10,385 per property sale. Multiculturalism transmits to real asset prices by increasing asset liquidity and housing demand. The authors have developed a model that ties these insights together showing segregated neighbourhoods appeal to buyers similar to existing residents, whereas demand is higher in multicultural areas because a broader spectrum of society is willing to live there.

The paper makes an important contribution to the literature on house price differentials and ethnic/racial segregation. The dominant view is that households pay more for an identical unit of housing in a segregated neighbourhood. This reflects homophilic preferences, demand for co-located group-specific amenities, or because a household faces tougher discriminatory constraints in majority out-group neighbourhoods leading to more inelastic demand and larger premiums in areas with a higher own-group share. In contrast, the study shows that buyers pay a premium to live in heterogeneous neighbourhoods and a novel demand-driven transmission mechanism that is distinct from households’ preferences and supply-side discrimination.

The results are highly significant for at least two reasons. First, housing is one of the most important assets in most economies and segregation is pervasive across neighbourhoods in many areas in the UK. Understanding multiculturalism’s impact on property values is a first order economic problem. Second, the policy debate surrounding multiculturalism attracts many competing interest groups with conflicting agendas. These forces can influence the design of both land use regulation and inequality. The research provides a foundation for overcoming collective action problems based on the analysis of high-quality data rather than interest group politics.

Outputs from the study have been disseminated widely in the profession over the past 12 months and presented at various prestigious conferences, including at the 2025 Allied Social Science Associations (ASSA) meeting, held by the American Economic Association.