What is gentrification?
Gentrification is a socio-spatial process in which higher income groups move into lower income neighborhoods. The higher income groups typically renovate and increase the land value of properties, resulting in the displacement of lower income groups who can no longer afford the rent or taxes on property they own.
Gentrification also often results in the closure of certain types of businesses and the opening of others. Retail stores in gentrified or gentrifying neighborhoods after cater to middle and upper class clientele, and may include wine stores and bars, bicycle shops, coffee shops, gourmet bistros, cafes, and bakeries. These stores often replace those that serve (and sometimes prey upon) lower income groups such as neighborhood bars, liquor shops, payday loan and rent-to-own businesses, convenience stores, and “mom-and-pop” restaurants. The goods and services that the invading businesses offer are also frequently too expensive for lower income groups, further decreasing the affordability of the neighborhood.
While some gentrifiers may be moving “back to the city” from outer suburban areas, many are simply moving from other urban neighborhoods within the same city or from out of town. So-called “first wave” gentrifiers — those that initially move into a lower class neighborhood where rent is cheap — are often bohemians (those involved in the arts), students, “hipsters”, and young professionals looking for an affordable place to live just beyond the fringe of already-gentrified areas of the city.
What causes gentrification?
Gentrification is often said to be the product of two primary forces: economic and personal preferences. On the economic side, land owners and developers have a financial incentive to renovate older buildings when the gap between what they are earning now from their property (generally in terms of rent) is substantially less than it would be if it were improved. The difference between current and potential earnings from real property is called the “rent gap.”
When the rent gap reaches some critical threshold it becomes likely that the property owner will upgrade/renovate their buildings or other property as to reap greater profit. Even for individual residential units, it is common for people to buy, renovate, and then sell properties in a process known as “flipping.” The rent gap generally increases as the surrounding area of the city becomes more desirable and more money is being invested in nearby properties. One can see how gentrification then can spread from one or multiple locations over time like a wave.
Even a single investment in a distressed neighborhood can kick-start the process of gentrification. Today, large mixed-use infill developments, with a blend of retail and (often) up-scale housing, are often used as a catalyst for neighborhood revitalization. As soon as these large developments are built and start attracting middle-income residents and/or clientele, other developers move in to take advantage of the rising land values and widening rent gaps on adjacent properties.
In addition to economic drivers like rent-gap, there are also lifestyle preferences that play a role in gentrification. Professionals without children, members of the “creative class” (those with “creative” or high-skill occupations), and young people in particular have, over the last 30 years, shown a growing preference for urban lifestyles. Renovated historical buildings, including old warehouses, have been repurposed as chic loft-style condos in many U.S. cities. As the residential population of central cities grows, so too does the density of social, cultural, and entertainment amenities, which further attracts middle- and upper-income groups. The construction of transit corridors, particularly light rail lines, can also increase the desirability of a neighborhood by improving accessibility to other parts of the city including employment centers.
This growing demand for urban spaces and lifestyles coincides with larger socio-economic and demographic shifts. In many developed countries, men and women are getting married later and having fewer children, potentially reducing the desire for suburban housing with large yards. Rising educational attainment has also likely played a role in declining birth rates and growing demand for arts/cultural/entertainment amenities. Violent crime rates have also declined since 1990 in most large U.S. cities, as their economies have begun to recover from the deindustrialization of the 1960s and 70s. The increasing sense of safety and security in urban centers has been reflected in the overall positive view of cities seen on most TV shows from 1990s onwards, such as Friends and Seinfeld.
Because gentrification often results in the displacement of lower income groups, it is generally viewed cautiously and even negatively by many scholars and community organizations. Developers and municipal leaders, however, are more likely to be pro-gentrification as it frequently results in more profit opportunities and an increase in the local tax base. In fact, gentrification may be actively encouraged by local governments who frequently offer tax and other incentives for large development projects in economically distressed communities. Tax increment financing (TIF) districts, for example, are frequently used to help incentivize private development. In a TIF district, future property tax revenue increases over typically a 10-30 year period are captured and used toward the funding of a new development or infrastructure project. Although TIFs districts originated in California, they are no longer permitted there. They are, however, allowed in all other U.S. states.
To help reduce the potential displacement caused by gentrification, one of the most effective things a local government can do is require that new private developments of a certain size contain a minimum proportion of affordable housing units. In many cases this won’t reduce displacement 100%, but it will help maintain a higher degree of neighborhood diversity and inclusivity than would otherwise be possible.