Gentrification has become a controversial topic in our country, with its impacts on areas and their residents being heavily debated. Billions of dollars in development money, municipal grants, and national and local tax incentives have enabled some of the most distressed and poor neighborhoods across the country to be redeveloped.
Neighborhoods in cities like New York, Washington, D.C., Denver, New Orleans, Seattle, and Portland, Oregon, have undergone complete transformations over the past few decades. The result? More affluent, higher-income earners (of whom the majority are white) move into neighborhoods once known for high concentrations of poverty (wherein the majority of residents were minorities) -- aka gentrification.
It's easy for struggling cities to look at gentrification as a solution to a problem, but the answer isn't so simple. Gentrification has both positive and negative impacts on real estate markets, and there are things investors and government officials should consider when looking to gentrify an area.
Saving struggling cities
However big or small, municipalities rely largely on property taxes to pay for public services such as utilities, roads, schools, police stations, and fire departments. The higher the property values, the more the city can collect. Most cities have a diverse makeup of real estate, which helps maintain a healthy balance and revenue source for its services.
But if the city or municipality loses enough residents or there is an imbalance in property values (which determines how much taxes are collected), the balance becomes off-kilter, leading to a decline in revenues.
It's the reason cities like Detroit -- which lost more than one million residents over several decades following the decline in the automobile industry -- went bankrupt. And it's the reason countless other cities, such as Chicago, Philadelphia, and Pittsburgh, are looking to gentrification as a solution to their problems.
Here comes gentrification
It's obvious why gentrification makes sense. Take a neighborhood with low property values, vacant properties, and higher crime and improve it. The process creates new businesses, improves property values, reduces crime, and increases revenues for the municipality, which, in turn, means they can improve infrastructure and bring new residents (i.e., more revenues) to the area.
But it's not all good. Gentrification disproportionately displaces long-term residents (most commonly minorities) by directly or indirectly creating an environment that is no longer affordable or accessible for them. While some residents are able to stay in the newly gentrified neighborhoods and surely benefit from the increase in funding resources and amenities in the area, most are displaced.
Some studies argue against this, including one conducted by the U.S. Department of Housing and Urban Development (HUD), stating that surveys have found mobility rates actually decreased in gentrifying areas. But the data is flawed.
It doesn't consider that higher-poverty areas are known for higher rates of mobility to begin with or that more affluent residents (those who are moving into these areas) typically stay in places for longer periods of time, resulting in a decrease in mobility.
The data also fails to track resident displacement over an extended period and only tracks residents who move from one housing unit to another within the city's boundaries, not out of state as many low-income families are forced to do. It also relies solely on participation from residents in the neighborhood, though it has been noted that minorities participate less.
Other studies that have tracked resident mobility on broader terms -- such as the one on Washington, D.C., that the National Community Reinvestment Coalition conducted -- found that the city, now identified as the most gentrified in America, lost more than 20,000 of its African American residents during the city's gentrification (from 2000 to 2013).
Conflicting data isn't unheard of in today's age, which is why it's crucial we continue to conduct studies that better quantify the impact of gentrification without bias.
There are other ways
Gentrification can save a city, but it's not saving the city entirely. Ultimately, it's taking one low-income tract and pushing it to another, deferring a problem the city will eventually have to deal with again if the balance once more becomes off-kilter. Instead, cities and developers need to work together to address the root cause of the city's or neighborhood's financial problems: high concentrations of poverty.
Our current property taxing system distributes funds to areas based on the property taxes the area brings in. This results in affluent areas with higher property values receiving more funding and neighborhoods with lower property values having underfunded resources such as schools, parks, public transportation, and more. It's perpetuating a cycle of poverty.
Cities need to consider and account for the displacement of residents during the process of gentrification, having a plan in place that allocates the necessary resources and housing, not just relocation. Adopting policies like flexible zoning and inclusionary zoning would motivate or, in some instances, mandate developers to include a minimum number of affordable housing units in a property, particularly in areas that normally would prohibit it.
This flexibility would make access to property more affordable, which would make the investment more profitable for the developer -- despite part of it being affordable housing units -- while revitalizing areas without displacement.
What likely started as a well-intentioned way to revitalize poor, blighted urban areas has spurred unintended consequences and challenges for cities, developers, and residents to work through. And the real answer, one that takes into account the needs of all parties, will need to be a solution far beyond gentrification.