Neighbourhoods won’t be improved by banning the unemployed

Repost from Economicpolicy.org

Laws that ban unemployed people from moving to certain parts of a city are ineffective, according to research published in Economic Policy by Hans Koster and Jos van Ommeren. First, they do not materially change the demographic composition of targeted neighbourhoods by attracting households with higher income levels. What’s more, the laws have significant adverse side effects, because a negative stigma is created, as evidenced by lower house prices in targeted neighbourhoods.

The study analyses the effects of the Dutch Act on Extraordinary Measures for Urban Problems, legislation introduced in 2003 that allows local governments to prohibit non-employed households from moving into public housing in targeted streets. The researchers show that the Act reduced unemployment in targeted areas somewhat, but it was otherwise largely ineffective in changing their demographic composition, for example, by improving social mixing.

At the same time, due to the prominent advertising of targeted deprived neighbourhoods, a stigma may have been created. The results show that house prices dropped by about 3-5% after the Act was implemented. This stigma effect is of a similar magnitude in two other national place-based policy programmes.

One of the most important principles in modern societies is that residents can choose to live where they like. For example, 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 each state.’ Only under extreme circumstances do countries introduce laws that violate this principle, such as with sex offenders and criminals.

Recently, however, a range of countries, such as Sweden, Denmark and the Netherlands, have introduced laws that prohibit disadvantaged individuals from moving into public housing units in specific areas, for example, because they are unemployed or have a too low income. The general idea behind these laws is that a high concentration of disadvantaged residents in a neighbourhood results in the formation of ghettoes. In a ghetto, residents may be negatively affected by social interactions with their neighbours.

This raises two questions: are these laws effective; and do they have undesirable side effects? The new study shows that the laws are not particularly effective in attracting households with higher income levels to targeted neighbourhoods. What is perhaps more important is that the laws have significant negative side effects, because a negative stigma is created, as evidenced by lower house prices in targeted neighbourhoods.

The researchers think that the latter outcome makes sense. Given prominent advertising of targeted deprived neighbourhoods in the media, who wants to live in a neighbourhood that is now commonly known to be a bad place to live?

Exclusionary policies do not improve social mixing

The study analyses the effects of the Dutch Act on Extraordinary Measures for Urban Problems. This legislation, introduced in 2003, allows local governments to prohibit non-employed households from moving into public housing in targeted streets. In the Netherlands, about 30% of the population lives in public housing. Particularly for the poor, who are more likely to be unemployed, public housing is important.

Using register data for the whole population, the researchers show that the Act reduces unemployment in targeted areas somewhat, but it is otherwise largely ineffective in changing the demographic composition of neighbourhoods, for example, by improving social mixing.

After implementation of the Act in specific deprived neighbourhoods or streets, the share of unemployed households is reduced by two percentage points, which is about one-sixth of the average unemployment rate at these locations.

If policy-makers hoped that the Act would have substantially improved the incomes in deprived neighbourhoods, then they will be disappointed, as the average incomes of those living in public housing in targeted neighbourhoods increased by just 1.5%. Other proxies for social composition (such as the share of migrants, the share of single households or the average level of education) are also hardly affected.

Exclusionary policies may lead to stigma

At the same time, due to the prominent advertising of targeted deprived neighbourhoods, a stigma may have been created. To investigate this, the researchers focus on changes in house prices.

The idea is that if prospective homebuyers think that the Act has improved a neighbourhood because of improved social mixing, then this would increase house prices. On the other hand, if prospective buyers think that the Act has created a negative stigma, because of many negative reports in the media about the street where they live, one expects prices to drop.

The results show that house prices drop by about 3-5% after the Act is implemented. The researchers show this by comparing changes in prices over time of houses that are close to (within 100m) but on different sides of neighbourhood borders.

Of course, evidence of a stigma effect based on one specific Act does not imply that this result holds more generally. Therefore, the researchers show that this stigma effect is of a similar magnitude in two other national place-based policy programmes, adding to the external validity of the findings.

Exclusionary policies should be banned

These findings show that laws that violate the right of the freedom of movement by banning the unemployed from certain areas are ineffective:

• First of all, they do not materially change the demographic composition of a neighbourhood.
• Second, they create a negative stigma effect, which may mean that all inhabitants, the poor as well as the rich, living in targeted areas are worse off at the end of the day.