Old homes, externalities, and poor neighborhoods. A model of urban decline and renewal

This paper investigates urban decline and renewal in the United States using three panels that follow neighborhoods on a geographically consistent basis over extended periods of time. Findings indicate that change in neighborhood economic status is common, averaging roughly 13 percent per decade; roughly two-thirds of neighborhoods studied in 1950 were of quite different economic status fifty years later. Panel unit root tests for 35 MSAs indicate that neighborhood economic status is a stationary process, consistent with long-running cycles of decline and renewal. In Philadelphia County, a complete cycle appears to last up to 100 years. Aging housing stocks and redevelopment contribute to these patterns, as do local externalities associated with social interactions. Lower-income neighborhoods appear to be especially sensitive to the presence of individuals that provide social capital. Many of the factors that drive change at the local level have large and policy relevant effects.