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Impacts of Gentrification: A Policy Primer

November 21, 2016

In the 1970’s, San Francisco’s Mission District housed a vibrant community of working-class Mexican and Central American immigrants. Large families shared small apartments in historic Victorians buildings. Children played Encantados (freeze tag) on sidewalks. But developers bulldozed and paved over this rich cultural heritage. Luxury condominiums, vegan juice bars, and organic ice cream shops have replaced 99-cent stores, tacquerias, and rent-controlled apartments.  Gentrification—the arrival of affluent people in a low-income urban neighborhood—brought about this transformation. Here, we explore the history, causes, consequences, and solutions to this phenomenon.

History of Gentrification

<em></em><em>(Source: </em><a href="https://playingwithpolitics.wordpress.com/" target="_blank">Playing with Politics/Roobs</a>)(Source: Playing with Politics/Roobs)

Gentrification traces its historical roots to the mid-20th century. In the 1950’s, the shuttering of factories, the influx of cheap drugs, and the uniquely American preponderance of guns led to unprecedented violent crime waves in cities across America. Racial tensions flared simultaneously due to the Civil Right’s Movement. African-Americans struggled for legal and economic empowerment, but many whites privately and publicly resisted, keen to maintain their hegemony. Together with widespread poverty and crime, these tensions sparked race riots in struggling urban centers across the country.

<em>(Image: Racial poverty in the US 1960-2010 according to US Census Data. Source:</em> <a href="https://www.washingtonpost.com/news/wonk/wp/2012/07/11/poverty-in-the-50-years-since-the-other-america-in-five-charts/" target="_blank">Washington Post</a>)(Image: Racial poverty in the US 1960-2010 according to US Census Data. Source: Washington Post)

The riots and the socioeconomic factors that contributed to them led to a mass exodus from cities. Affluent, mostly white individuals who could afford to leave urban centers fled to less dangerous suburbs, which tended to be more racially homogeneous. This abandonment, often known as white flight, placed downward pressure on urban housing prices and created the concept of the blighted “inner city” as we know it today.

<em>(Image: White flight in Baltimore. Source:</em> <a href="http://graphics.wsj.com/baltimore-demographics/" target="_blank">Wall Street Journal</a>)(Image: White flight in Baltimore. Source: Wall Street Journal)

But over the next 30 years, cities stabilized significantly. The desirability of urban living and the potential value of urban properties increased dramatically, but housing prices remained depressed. This disparity between prices and value set the stage for modern gentrification by luring capital, developers, and affluent buyers back to urban centers en masse.

As the historical context illustrates, the causes of gentrification are principally economic. Rapid urban job growth, increased traffic congestion, lengthening commutes, and demographic changes (see chart below) create demand for luxury urban housing. Meanwhile, limited urban housing supply and high costs of housing in “established neighborhoods” create supply-side pressures for renovation of low-income neighborhoods. Opportunistic investors who perceive a lucrative difference between the value of poor neighborhoods before and after renovation also contribute to supply-side pressures. But gentrification cannot always be explained by free-market forces alone.

<p><span style="font-weight: 400;"><em>(Image: Baby-boomers entering the empty-nest phase can retire and relocate to cities, and millennials graduating college and grad school are searching for jobs and vibrant communities in urban centers.</em> <em>Source:</em> <a href="http://blogs.census.gov/2016/06/23/americas-age-profile-told-through-population-pyramids/" target="_blank">US Census Bureau</a>)</span></p>

(Image: Baby-boomers entering the empty-nest phase can retire and relocate to cities, and millennials graduating college and grad school are searching for jobs and vibrant communities in urban centers. Source: US Census Bureau)

City, county, and federal government officials exacerbate and propagate gentrification with policy levers. Zoning regulations that limit housing density, building height, and require minimum unit sizes artificially constrict housing supply. Tax credits and abatements for home buyers and developers lure middle-income families into urban centers from the suburbs. And efforts to revitalize failed public housing developments increase the appeal of investing and living in nearby neighborhoods.

The public discourse surrounding gentrification is particularly discordant and polarizing because politicians, scholars, and activists don’t only disagree about appropriate policy responses; they also debate whether gentrification tends to benefit or disadvantage cities and their most vulnerable residents. Proponents of gentrification perceive it as urban revival that uplifts low-income city dwellers, and they encourage it as such. By contrast, critics attempt to prevent it because they believe it threatens and destabilizes low-income, non-white communities, especially elderly and disabled residents. As always, the reality is more complex than either side’s rhetoric suggests; the consequences of gentrification are numerous, nuanced, and regionally inconsistent.

Benefits of Gentrification

As wealthier people move into a previously poor neighborhood, the median area income increases. This increases cash flows for local businesses and makes local business investment more desirable. Over a period of time, more businesses are built, new jobs are created, and wages increase. For example, in Milwaukee, WI, the city was becoming increasingly segregated and abandoned as wealthy residents and jobs left to the suburbs post industrial age. In the early 2000’s, new bars, restaurants, and waterfronts renewed the area through a revitalized night life and reversed the downward spiral of the city.

Some have noted that the benefits of gentrification extend beyond the private sector. Gentrification provides a fiscal windfall for the city government. More affluent residents contribute more income tax to city coffers, and appreciating home values beget higher property taxes. These increased tax revenues allow the local government to increase investment in infrastructure, public transportation, public schools, law enforcement, and other citizen services. In Milwaukee, for instance, gentrification provided the revenue required to fund a mass transit project that contributed to urban revival.

Costs of Gentrification

However, in some situations, gentrification displaces the poor and unstable along with unique businesses, replacing them with the wealthy. The Berkeley Urban Displacement Project notes that over a quarter of San Francisco’s neighborhoods are at risk of displacement. As communities attract new businesses, high skilled workers, major developers, and large corporations, the demand for and cost of housing increases, pricing out low-income residents. It is not always the case that these residents are forced out. Typically, low-income residents struggle with financial security and therefore are more vulnerable to change. They may not be married, may have less job security, and must move. Single mothers, the elderly, disabled, and other vulnerable groups are then displaced to areas that gain negative connotations due to the high concentration of low-income residents as can be seen by the reputation of the Bronx.

(<em>Source</em>: <span style="text-decoration: underline;"><a href="http://www.economist.com/news/united-states/21644164-gentrification-good-poor-bring-hipsters" target="_blank">Dave Simonds/Economist</a></span>)(Source: Dave Simonds/Economist)

Poor buyers thus can not compete for the housing within gentrifying neighborhoods and are then forced to move to poorer neighborhoods that they can afford. This may boost the overall economy, but it essentially shifts problems over to another street without solving them in the long term. This displacement can have other adverse effects other than possibly relocating an entire family such as psychological effects. On the other hand, in looser markets such as Cleveland’s, the upward pressure on wages exceeds the upward pressure on housing costs and can be more beneficial to the low income or unstable residents.

Particularly in shuttered and abandoned neighborhoods, gentrification increases property ownership rates. The increased property ownership through existing properties and building of new developments helps to reduce crime. Vacant properties are often a magnet to crime. The reduction of vacant properties along with a better funded law enforcement helps reduce crime in gentrified neighborhoods. Previous residents may benefit from some of this recent development, particularly in the form of higher wages for those without high school or college educations, as well as service sector and construction jobs, but much of it may be out of reach to all but the well-educated newcomers. These social, economic, and physical impacts of gentrification may result in political conflict, heightened by difference in race, class, and culture. Earlier residents may feel bitter, ignored, and excluded from their own communities while new citizens may be confused by accusations that their arrival is racist and hostile. Change nearly always involves winners and losers, and often in the case of gentrification it is the low income, unstable, and low educated that lose their homes, apartments, and community. However, the effects of gentrification vary widely. Governments, developers, and citizens struggle with how to create a win-win solution for everyone involved.

Recent Examples in U.S. Cities

Many cities across the nation have developed and implemented a myriad of solutions to combat the effects of gentrification. The proposed solutions vary in wide range from free market reforms to government subsidized housing programs, and of course, the policies themselves are tailored to fit the needs of each community.

(<em>Image: Micro home interior. Source:</em> <a href="http://www.tinyhousedesign.com/nomad/" target="_blank">Tiny House DESIGN</a>)(Image: Micro home interior. Source: Tiny House DESIGN)

For example, in 2009 Seattle attempted to combat the rapid increase in median rents by loosening restrictions on micro-housing units, compact living spaces (typically 140-200 sq.ft.) designed for single occupants. Seattle was seeing a massive influx of technology sector workers who were looking for city housing and thus pushing up rents. City planners recognized that the young professionals were competing in the same housing market as families and proposed micro-housing as way to ease pressure on families in Seattle. Proponents argued that by easing zoning restrictions, young tech workers would be able to secure small housing units and therefore not compete with families trying to rent larger apartments. Initially, urban planners sung praises of the micro-housing approach – it was a free market approach that appeared to be wildly popular. However, Seattle has of late shied away from the micro-housing approach over concerns about the quality of life that comes with living in such cramped quarters.

Other cities, like New York, have advocated for “Affordable Housing” to blunt the impact of gentrification. Proponents of affordable housing programs argue that gentrification is inevitable and beneficial in many areas, so policymakers should attempt to spur construction and renovation without sacrificing the original character of the neighborhood. Instead of preventing gentrification, affordable housing programs combat the displacement of vulnerable residents by controlling the rents of certain units through vouchers, subsidies, regulations, or some combination thereof.  For example, in New York, the city government will offer 23,284 affordable housing units to support low-income residents of the Bronx and other gentrifying neighborhoods. The city government as well as various Federal programs also provide incentives to developers to spur creation of affordable housing by extending generous loans to developers who meet certain benchmarks for low-income and middle-income housing.  Critics contend that the complicated formulas that determine what qualifies as “affordable” and who qualifies for assistance don’t actually assist the most vulnerable residents. They point to developers who have exploited loopholes in the law and conclude that the law does very little to combat the devastating impacts of gentrification.

Conclusion

As the demographic trends continue to pit modernizing, gentrifying forces against long-time residents, city planners and policy makers will continue to look for solutions to balance the needs of a twenty-first century economy with those of local communities.  Gentrification, with all of its faults and virtues, will continue to be a pressing issue in modern American cities for many years to come. While we do not expect the underlying forces behind gentrification to cease, we are optimistic that the newest generation of urban planners will be able to present unorthodox and innovative solutions.

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  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

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  • <h3>USDA Nutrition Assistance Data</h3><p><img width="180" height="124" alt="" src="/live/image/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg" class="lw_image lw_image485 lw_align_right" srcset="/live/image/scale/2x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 2x, /live/image/scale/3x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 3x" data-max-w="1233" data-max-h="850"/>Data and research regarding the following <strong>USDA Nutrition Assistance</strong> programs are available through this site:</p><ul><li>Supplemental Nutrition Assistance Program (SNAP) </li><li>Food Distribution Programs </li><li>School Meals </li><li>Women, Infants and Children </li></ul><p> Quick link: <a href="http://www.fns.usda.gov/data-and-statistics" target="_blank">http://www.fns.usda.gov/data-and-statistics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>