This posting is risky, as it is based largely on one economics class that I attended rarely and received a poor final grade in. Luckily, I know some real economists who will read this critically, and hopefully the rest of us can learn together.
The economic impact of gentrification on a city seems complicated. By definition, it involves a rise in property values which creates more tax base for a city. By bringing the well to do into the city, it also brings money to the cities economy through increased sales for local businesses. All of this is good for a city. Similarly, the money made by increased rent or from sale of property also seems as though it would work its way back into the city through investment and taxation. As a result, it is not surprising that some people like this process, and that markets encourage it.
For renters, however, it obviously has a negative impact. Faced with increased costs, they must either find more money, cut costs somewhere else, or leave the area. Assuming that this is a moderate income neighborhood, it seems unlikely that higher paying jobs are readily available, so the first option cannot be relied upon. Cutting costs elsewhere may be possible in some situations, but cannot be relied upon for everyone and seems unlikely as local stores respond to their changing demographic and increase prices. It is also contrary to my concept of progress for people to be asked to give up some things in order to keep others. Progress means keep what you have and get more also, or phrased differently, that given the choice, people would gladly trade the past for the present.
The third option is the most difficult. Certainly, many people can and do leave when faced with this situation. Already I feel this is a bad thing, as I believe that there are many positive reasons for people to stay in one place. I will address this more in a later post on race, community, and social capital. An even more fundamental question, however, is where these people go. As places that lend themselves to travel by foot, by bike or by public transit tend to be those that become too expensive for the people who need these services the most, moving often brings decreased access to resources (groceries, education, public transportation, health care, etc.). In some situations even these options are not available, and rising property values make people homeless. This is not, in my opinion, progress, and yet it is clearly what happens when we follow the incentive of markets. So what can we do?
One proposed solution to this problem is rent control, which pretty clearly allows people to stay in their neighborhoods. Unfortunately, economists also find a lot of problems with rent control. As I understand it, market capitalism naturally provides incentive for landlords to fix up their rental properties and maintain their neighborhood, because improvements to the property allow them to charge more rent. Under rent control, however, rent is no longer linked to market value and no amount of improvements to the property can bring in any more rent. This leaves property owners with no incentive to invest money in improvements to their property at all. As a result, buildings become rundown, and tenants who care leave, and "slums" form.
This makes a lot of sense to me, but I also have questions about it. Don't the tenants have incentive to fix their own homes? I realize that it is not entirely in their interest to improve property owned by some jerk who won't answer your calls, but if you're getting a sweet, rent-controlled deal in a neighborhood that's on the rise, it seems like it might be worthwhile. I guess there is no reason to keep this hypothetical, however. What do studies show? And if they are mixed, what factors allow rent control to work? Have there ever been experiments with laws designed to encourage landlord to sell rental properties to their tenants in rent controlled situations? That seems like it might be the best solution.
Sometimes I wonder if gentrification is not so much of a problem as it is a process through which inequity in home ownership comes to light. As I said above, gentrification is not all that bad for people who own property: rising property values and changing community may still make you want to leave, but it allows you to do so at a profit. As I understand it, however, most gentrified neighborhood contain primarily rental property. If everyone owns their own house than there tends to already be a fairly high level of affluence.
It's a tricky issue, because the easy and predictable profit available in urban real estate attracts a lot of the capital that is needed to improve property. At the same time, however, this market (like many) is one that allows people with wealth to use their wealth to generate more wealth at the expense of those without wealth. I think that's regressive and would much prefer the gains available through increased property value to be channeled towards those without wealth. How is this possible? I'm not entirely sure, but it seems that anything that encourages home ownership and home improvement among low and moderate income families would be a good step. It almost makes me wonder if universal home ownership is a key for a truly just and equitable society, but that's probably getting into a larger debate than I'm ready for.
The other big issue raised here is that I suspect there is no way to truly solve this problem so long as cities are strongly segregated by income. I realize that race may be an even larger factor in the segregation of cities (and that it is particularly relevant to gentrification), but unfortunately I do not know how to talk about this issue in anything resembling the language of economics, and so I will address it in a later post. The idea of mixed-income neighborhoods, from what I understand, is something that markets are unlikely to create but that works very well when allowed to.
It is given this opportunity when governments subsidize a mix construction or renovation of property that mixes subsidized housing with market-value housing.Since I'm on my home ownership kick, it seems like the best way to do this is simply to offer all of it for sale but provide college financial aid style assistance to low-income families interested in purchasing it. Even just transferring the money currently used to subsidize low income housing towards mixed income housing, however, would go a long way. This allows new development, increase in property values and all of the associated benefits to the city, while still offering a place for the people who traditionally lived in the neighborhood to remain. And since we're on the topic of good urban planning, I believe that it is important to create these spaces as mixed use residential/commercial as well.
I suspect that economists would not like this market interference. They would claim that using tax money to make people do something so different from what the market wants them to do is horribly inefficient, and creates losses for all of society. And they might be right, but I have two counter-arguments.
I'm hesitant to raise the first one as I fear that it will create a lot of disagreement and distract from the meat of this discussion. Hopefully, however, people will recognize that gentrification is an issue worth addressing whether they agree with me on this next point or not.
Put simply, my goal differs from economists because I value a system that treats it's most needy members well over a system that creates the highest overall standard of living and efficient distribution of resources. In other words, I would rather see $20 billion worth of improvement in standard of living distributed among the poorest third of people in our society than I would see $45 billion worth of improvement spread evenly among everyone in our society. I suspect that other people will feel differently, and that this will be a stumbling point in reaching any sort of consensus as a group.
In saying this I'm addressing a pretty basic moral question. It isn't one that I know a lot about, but I believe that a similar one drove Jeremy Bentham and John Stuart Mill to create utilitarianism, and to disagreed as to whether all pleasures were equal, with one stating that pleasure from "push-pin (a mindless game) is as good as pleasure from poetry (a high art)" and the other strongly disagreeing.
I know that I care more about the needier, but I do not have a good way to say how much more I care about them and what that means about how resources should be distributed. I will say, however, that I believe that the difference between the standard of living of the richest americans and the poorest is immorally large, and that I would be happy to see it shrink. Until it does, I support even somewhat inefficient attempts to change it.
My second problem with economists' warnings against government subsidy come from the distortions of value offered by markets, the discounting of future benefits, and the ignoring of externalities. Although it might not be most profitable for an individual developer to build in a certain way, this fails to consider the costs and benefits to society at large. I will addreses these more in later posts, but to put it briefly: I currently believe that markets create developments that create slums, segregate people on the lower rungs of the social ladder and create barriers to their advancement, create failing urban schools, use space inefficiently, force people to rely too heavily on automobile transportation, and cause many other problems. I also believe that the investment neccessarily to create better cities would be extremely worthwhile in the long run. I hope that this can and has been studied by economists, but I worry that it's too far reaching.
Well, I've certainly said a mouthful. Respond to as little or as much of it as you like, and we'll see how this thing works. Attack the things that I say with all of your heart, and hope that something good will come of it. And even if you have no response to anything that I've said here, check back to see all the other exciting things that I'll say about gentrification later.