THE ECONOMIC AFTERMATH OF THE 1960s RIOTS IN

49 Pages·2005·0.11 MB·English

THE ECONOMIC AFTERMATH OF THE 1960s RIOTS IN AMERICAN CITIES:
EVIDENCE FROM PROPERTY VALUES
William J. Collins and Robert A. Margo
Vanderbilt University and NBER
December 2005
Abstract: In the 1960s numerous cities in the United States experienced violent, race-related civil
disturbances. Although social scientists have long studied the causes of the riots, the consequences have
received much less attention. This paper examines census data from 1950 to 1980 to measure the riots’
impact on the value of central-city residential property, and especially on black-owned property. Both
ordinary least squares and instrumental variables estimates indicate that the riots depressed the median
value of black-owned property between 1960 and 1970, with little or no rebound in the 1970s. A
counterfactual calculation suggests about a 10 percent loss in the total value of black-owned residential
property in urban areas. Analysis of household-level data reveals that the racial gap in property values
widened in riot-afflicted cities during the 1970s. Census tract data for a small sample of cities suggest
relative losses of population and property value in tracts that were directly affected by riots compared to
other tracts in the same cities.
JEL Codes: R0, N92, J15
Mail: Department of Economics, Box 351819-B, Vanderbilt University, Nashville, TN 37235
Email: [email protected]; [email protected].
THE ECONOMIC AFTERMATH OF THE 1960s RIOTS IN AMERICAN CITIES:
EVIDENCE FROM PROPERTY VALUES
Abstract: In the 1960s numerous cities in the United States experienced violent, race-related civil
disturbances. Although social scientists have long studied the causes of the riots, the consequences have
received much less attention. This paper examines census data from 1950 to 1980 to measure the riots’
impact on the value of central-city residential property, and especially on black-owned property. Both
ordinary least squares and instrumental variables estimates indicate that the riots depressed the median
value of black-owned property between 1960 and 1970, with little or no rebound in the 1970s. A
counterfactual calculation suggests about a 10 percent loss in the total value of black-owned residential
property in urban areas. Analysis of household-level data reveals that the racial gap in property values
widened in riot-afflicted cities during the 1970s. Census tract data for a small sample of cities suggest
relative losses of population and property value in tracts that were directly affected by riots compared to
other tracts in the same cities.
I. Introduction
The course of racial politics in the United States changed abruptly between the passage of the
Civil Rights Act of 1964 and the Fair Housing Act of 1968. In August 1965, the torching and looting of
Watts, a predominantly black section of Los Angeles, ushered in an unusually violent period in American
urban history.1 In subsequent years scores of riots broke out in urban black neighborhoods, including
widespread disturbances following the murder of Martin Luther King in April, 1968. The riots stood in
sharp contrast to the carefully orchestrated, non-violent components of the early Civil Rights Movement,
and in that sense they were a political turning point. But were they also an economic turning point for
many American cities? Forty years after Watts, the economic significance of the riots remains largely
undocumented.2
The question is important and interesting for several reasons. First, the riots may have influenced
a wide variety of urban economic phenomena that preoccupied scholars and policymakers at the time and
continue to do so today. “White flight”, the concentration of poverty in urban black neighborhoods, the
fiscal problems of inner cities, crime, and racial disparities in housing outcomes are often linked
anecdotally to the 1960s riots, but without rigorous evidence of causality or estimates of magnitude.3 The
economics and sociology literatures have discussed many factors that influenced urban economic and
demographic trends after 1960, including changes in technology, crime, and housing and transportation
policy (Weaver 1948, Kain 1968, Wilson 1987, Galster 1991, Massey and Denton 1993, Sugrue 1996,
Cutler and Glaeser 1997, Cullen and Levitt 1999, and Yinger 2001). In our view, however, nowhere does
the existing literature adequately address or isolate the role of riots in the evolution of urban areas.
Casual impressions have outstripped quantitative evidence in assessing the riots’ legacy.
Second, economic and sociological models demonstrate theoretically that a geographically
concentrated negative shock, such as a riot, can promulgate or reinforce neighborhood decline, especially
1 During the Watts riot, 34 people were killed, more than 1,000 people were injured, and more
than 3,000 instances of arson were recorded. The riot erupted after police arrested a young black man for
allegedly driving while intoxicated. Elsewhere, there had been much smaller riots prior to the explosion in
Watts, including Philadelphia and New York City in 1964.
2 There are few quantitative studies from the 1970s or 1980s that consider the riots’ economic
effects, even as a secondary matter of interest. See, for example, Frey (1979) or Kelly and Snyder (1980).
3 For recent examples, see the exchange about the 1965 Watts riot in the Washington Post
between Roger Wilkins (2005) and John McWhorter (2005), or Ze’ev Chafets on post-riot Detroit in the
New York Times (1990).
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in the context of residentially segregated urban areas (Massey and Denton 1993, Cutler and Glaeser
1997).4 From a macroeconomic perspective, it has been argued that political unrest may depress
economic activity, as shown by Abadie and Gardeazabal (2003) in a study of separatist violence in
Spain’s Basque Country and by others in cross-country analyses (e.g., Barro 1991, Mauro 1995, Alesina
and Perotti 1996). In contrast, a growing empirical literature highlights the resilience of cities in the
aftermath of episodes of violence and destruction (e.g., Davis and Weinstein 2002, Miguel and Roland
2005). By examining the 1960s riots, we provide new evidence on how collective violence affected cities
and black neighborhoods in the United States. Our view of the riots emphasizes the role of expectations
and uncertainty in determining how potential residents, businesses, and investors interpret and react to
locally concentrated destructive events.
Third, and at the center of this paper, we are especially interested in how property values changed
in the wake of the riots. In part, this is because home equity is a major component of most households’
wealth, and racial differences in wealth are large (Wolff 1998). Further, it is known that prior to 1970,
racial differences in the value of owner-occupied housing were decreasing, but the convergence slowed
abruptly and even reversed direction in central cities, in the 1970s (Collins and Margo 2003). On grounds
of timing alone, the possibility that the riots may have widened further the racial gap in housing values
deserves careful scrutiny.
Beyond the evolution of racial disparities in wealth, we are concerned with property values
because they reflect a broad range of city and neighborhood characteristics and amenities. Like other
assets, the current value of a house represents the discounted value of the expected net flow of utility
associated with its ownership, including not only the physical quality of the structure, but also security,
proximity to work, family, friends, and entertainment, the quality of municipal services, and the taxes
required to support such services. A significant change in property value therefore reflects a significant
change in the perceived value of the flow of housing services, and therefore, a change in quality of life
associated with residence in a particular location.
4 Cutler and Glaeser (1997) find a large negative cross-city correlation between segregation and
young blacks’ socioeconomic status in 1990, which they interpret as an effect of “bad ghettos”. Collins
and Margo (2000) find that this correlation is much weaker before the 1970s. Massey and Denton (1993)
construct a simulation model and demonstrate that a negative race-specific shock can promulgate by
causing a deterioration in neighborhood quality.
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In this framework, if a riot causes a sustained decline in perceived amenities (broadly defined) in
one location relative to others, we should be able to detect a relative decline in property values. It is
entirely plausible, however, that a riot’s effect on perceived amenities is small and short-lived, in which
case any impact on property values would be transitory. Further, under certain conditions (e.g., with large
transfers of federal or state resources), a riot’s effect might even be positive. Indeed, surveys suggested
that many central-city residents thought so at the time (Welch 1975). The goal of this paper is to
determine empirically if the riots affected urban property values for several years after their occurrence,
and if so, by how much.
In answering these questions, we rely primarily on city-level measures of riot severity and changes
in median property values for each decade from 1950 to 1980, supplemented to the extent possible with
evidence from household-level and census tract-level data. The potential endogeneity of riots is a central
concern for our estimation strategy, and we discuss the issue at length below. Ultimately, simple cross-
city comparisons, ordinary least squares estimates, and two-stage least squares estimates all suggest
negative, persistent, and economically significant effects of riots on the value of black-owned housing.
II. Riots and Their Potential Influence on Property Values
The United States has a long history of violent, race-related civil disturbances (Gilje 1996). Prior
to the 1940s, most cases of such violence were instigated by whites who attacked blacks, as in the
infamous 1863 draft riot in New York City and the 1921 Tulsa riot. In 1943, there was an outbreak of
riots that in character, if not in number, bear a closer resemblance to those that occurred in the 1960s,
including violent clashes between black civilians and police, looting of retail establishments in black
neighborhoods, and arson. Even against the backdrop of the 1943 riots, the wave of riots in the 1960s
riots was historically unprecedented – in the space of just a few years, hundreds of riots erupted in all
parts of the country. Although most of the riots were not “severe” in terms of loss of life or property
damage, several were extremely serious by any metric.
Since the 1960s, the United States has not been immune to large-scale, destructive riots, as
outbreaks in Miami (in 1980) and, especially, Los Angeles (in 1992) illustrate vividly. In the last forty
years, however, the United States has not experienced anything comparable to the wave of riots that
occurred in the 1960s. Thus, it is not surprising that the riots loom large in historical accounts of race and
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cities in the 1960s – it is difficult to ignore major cities in flames. But scholars have not explored the
extent to which the riots affected the course of urban economies. Did they truly matter? Or should
economists think of them as merely violent sideshows to the real story of urban economic change? After
all, the riots never destroyed large portions of any city’s capital stock, and from that perspective the
immediate, direct economic effects of the riots were quite limited.
Nonetheless, in theory, there is considerable scope for riots to affect urban property markets
through changes in the perceptions of forward-looking households and firms. Roback (1982) develops a
model in which workers and firms are mobile across cities and are responsive to variation in rents, wages,
and amenities. For a particular city with a given level of amenities, workers are indifferent along an
upward sloping wage-rent schedule (they require higher wages to reside in a place with higher rents),
whereas competitive firms are indifferent along a downward sloping wage-rent schedule (they require
lower wages to locate in a place with higher rents). Both schedules may shift if there is a decline in the
city’s amenities relative to other places, leading to an equilibrium with lower relative property values.
In the context of this framework, a riot could impart a significant negative shock to the expected
stream of amenities associated with central-city properties, and therefore lower property values, through a
number of different channels. Personal and property risk might seem higher; insurance premiums might
rise; taxes for redistribution or more police and fire protection might increase, and municipal bonds may
be more difficult to place; retail outlets might close; businesses and employment opportunities might
relocate; friends or family might move away; burned out buildings might be an eyesore; and so on. In this
regard, Launie (1969), Aldrich and Reiss (1970) and Bean (2000) argue that small businesses were
especially hard hit by the riots and by subsequent increases in insurance and security costs. Welch (1975)
documents differential increases in city spending on police and fire protection between 1965 and 1969 in
riot cities compared to non-riot cities. And the New York Times reported on investors’ negative views
regarding the municipal bonds of cities that had riots (Allan, August 13, 1967; November 15, 1967).
Even if the initial effects of the riots on property values are negative, they might be short-lived,
and the city might return quickly to its previous equilibrium. However, if the negative effects are strong,
they could persist and perhaps even propagate endogenously over time (Massey and Denton 1993).
Alternatively, political responses to riots might mitigate any negative effects. Specifically, a riot could
elicit a large flow of outside resources to affected areas (or to people living in those areas), thereby
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improving the economic quality of life and perhaps even attracting new residents and businesses. The
Kerner Commission Report, for example, concluded with a chapter of “Recommendations for National
Action” aimed at improving the economic outcomes of African Americans in central cities (Kerner 1968).
Similarly, after the Watts riot, the California Governor’s Commission recommended a number of
interventions to improve the quality of life of ghetto residents. And post-riot surveys in some cities found
that a substantial fraction of black respondents expected the riot to have positive effects (Welch 1975).5
Ex post, however, the extent to which policy truly responded to the riots is unclear (Hahn 1970; Welch
1975; Fine 1989, pp. 425-451).
A riot’s implications for the city’s population size and composition are complex. Because the
residential building stock is highly durable, supply adjusts slowly to negative demand shocks, as
demonstrated by Glaeser and Gyourko (2005) for U.S. cities. Therefore, in the period after a riot, a
leftward shift of demand for housing in the city may significantly lower housing prices without necessarily
lowering population levels. Rather, as long as there are housing units available, people may live in them,
even though they might not be the same people who lived in them prior to the riots. Over a longer period,
if properties fall into complete disrepair and are not replaced, then the population should decline
correspondingly; or, if new housing investment is increasingly directed elsewhere, the population should
decline relative to other places.
III. Data on Riot Timing and Severity
Sociologists have carefully compiled information on the location, timing, and severity of race-
related civil disturbances in the 1960s and early 1970s. They have done so with the study of the causes
of riots in mind, including statistical studies of cross-city differences in riot occurrence and severity that
we discuss in more detail below. The main sources of information about the riots are the Congressional
Quarterly’s Civil Disorder Chronology (1967), the Kerner Commission Report (1968), reports in the New
York Times, and the “Riot Data Review” compiled by the Lemberg Center for the Study of Violence at
Brandeis University. Each primary source used somewhat different definitions of a riot, collected
different dimensions of data, and covered different time frames, but the combination of information
5 In a more general framework, Acemoglu and Johnson (2000) describe how the threat of social
disorder might lead a government to redistribute economic benefits and political power.
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provides a detailed picture of riot activity.
The standard operational definition of a race-related riot, established explicitly in Spilerman’s
early work (1970, 1971), required a spontaneous event with at least 30 participants, some of whom were
black, that resulted in property damage, looting, or other “aggressive behavior”. Disturbances that were
directly associated with organized protests, or that occurred in school settings are not included in the
dataset. Carter (1986) extended Spilerman’s data to 1971. He also verified the original data by checking
alternative sources (when available), and in general, refined the database for subsequent studies. Carter’s
dataset covers 1964 to 1971 and includes the dates and locations of more than 700 civil disturbances, as
well as the associated number of deaths, injuries, arrests, and occurrences of arson.
We rely on the Carter data to construct a cumulative index of riot severity in each city.
Specifically, we assign each riot (indexed by j) a value S = (cid:229) (Xij/ XiT) where X is a component of
j ij
i
severity (i indexes deaths, injuries, arrests, arsons, and days of rioting) and X is the sum of component X
iT ij
across all riots. S is the proportion of all riot deaths that occurred during riot j, plus the proportion of all
j
riot injuries that occurred during riot j, plus the proportion of all arrests, and so on. Summed over all riots,
there are five total index points, reflecting the five components that enter the calculation. For each city,
we add the index values for each riot that occurred in that city to form a cumulative riot severity measure.6
The index has potential shortcomings. First, counts of destructive events do not necessarily
correspond closely to economic damage, nor to people’s perceptions of the event’s severity and
implications. Therefore, it is possible that potentially important components are missing from the index, or
that given the existing components, some should weigh more heavily than others to capture the “true”
severity of the event.7 However, the individual components of the index are strongly positively correlated,
and so in practice it matters little if we re-weight them in various ways.8 Moreover, the composite index
6 Our measure of riot severity is “absolute” in the sense that we do not scale severity by
population. However, our city-level regressions control for population directly and the household-level
regressions include area fixed effects and allow for differential trends by city size (see below).
7 Consistent value-based measures of property damage do not exist for most riots.
8 The correlations among deaths, arsons, arrests, and injuries across riots are high: at least 0.64
(deaths and injuries) and as high as 0.87 (deaths and arsons). Correlations of these variables with days of
riots are somewhat lower, ranging from 0.32 to 0.48. All correlations are statistically significant at the one
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makes it quantitatively clear that some cities experienced much more severe riots than others. Rather than
rely heavily on the exact index values to measure the riot effects, we rely primarily on comparisons across
cities grouped by degree of severity (see below).
A second potential shortcoming of the riot data is that we cannot observe exactly where the riots
occurred within cities, except for a handful of unusually well-documented events. This is one
consideration that precludes extensive use of census-tract data, as it is not possible to identify each tract
in each city that was directly affected by a riot. In section VI, we present analyses of tract-level data for a
group of major cities for which it is possible to match official maps of riot activity to specific census
tracts in a reliable manner.
Table 1 summarizes the riot data by index component, year, and census region. Riots occurred
throughout the eight-year period, but the bulk of riot activity was concentrated in just two years, 1967 and
1968 (accounting for 3.3 out of 5.0 index points). When the index numbers are arrayed by census region,
there appears to be a comparatively even geographic spread of riot activity.9 This impression is somewhat
misleading because the “severity” was heavily concentrated in a relatively small number of events and
cities, not spread evenly over them. For example, no deaths occurred in 91 percent of the 752 riots
underlying table 1, and 90 percent of the riots have severity index values of less than 0.01. By far, the
deadliest riots were in Detroit in July 1967 (43 deaths), Los Angeles in August 1965 (34 deaths), and
Newark in July 1967 (24 deaths). Using the index as a broader severity measure, the riot in Washington
DC following Martin Luther King’s assassination (S = 0.34) joins Los Angeles in 1965 (0.48), Detroit in
1967 (0.44), and Newark in 1967 (0.23) as the most severe events on record.
IV. City-Level Empirical Strategy and Results
To study the riots’ effects, we combine the city-level riot measures described above with city-
level data from the published volumes of the 1950, 1960, 1970, and 1980 censuses, including median
property values for black households and for all households. Our sample includes the 104 cities that had
percent level.
9 Washington DC and Baltimore, which had sizable riots, are counted in the census South.
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at least 100,000 residents and that reported the median property value for nonwhites in 1960.10 Our
analysis starts with an emphasis on the city-level data for two reasons. First, the existing literature on the
causes of the riots (see below) has generally relied on city-level data as an appropriate unit of analysis.
For consistency with that literature, therefore, we also use city-level data. Second, because the existing
microdata sample for the 1960 census does not include city codes and because census-tract boundaries
are frequently redrawn between 1950 and 1980, it is impossible to use household-level or census-tract
data to conduct a consistent analysis that spans the full 1950 to 1980 period.11 Later in the paper (sections
V and VI), we supplement the city-level analysis with household-level and census-tract data to the extent
that is possible.
The city-level data pertain to residents of central cities rather than to residents of entire
metropolitan areas. In the years we study, the median value variable is based on self-reported estimates
of the current value of residential property, including both the land and the house. While there may be
errors in any given individual’s estimate, it is likely that such errors average out over large numbers of
home owners in a city, and if there is any bias, we have no reason to think that the bias changed over
time.12
Three additional measurement issues merit attention. First, even though levels of residential
segregation were quite high in this period, the median black central-city home owner might not reside near
the epicenter of the riots. Therefore, the change in median black-owned property value might not capture
changes in value in the areas of the city most directly affected by riot activity.13 Second, a “filtering”
process, in which blacks buy formerly white-owned housing of relatively high quality, could have
10 In 1960 the census reports median property values for nonwhite households, rather than black
households specifically. In the vast majority of cities in 1960, the nonwhite population is nearly entirely
black. The cross-city correlation between the proportion of the population that is black and the proportion
that is nonwhite is 0.995. The average difference between proportion nonwhite and proportion black is
0.0065 (or 0.65 percentage points). The paper’s results are not sensitive to excluding cities with
relatively large differences.
11 We have carried out an analysis using state identifiers – see section V. Unfortunately, the
Current Population Survey microdata from the 1960s identify too few cities to be helpful.
12 Kain and Quigley (1972) argue that the self-appraisals are reliable. Ihlanfeldt and Martinez-
Vazquez (1986) claim that whites tend to overestimate value relative to blacks (in Atlanta), but the bias is
small. We have no knowledge of whether the degree of mismeasurement changed over time.
13 In Cleveland and Newark (discussed below), the tracts most directly affected by the riots had
smaller property value increases (nominal) between 1960 and 1980 than did the median black-owned
property value in those cities.
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