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Gentrification isn’t bad for the poor

January 24, 2014
January 24, 2014

San Francisco, thanks to outrage over swarming tech workers and rising rents, has become the symbol of gentrification’s ills. But San Francisco’s unique situation is giving gentrification a bad name; it doesn’t have to be that way, especially if the local government does its job correctly.

Gentrification, the term of art for an influx of new residents into an urban neighborhood that typically drives up rents, is controversial in many wealthy cities. It’s often blamed for driving out poorer residents. But when researchers try to prove it, facts are hard to find. Any number of outlets have reported on studies by Columbia University’s Lance Freeman and researchers at the University of Colorado and Duke University who find that gentrification doesn’t drive out a rising neighborhood’s former residents. It even stands to benefit them financially.

And this does make sense: Gentrification means a city and its neighborhoods becoming more attractive to potential residents, often because of growing economic opportunities. The counter-factual is either a reduction in prosperity (think Detroit) or stagnancy, the first of which isn’t attractive and the second means leaving low-income neighborhoods low-income. (Somehow making low-income neighborhoods wealthier while banning new residents doesn’t seem tenable, either).

So why are people in affected cities so upset? Freeman notes that the legacy of red-lining and other discriminatory real estate practices can make many wary of change, and it’s not like such things have disappeared: Minority borrowers were more likely to be sold sub-prime loans during the housing bubble, even if they qualified for prime loans. Rents go up in gentrifying neighborhoods; between 2000 and 2007 gentrifying neighborhoods saw an average increase in rent of 4.5 percentage points more than non-gentrifying neighborhoods, which isn’t so bad—but affordable housing gets pinched most.

San Francisco is practically the reductio ad absurdum of gentrification: It’s already land limited on three sides by water, and the massive rise of the tech industry over the last few decades has dramatically increased both the population of the area and its wealth. San Francisco is also a city of renters, as some 60% of the city’s residents don’t own a home. It’s a scenario for dramatic increases in home prices, and that’s what we’ve seen: Per the Case-Shiller home price index, they have risen some 50% since the 2008 bottom of the housing crisis, though they have yet to re-attain their heights at the top of the bubble.

But the blame shouldn’t go to the tech companies or their employees moving to San Francisco, however despicable some might be. Blame San Francisco for being pleasant, and its policymakers for being foolish: When a lot of people are moving to your city—San Francisco the city gained 50,000 new residents between 2000 and 2012, including some 25,000 between 2010-2012 and likely more since—home prices are going to increase unless you build a lot more housing. And, according to San Francisco’s latest housing inventory report, in 2011 it created just 269 new housing units, far lower than the 10-year average addition of 2,350 units a year, for a total stock of 372,831. That’s not going to support growing population.

So short of blockading the bridges, what’s a city to do? It’s simple—adopt new policies: Economist Noah Smith suggests here on Quartz that Henry George’s land tax is a way to improve everyone’s incentives and raise money for public services. Matt Yglesias argues in favor of increasing the housing stock by simply zoning for more and larger housing. Edward Glaeser believes that environmental impact regulations should be waived for affordable housing projects. Current building owners and those who favor single-family homes may oppose ideas like this because they’ll drive down rents, but they’re the path to ensure gentrification is really development—for everyone in a city.

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