Effects of Moving to a Different Neighborhood on a Child’s Income in Adulthood (source: Chetty and Hendren, 2015)

For anyone interested in cities, a couple of research papers released earlier this month provide strong evidence that where children live has a big impact on their future life opportunities. The papers report on work undertaken under the US Department of Housing and Urban Development’s Moving to Opportunity demonstration program.

Younger children who move from a poor neighbourhood to an economically stronger neighbourhood have distinctly better life outcomes measured over a range of measures. But the benefit decreases with age; teenagers receive a lower benefit and in some cases might even be worse off.

This paper by Harvard academics Raj Chetty, Nathaniel Hendren and Lawrence Katz, The Effects of Exposure to Better Neighborhoods on Children, studied randomly selected families living in high-poverty housing projects who accepted an offer of housing vouchers to move to better neighbourhoods: (1)

We find that moving to a lower-poverty neighborhood significantly improves college attendance rates and earnings for children who were young (below age 13) when their families moved. These children also live in better neighborhoods themselves as adults and are less likely to become single parents.

The treatment effects are substantial: children whose families take up an experimental voucher to move to a lower-poverty area when they are less than 13 years old have an annual income that is $3,477 (31%) higher on average relative to a mean of $11,270 in the control group in their mid-twenties.

In contrast, the same moves have, if anything, negative long-term impacts on children who are more than 13 years old when their families move, perhaps because of disruption effects.

The gains from moving fall with the age when children move, consistent with recent evidence that the duration of exposure to a better environment during childhood is a key determinant of an individual’s long-term outcomes. The findings imply that offering families with young children living in high-poverty housing projects vouchers to move to lower-poverty neighborhoods may reduce the intergenerational persistence of poverty and ultimately generate positive returns for taxpayers.

The authors recommend increased use of housing vouchers that require low income households with young children to move to lower poverty neighbourhoods. They conclude such a program would “reduce the intergenerational persistence of poverty and ultimately save the government money”.

Another  paper by Raj Chetty and Nathaniel Hendren, The Impacts of Neighborhoods on Intergenerational Mobility, reports on a study of more than five million families who moved across counties in the U.S.:

The outcomes for children whose families move to a better neighborhood – as measured by the outcomes of children already living there – improve linearly in proportion to the time they spend growing up in that area.

For children growing up in families at the 25th percentile of the income distribution, each year of childhood exposure to a one standard deviation better county increases income in adulthood by 0.5%. Hence, growing up in a one standard deviation better county from birth increases a child’s income by approximately 10%.

Low-income children are most likely to succeed in counties that have less concentrated poverty, less income inequality, better schools, a larger share of two-parent families, and lower crime rates.

Boys’ outcomes vary more across areas than girls, and boys have especially poor outcomes in highly-segregated areas. In urban areas, better areas have higher house prices, but our analysis uncovers significant variation in neighborhood quality even conditional on prices.

Some important caveats in relation to applying these findings to Australia: race is much less of an issue here; and key institutions like schools are funded at State level rather than at the local level. It’s also possible that the sorts of households that accepted the offer of vouchers, or who moved to better areas under their own steam, were more motivated than those who stayed (perhaps like migrants throughout history).

Still, I think there are some important lessons for policy-makers in Australian cities. One is it reinforces the idea that geography matters.

Of course we already know that; like-minded individuals get benefits from locating close together and they accordingly actively seek each other out; it’s one of the benefits of cities. But concentration also amplifies negatives like the problems associated with disadvantage. Further, households living in disadvantaged places are often “trapped”; many don’t choose to live or remain in them.

But I doubt that the physical environment is the key explanation for why some neighbourhoods are better for children than others. What makes a place positive or negative for young children is primarily the dominant culture. A child who grows up in a place characterised by an absence of hope and without a strong sense of alternative possibilities is likely to live the same life as previous generations.

I don’t know how far a program of moving low income households with young children to better neighbourhoods could realistically “scale-up” in Australia. It wouldn’t be without problems; for example, this study, Explaining spatial concentrations of the poor in metropolitan Melbourne, found that “In these middle-suburban locations the better-off are moving out, leaving behind those with less resources”.

But in terms of addressing existing spatial concentrations of disadvantage in Australian cities, the work of Chetty et al suggest that action aimed directly at young children is extraordinarily important e.g. through improving the childcare, pre-school, and primary school experiences. Broader approaches, like “nurturing a culture of responsibility and self-help”, might help too.

An interesting corollary of the findings is that early stage gentrifiers might well have a positive effect on the prospects of resident low income children. The benefit might only operate over a small window though i.e. not until the negative aspects of the existing culture are sufficiently weakened; and only while low income households can still afford to live in the area. (2)

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  1. There are shorter summary versions of the two papers here: The Impacts of Neighborhoods on Intergenerational Mobility; and The Effects of Exposure to Better Neighborhoods on Children.
  2. It’s long, but Justin Wolfers account in the New York Times of the work coming out of the Moving to Opportunity project is well worth reading, Why the new research on mobility matters: an economist’s view.