Racial covenants in housing deeds were widely used in the United States during the early 20th century to segregate neighborhoods. In 1948, the Supreme Court decision in Shelley v. Kraemer made racial covenants unenforceable in court, stopping short of prohibiting them entirely. We surmise that even after losing their judicial enforceability, such covenants could have shaped segregation if they served as a focal point for coordination on an initial equilibrium in neighborhood formation, a context characterized by investment durability and path dependency. To test this hypothesis, we assemble novel parcel-level data on racial covenants and develop a quasi-experimental design that exploits delays between covenant execution and housing construction to isolate exposure to enforceable covenants at the time neighborhoods were built. Covenant enforceability indeed affected early-stage neighborhood formation in terms of housing characteristics, public infrastructure placement, and the composition of initial residents. These early differences proved durable: Enforceable covenants account for 6–24% of the observed neighborhood racial segregation from 1980 to 2020 and 3.1–4.4% of housing price differentials in the 21st century. We conclude that by coordinating beliefs and decisions during neighborhood formation, the law generated spatial inequality that has long outlived racial covenants themselves.

We study how various zoning regulations combine to affect housing supply, prices, and rents of single- and multifamily homes using novel lot-level zoning data from Greater Boston and a cross-sectional boundary discontinuity design at regulation boundaries. Looser density restrictions, alone or with other less restrictive regulations, are most effective in increasing supply and reducing per-housing-unit rents and prices. We theoretically and empirically show that restrictive zoning regulations shift housing stock towards larger units, increasing prices per housing unit. Counterfactuals imply that a recent Massachusetts law increasing building density near transit can reduce long-run rents and prices, particularly in suburbs.