Caught in the Trap: Pricing Racial Housing Preferences

In The Two-Income Trap, Harvard Law School Professor Elizabeth Warren and business consultant Amelia Warren Tyagi reach a startling conclusion: a two-income middle-class family faces greater financial risks today than a one-income family faced three decades ago. Middle-class families are caught in an “income trap” because they budget based on two incomes and face financial ruin if they lose an income or incur unexpected expenses. The authors suggest that most middle-class families cannot quickly adjust their budgets because their largest monthly expense is the fixed mortgage payment. The parents maintained that they had to allocate a significant portion of their income to housing expenses to ensure they could buy a home in a good neighborhood with good, safe schools (pp. 22-23, 29, 32). Moreover, because good schools are located in expensive neighborhoods, parents contend that they must participate in a high priced bidding war for those homes. If their income declines or expenses increase, however, they are trapped: unable to pay the mortgage and unable to quickly reduce their living expenses (pp. 7-8). The book never explains how parents determine what is a “good,” “safe” neighborhood or school. Housing and school segregation patterns suggest, however, that some middle-class parents consciously or unconsciously use “good and safe” as a proxy for predominately or exclusively “nonminority.” This Review suggests that middle-income parents can no longer afford these racial housing preferences. The Review summarizes the problems middle-class families face then argues that what is viewed as “good” and “safe” may be based more on racially biased perceptions than on reality. The Review concludes by arguing that the best way to help middle-class families avoid the income trap is to make school assignments without regard to the student’s street address and to allow parents who live in integrated neighborhoods to participate in an auction to buy a slot in their first choice school.