On Gentrification

Just a quick followup about a point that Matthew Yglesias has been making lately: the best way to make housing affordable is to make a lot of it.

I wanted to relate this to gentrification. There is, quite reasonably, a lot of concern about the negative impacts of gentrification, and (relatedly) a push in lots of places for local governments to establish more affordable housing for folks with low income. Alternatively, we could ignore all of that, and go the other direction: overpower the NIMBYs and allow developers to build skyscraping apartment buildings in the richest parts of cities. I’m thinking specifically of cities like Washington, D.C., with its height restrictions, or New York and San Francisco with their historic landmark statutes, but many other places could do with a similar relaxation of building restrictions.

Here’s the basic problem: chain of events: people prefer neighborhoods with consumption amenities (shops, bars, and restaurants), good schools, low crime, etc. They would be willing to pay a bit more to live in these places. However, because of limited supply of housing, rents and house prices go too high, and gentrification becomes a good alternative.

So what happens if we remove restrictions on building? Well, some people sell their land to developers, who use this neat technology to build taller buildings with more available units. This increase in supply that will push down housing prices in this neighborhood. The marginal gentrifier will thus be less inclined to gentrify, and more inclined to move into one of these new apartments instead. If you increase supply enough (and push rents down enough, ideally close to building costs), the fact that people prefer the nice neighborhood  means that more people will just live there–instead of gentrifying.

Following the chain, this will limit the rent increases associated with gentrification in the less nice neighborhood, enabling people to stay if they wish, and helping to keep Housing more Affordable. Furthermore, some people won’t want to stay–they’ll see the much cheaper rents in the nice neighborhood, and move there instead. Reverse gentrification!

Okay, so, don’t get me wrong–I don’t see this as the One True Solution to the problems of gentrification, ethnic tensions, and tense intra-urban neighborhood relations. There are plenty of things that this reform would not fix. But it would help with some of them, and it has the added benefit of being potentially politically palateable (hey, Tea Party, we’re increasing freedom!) while benefiting a broad swath of people–both those richer people who would can now afford the nice neighborhood, and the poorer people in the other neighborhood. They would be, definitionally, left behind, but they also wouldn’t be forced out due to rising rents. Which would be, at least, a step in the right direction.

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One thought on “On Gentrification

  1. Hmmm. An intriguing idea, but I’m not convinced deregulation will stop gentrification or produce cheaper housing. There actually is a surplus of housing all around. Just look at all the boarded up houses around me in Eastern C-bus. People just haven’t been able to afford them in the long term. The market just hasn’t been efficient in allocating housing it seems to me in several ways. In the long run, deregulation tends to make the rich, richer and the poor, poorer. Yglesias’ solution is cute, but not smart enough for me.

    I think, as I’m a terrible pessimist, that there are too many factors at play in what makes a neighborhood “nice” or “bad” or whatever to argue that making more shelter in “nice” areas will solve the problem.

    But I sense I’m missing a key component in this post.

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