How Gentrification Is Rare and Comes With Its Own Benefits

When things get worn-down, we tend to replace them. If you have an air conditioning unit that is 30 years old and either doesn't emit cold air or breaks down half of the time, you would think that it is time to replace it. There are many things that get worn-down by usage: tools, musical instruments, appliances, furniture. The same thing happens with buildings. There is a point where a structure is too old to properly function. When you replace an appliance or piece of furniture, it is considered an improvement in life, an upgrade. When offices, apartments, or other buildings get replaced, particularly in urban areas, it comes with the politically charged term of "gentrification."

Gentrification happens when a neighborhood with relatively low-cost housing and occupied by lower-income households experiences an influx of higher-income buyers. These new entrants buy up the housing and rebuilds or refurbishes it, which subsequently pushes up housing prices in that neighborhood. On the one hand, this improves the overall quality of the neighborhood, as I'll explore shortly. On the other hand, it makes the neighborhood more expensive for those who had been living there prior to the gentrification. Those who have an issue with gentrification believe that because gentrification results in one less affordable neighborhood, the individual has to find a new, affordable neighbor in which to live. This means that more lower-income households have fewer places to live, which leads to greater concentration of poverty, or so goes the criticism. Now is the time where we take a look to see how well these criticisms align with the reality of the situation.

Caveat: The research on gentrification comes with some limitations. For one, there is not necessarily an agreement on basics, such as what is gentrification, how to measure it, or what constitutes as a "significant" effect. Most of the available data is from the 1980s and 1990s (although some studies cover the 2000s). Although there are certain limitations, we can still draw some conclusions based on the currently available data. 

Prevalence of Gentrification
A more nuanced response is that the extent of gentrification varies from city to city, and can be dependent on how much housing costs outpace wage growth, as the Penn State's Wharton School illustrates in its primer on gentrification. In 2013, the Federal Reserve Bank of Cleveland found that for most cities, less than a third of their low-income areas were gentrified in the 2000s. Only five Metropolitan Statistical Areas (MSA) experienced a gentrification rate a greater than a third: Boston, Seattle, New York City, San Francisco, and Washington DC. In three-quarters of the 55 MSAs, less than 10 percent of neighborhoods experiences gentrification. Another fun fact is that the gentrification is relatively limited, geographically speaking. From 1970 to 2010, 46 percent of gentrification occurred in three U.S. cities: Chicago, New York, and Washington, DC (Cortright and Mahmouddi, 2014). In short, gentrification is on the whole relatively rare.

Does Gentrification Displace Low-Income Residents? 
The intuition behind thinking gentrification is bad for lower-income residents is that higher prices make living in the neighborhood less affordable, thereby crowding out the lower-income residents from their neighborhood, which ultimately creates neighborhoods with higher concentrations of poverty. This criticism is the most important to address because it is the most common of criticisms.

The short answer is that gentrification is not a major cause of displacement. A study from the Philadelphia Federal Reserve concluded that displacement is no more likely to take place in a gentrifying neighborhood than a non-gentrifying one. Other studies confirm the Philadelphia Fed's findings (Hyra, 2016; Freeman et al., 2015; Ellen and O'Reagan, 2011; McKinnish et al., 2008; Vigdor, 2002). Some even go as far as saying that gentrification is less likely to occur (McKinnish et al., 2010; Freeman and Braconi, 2004). In spite of anecdotal evidence about gentrification, there is intuition why original residents would stay in the gentrified neighborhood, whether that is due to new community amenities, renewed neighborhood pride, or benefit from reduced crime rates (Brown, 2014, p. 9).

Even for those who left the neighborhood, another interesting finding was that the neighborhood change was primarily voluntary exiting, not economic displacement (Ellen and O'Reagan, 2011). That same study also concluded that the incomes of those moving in versus those moving out are not significantly different (ibid.). This leads me to the Federal Reserve Bank of San Francisco's literature review (Zuk et al., 2015). It finds that stability and staying in the same neighborhood can actually be a form of imprisonment. 70 percent of families who were living in impoverished neighborhoods in the 1970s are still living there today. This would imply that the primary issue is not gentrification, but rather that there are more high-poverty neighborhoods than there were in 1970 (see below).

Pros of Gentrification
Gentrification is a sign of economic growth. Neighborhoods become less rundown and dilapidated. Construction jobs and the subsequent business conducted in the new buildings spur business. This creates better cash flow for businesses, which makes investments more desirable. Here is a short list of benefits of gentrification:

Improved Income and Financial Health: Gentrification can boost the income for lower-income residents, as well as raise their level of housing satisfaction (Dastrup et al., 2015; Ellen and O'Reagan, 2011; McKinnish et al., 2010). The McKinnish study from 2010 actually found that African-Americans with a high school degree earned a disproportionate amount of income gains as a result of gentrification. Generally speaking, financial health improved with gentrification. The Federal Reserve Bank of Cleveland found that financial health improves with gentrification (also see Ding et al., 2015). As a result of gentrification, original residents experience improved financial health in comparison to original residents of non-gentrifying residents.

Improved Employment: Gentrification is supposed to improve employment opportunities in the neighborhood both because gentrification attracts more educated individuals and because spurs local hiring. The findings from the Federal Reserve Bank of Cleveland confirm this notion, as does the Federal Reserve Bank of St. Louis (also see Meltzer and Ghorbani, 2017).

Diversity: One study showed that gentrifying neighborhoods are more diverse than non-gentrifying neighborhoods (Freeman, 2009). The increased diversity leads to improved social capital (Ikeda, 2004), which enhances skills and productivity.

Higher Property Values: Part of gentrification is that it raises property values (Levy et al., 2006). Larger property values typically mean a larger tax base, which can fund schools and improve neighborhood services (Levy et al., 2011).

Less crime?: While there is some evidence that gentrification leads to less crime (e.g., Smith, 2012), it is still difficult to determine the extent to which gentrification contributed to lower crime rates.

Conclusion: Conversation About Affordable Housing
When looking at the academic literature, the prevailing conclusion is that gentrification is rare and that the benefits typically outweigh the costs. Gentrification not only infrequently comes with displacement, it also provides economic benefits for the lower-income original residents. As the Brookings Institution points out in its white paper on gentrification, many of the factors causing increased gentrification since the 1950s are economic: rapid urban job growth, increased traffic congestion, demographic changes, and lengthier commutes. Opportunistic investors pick up on the limited housing supply and buy new land at a fraction of the cost. These supply-side factors play a role in increased housing costs. However, this is not the entire story.

Government policy comes in to exacerbate the situation. Land-use regulations are one example. With zoning regulations that either limit housing density, building height, or require a minimum number of units, housing supply ends up being constricted, thereby making housing more expensive. The mortgage interest deduction is another great example since it is one of the largest tax cuts in the United States. The mortgage interest deduction was supposed to increase home ownership, but it only incentivized buying more expensive homes and worsened income inequality. Then there's the Department of Housing and Urban Development (HUD) and its attempt to provide more affordable housing, which I can tell you is not flattering. Rent control is another infamous example that has caused housing in such cities as New York and San Francisco to skyrocket. If we are going to have an honest conversation about the increased costs of housing, we need to take the conversation beyond gentrification because at worst, gentrification is a symptom (e.g., lower crime has led to more gentrification [Ellen et al., 2017]), not a cause of higher housing prices. Otherwise, housing will continue to remain expensive and lower-income people will disproportionately feel the brunt of a bad combination of market forces and adverse government policy.