Study: Gentrification Benefits Financial Health of Long-Time Residents

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Philly gentrification

(Cross-posted from This Old City)

The term gentrification is annoying to the extreme because it’s so poorly defined. Some people use it correctly, but others are far too quick to call gentrification on any new amenities.

“That new coffee shop is gentrifying the neighborhood,” or “I picked up a few Arctic Splash containers off the street, I’m gentrifying the neighborhood.”

The right way to understand what’s happening is that growing clusters of nice amenities boost land values which, without new housing construction, drive speculative rent increases and eventually property tax increases.

There’s nothing wrong with nice amenities or rising land values. Cities and neighbors should celebrate them, full stop.  It’s good for the city when neighborhoods get a lot of new small businesses and become nicer places to live. That grows the job market, it grows the city’s property tax base, and it chases away crime.

The only actual problems with this phenomenon are the tax increases and the rent increases that often come along with it.

But these can be slowed or even reversed by building enough new housing to hold vacancy rates at around 7-8%. That’s the level where rents start stagnating. There’s often a lot of resistance to building new housing at that fast a clip though, because of selfish concerns about things like parking, or more evilly, willful segregation in good school catchment districts.

Regardless, the 7-8% vacancy rate is key for keeping housing affordable in areas with nice amenities, and this is how much market-rate housing we have to build to achieve or sustain inclusive mixed-income neighborhoods.

We don’t build this much, in part because landlords are powerful players in city politics (as we noted, you see some elements of the real estate sector calling for no more building at a 4% rental vacancy rate because they don’t want rents to go down), and in part because parking NIMBYs still freak out about 4 and 5-story buildings.

Other well-meaning people are telling themselves an incorrect causal story about the economics of this issue, and are perversely trying to stop ward off rent increases by blocking any growth in the housing supply. Check out how anemic construction was in Point Breeze last year. People concerned about housing affordability are basically exclusionary zoning themselves out of their own neighborhoods to spite Ori Feibush.

But it’s important for people to get this right because a growing number of studies have found that appreciating neighborhoods actually do benefit long-time residents financially, even poor ones, and that most residents are actually just as likely to stay put in neighborhoods that gentrify as neighborhoods that don’t. Even lefty writer David Callahan at Demos has recently warmed up to the idea that what’s been panned in some corners as “trickle down gentrification” actually does work, provided we can tackle the housing affordability problem.

The rent and tax increases that come along with appreciating land values are a real problem and take a bite out of people’s disposable income, but that’s a problem we can solve with policy changes that promote higher rates of construction, higher allowable densities in growing neighborhoods, and higher public transit frequencies to reduce the need for car ownership.

The chart above shows that Philadelphia doesn’t actually have a housing affordability problem (we have a poverty problem), but here are the two main choices available to us for keeping housing affordable as the city becomes more desirable. You may not like either of them, but you do have to pick.

As land values keep rising, do you want rich people moving into poor people’s old houses, or do you want poor people moving into rich people’s old houses?

The first option, displacement, happens when land values increase but the housing supply doesn’t. Then you just have rich people bidding up the prices of the existing housing stock. Low earners can’t win that bidding war so they have to leave. I think that’s terrible, and so should you.

The second option, filtering, happens when land values increase and we build more new market-rate homes in the neighborhood to keep up with that. Richer people move into the new homes instead of poorer people’s old homes, and poor people don’t get priced out of their homes.

As the process continues, richer people move into progressively fancier homes, and the older homes with outdated aesthetic features become less appealing to rich new home-buyers, and their prices drop. Then poorer people move into those older rich people homes, and even poorer people take their old homes.

This isn’t some zany theory. You already see it in areas of Philadelphia that used to be rich but aren’t anymore. Some pretty poor people live in houses in Kensington or up near Temple University that used to be considered very fancy, but now are located in areas where richer people don’t want to live. But they still live in rich people’s old homes!

The challenge is that the factors preventing poor people from moving into rich people’s old homes in the same neighborhoods where rich people want to live are politically entrenched: free or cheap curb parking for residents, low-density zoning in high-demand areas, Councilmanic land hoarding, low land taxes, and weak property rights for land development.

We’ll be making the case against all these problems in the coming months, and changing the perverse politics standing in the way of a consensus that our city should keep growing.

This entry was posted in Economy, Land Use.

3 Responses to Study: Gentrification Benefits Financial Health of Long-Time Residents

  1. tjt says:

    that fed “study” is a joke. It shows that rent and home prices went up in gentrifying neighborhoods significantly faster than non-gentrifying neighborhoods. As such, it’s no surprise credit scores went up for residents who stayed in gentrifying neighborhoods: they’re the ones who could AFFORD TO STAY. he implies a change in credit scores, except he has a self-selecting sample. Terrible social science methodology. Freeman’s quote in the npr piece that’s getting everyone excited about that fed study is equally mistaken. The poor almost always move more frequently (just not very often to better neighborhoods), so it’s no surprise gentrifying neighborhoods see less movement–they also have fewer poor people.

    really wish the case could be made using methods that aren’t obviously flawed. Unfortunately, when that happens, we see gentrification not having much of an effect, or possibly a negative one, on residents of the neighborhood who were there before gentrification began (see, for example, the recent article in city & community on the non-impact and/or negative impact of gentrification on neighborhood schools).

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