Is gentrification such an ugly word, after all?
Gentrification is the process of wealthy residents moving into previously low-income, urban neighborhoods. In the process, these mid- and high-income households displace long-term residents, giving gentrification its bad reputation.
However, a recent article in the Economist claims gentrification actually has more benefits than disadvantages — but does the argument hold up in California?
The benefits cited include:
- rising property values, which benefits long-time homeowners in gentrifying neighborhoods;
- the arrival of more goods and services to the neighborhood, which benefits all residents, old and new; and
- a reduction in crime.
Most importantly, the article claims there is little evidence to support the belief that when high-income residents move in, low-income residents need to move out. In fact, long-term residents are more likely to stay in gentrifying neighborhoods than residents of non-gentrifying, low-income neighborhoods.
How does that work?
Zoning laws are less strict in low-income parts of cities than in neighborhoods where high-income residents already live. Therefore, it’s easier to build up gentrifying neighborhoods than long-standing high-income areas. So, when a high-income household moves into the neighborhood, they aren’t necessarily taking the home of a low-income earner. They’re more likely moving into a newly built, luxury multi-family unit.
At least, that’s how it ought to work — but gentrification isn’t always so neat, especially in California’s vocal not-in-my-backyard (NIMBY) neighborhoods. But more on that in a bit.
Perhaps the biggest benefit of gentrification is its push against income segregation.
Income segregation is bad for real estate
When you hear the phrase income segregation, you probably think about pockets of low-income neighborhoods within your closest urban center. But in practice, income segregation means the isolation of high-income households, resulting in pockets of wealthy neighborhoods in an otherwise low-income cityscape.
Income segregation of wealthy households allows fewer individuals to benefit from a city’s wealth and resources. To translate into real estate terms, it means the majority of a city’s housing stock remains low-tier or simply rentals, while those coveted high-tier home sales are few and far between, accessed by only a select number of real estate professionals.
Income segregation occurs more often in metro areas where there is a high level of local participation in zoning decisions. In contrast, metros located within states that have more top-down state-level involvement in zoning laws see less income segregation, according to a UCLA study.
Here in California, we have a lot of local involvement in our desirable coastal cities. NIMBY advocates are on every block, most infamous in San Francisco.
The number of new jobs in San Francisco has increased at eight times the rate of new housing additions, according to the Economist. Normally, more jobs translates to more real estate transactions. After all, workers need somewhere to live. But San Francisco’s stubborn refusal to add to its existing housing stock has resulted in more people living in crowded situations, along with workers living further away from the city.
Gentrification has been rampant in San Francisco during the past couple of decades. For example, the median value of a home in the Mission District was $278,400 in 1998, compared to $1.49 million in 2018, according to Trulia. That’s an increase of 535% in 20 years.
During those years, the neighborhood has changed dramatically, as the children who grew up in the Mission became priced-out of the area as adults. Even their parents who lived in the neighborhood for decades are no longer able to stay, as renter protections designed to protect long-time residents fail when landlords ignore these laws.
Even though gentrification brings some advantages and improvements, the process is hard on long-term residents, to say the least.
Legislation for more construction
Local regulations have held back new construction and growth for too long now, causing housing costs to soar, holding back economic growth and forcing residents to leave for other states.
The good news: California state legislators have started to pay attention.
In late 2017, a package of bills aimed to increase the affordable housing stock passed in California. Among these bills are new laws that will:
- make it more difficult for local governments to re-zone neighborhoods to reduce density;
- streamline the approval process for new residential construction;
- limit parking requirements, making more efficient use of land near public transportation;
- advance the environmental review process for affordable housing projects; and
- set aside more money for homeless shelters and veteran housing.
For residents of gentrifying neighborhoods — and real estate professionals who rely on a steady flow of transactions to make a living — these new laws are a step in the right direction toward more financial stability.
The research tells us gentrification doesn’t have to be as painful or one-sided as it is in places like the Mission District. Ultimately, the diversity of incomes and services gentrification brings with it benefits residents. But only if these residents aren’t forced out of their neighborhoods.
The solution is more construction in these desirable areas, and quickly. Expect to see this happen in the coming years, as California’s legislation finally catches up to demand.