Discussions of "gentrification" are commonplace in contemporary urban America, with complaints usually focusing on two main themes. One is change in the built environment — people often liked neighborhoods the way they were when they moved there, and resent the construction of new structures that differ in scale and style from what was there previously. The other is economic impact — people often worry that an influx of affluent newcomers will raise housing costs in a way that disadvantages less privileged people.
The good news is that this latter problem can be fixed. The bad news is that the best way to do it is to increase the pace at which a city's built environment changes.
The economics of gentrification
The experience of expensive, politically liberal coastal cities tends to dominate media discussions of urbanism, so it's important to note that these cities are the exception rather than the rule. Most American central cities are relatively affordable, and many of them — especially in the Midwest — are still suffering from the population loss and disinvestment associated with white flight. A Detroit, Cleveland, or St. Louis could greatly benefit from an influx of affluent newcomers whose presence would create new job opportunities and bolster local tax bases.
At the same time, in any city it does seem to be true that an influx of newcomers will tend to raise prices. Research by Veronica Guerrieri, Daniel Hartley, and Erik Hurst shows empirically how this works. Price increases tend to concentrate in specific neighborhoods rather than spreading across a city as a whole. They model this as a question of spillovers. More and less affluent people place systematically different values on different kinds of retail opportunities. So affluent young people might be drawn to proximity to a Whole Foods and an array of independent coffee shops and yoga studios, while working-class families might prefer a cheaper supermarket and proximity to some home-based day care providers. When affluent people start moving to a neighborhood, the retail mix shifts in favor of things affluent people like, which draws more affluent people to that specific neighborhood but not necessarily to other places in the city.
But whether this is good or bad for older residents of the city depends on other factors. Janna Matlack and Jacob L. Vigdor examined market data from 1970 to 2000 and found that the net economic impact of gentrification varies according to local housing conditions.
"In tight housing markets," they write, "the poor do worse when the rich get richer," whereas in slack markets, "some evidence suggests that increases in others' income, holding own income constant, may be beneficial."
When houses are plentiful, in other words, gentrification can be a win-win — increases in other people's incomes create new opportunities for the poor. But when houses are scarce, increases in other people's incomes merely exacerbate scarcity and leave the poor worse off than ever.
Neighborhoods need to change faster
So what creates a "slack" housing market where gentrification can be a win-win? Data from the real estate website Trulia shows it can basically happen one of two ways.
Markets like Detroit, Cleveland, or Rochester are cheap essentially because they are economically depressed. There are plenty of empty houses, so if affluent newcomers show up and fix some of them up it doesn't generate any real scarcity.
Tight markets like New York and the Bay Area can't replicate that approach to affordability. But they could learn a lesson from the other kind of slack housing market — Sunbelt markets like Raleigh and Atlanta where new houses are being built at a very rapid clip.
Those fast-growing metros are mostly adding houses by spreading their geographical footprint deeper into the suburbs. That's not necessarily an appealing option for cities whose sprawl is limited by oceans or already-gargantuan commuting times. But fortunately, technology exists that allows house builders to pack large quantities of dwellings into limited land. Rather than detached houses each perched in their own yard, rowhouses or townhouses can be built. Where land is even scarcer, American builders have the capacity to erect apartment buildings — some of them two dozen stories high or more — whose floors are connected by elevators. The big problem is that in the most expensive metropolitan areas it is illegal to deploy these technologies on large swaths of land. Zoning codes and historic preservation rules generally prevent even the priciest neighborhoods from becoming denser.
Relaxing these zoning rules would transform gentrification of neighborhoods in generally affluent cities into a win-win that benefits the poor. But it would mean accelerating the pace at which gentrification reshapes the built environment of those neighborhoods. Those worried about gentrification, in other words, likely need to choose what it is they are primarily worried about — the aesthetic or economic dimensions of the issue — and recognize that addressing one will likely exacerbate the other.