Saturday, January 12, 2019

The Key to Gentrification

In the world of urban politics, there is probably no more potent populist rallying cry than the demand to halt gentrification.  Activists have fought it on multiple fronts: zoning, development subsidies, permitting, rent control—every lever housing policies afford.  But what if they’re mistaking cause for effect, hacking away at the visible manifestations of the problem while leaving the problem itself intact?

Pivot to an important article in today’s New York Times, reporting on recent research David Autor  of MIT presented at the economics meetings in Atlanta earlier this month.  It’s all summed up in this set of charts:

As you can see from the tiny print at the top, the data are being read horizontally within each chart, from less dense regions (rural areas) on the left to high density cities on the right.  The question being asked in the article is, if you live in a rural area or a small town, how much benefit can you get from moving to a big city?  In the early post-WWII period, the answer was “a lot” for both the majority holding only a high school diploma and the few with a college BA.  By 2015 the situation had changed: it was still a good move for college grads but there was little to be gained by those with only a high school education—and probably even less when you factor in the increased cost of living.  That’s an interesting story.

But there’s another way to read these charts, vertically, comparing wage gaps at any particular time and place between these two education-defined groups.  In 1950 the gap was relatively small; in the densest cities the college crowd made about 30% more per hour than the high schoolers.  By 2015 they made almost twice as much.  And don’t forget that the rise of inequality is virtually fractal: similar gaps have opened up within the top 20%, and within the top 5%, 1% and .01%.  The whole rightward tail of the distribution has elongated, pulling ever further from the median.

The distribution of income is reflected back to us in the distribution of housing.  High income households want big, fancy digs—not only in the suburbs as in the halcyon Ozzie and Harriet days, but also the urban core as touted by the “new urbanism”.  They will bid up the prices of existing dwellings, retrofitting them to meet their lifestyle demands.  Developers will be eager to build new units for them, creaming off their share of these high incomes.  To do this they will buy up working class housing for the purpose of tearing it down and building the expensive stuff.  Of course, upper income people want amenities suited to their means, so hardware stores and shoe repair shops give way to high-priced cafes, galleries, and boutiques for displaying elegant leather, wool, and felted clothing items.

Gentrification is simply the visible urban face of rampant income inequality.  As Autor’s data show, it’s especially intense in high density regions.  The use of housing development and rental regulation can slow it somewhat and change the form it takes, but wealthy people will always find a way to spend their money on expensive accommodations and amenities; that’s why they went through the effort to get wealthy (or why their parents and grandparents did).  A democratic city, with diverse neighborhoods and a high quality of life for all, can’t rest on a plutocratic distribution of income.  To put it differently, once we bring about much more even economic rewards in our society we’ll be able to look forward to new urban development with hope and anticipation rather than dread.


Unknown said...

this describes Toronto Ontario to a tee!

Blissex said...

«High income households want big, fancy digs—not only in the suburbs as in the halcyon Ozzie and Harriet days, but also the urban core as touted by the “new urbanism”. They will bid up the prices of existing dwellings, retrofitting them to meet their lifestyle demands»

This is a very partial insight because it is stated as if “High income households” just "happen" to be in big cities or their inner suburbs. The really big deal is this:

«if you live in a rural area or a small town, how much benefit can you get from moving to a big city?»

Where the key-word is “big city”. Why not move to small or medium cities?

There are reasons for which city jobs tend to pay better than rural area jobs, but small and medium cities have been for a long time also sources of better paying jobs, and since there are many small and medium cities, housing cost inflation and resulting gentrification were quite modest.

The real problem is that "good jobs" have been remaining only in big cities, leading to congestion and high housing inflation and gentrification. Those “High income households” are in the big cities because the high paid jobs are in the cities.

So the big deal, both as to income inequality and gentrification is that the better paid jobs have been disappearing from small and medium size cities, and prosperity has remained in the big cities.

There are many reasons for this, but I think that they are all variants of the disappearance, because of offshoring or simply the dominance of big corporations, of locally head-quartered businesses in small and medium cities. But whatever the reason the big deal remains the increasing carcity of good jobs in small and medium sized cities.

Peter Dorman said...

Point well taken, Blissex. Inequality is greater in big cities because the highest paying jobs are there. From a what are we going to do about it perspective, however, I don't think the solution is to spread out gentrification across a wider range of communities.

I live in a smallish city (metro area a bit over 100k) in WA State, and there is little gentrification to be seen. Give us some of the Seattle high end tech jobs and we'll have a little more and they'll have a little less. Would that be less onerous overall? Rising marginal cost says yes, threshold/ceiling effects could say yes or no. But why accommodate the underlying problem of grossly unequal rewards?

Peter Bohmer said...

Peter, Thoughtful on growing income inequality.
I wonder if data would look any different if divide was between college degree and everyone else, which seems more relevant today.

Also two differences with regards to Olympia and this area:
1) Struggle over gentrification is alive and well in Olympia,check out some of the high end condominiums being built or having been completed in the last year downtown, price per square foot far above historic prices.

2. Population in Thurston County is about 290,000 so I would put Olympia SMSA at close to 300,000 not 100,000. In solidarity, Peter B.

Peter Dorman said...

Thanks, Peter. (1) Yes, there's some high end stuff going in, but at the moment it's not crowding or pricing out lower end stuff, nor is inexpensive retail at risk downtown or elsewhere. That could change, of course. There is a general price increase in housing in this area, but more because of general population influx than high income price bidding, as far as I know. There are pockets (e.g. waterfront) where this may not be the case. (2) I added together Olympia, Lacey and Tumwater to get population. There are lots of little towns around here that add to the Thurston Co. total; I'm not sure how much of that I'd want to fold into the Olympia SA. A good indicator, in fact, would be housing prices. Are they bubbling up in Tenino?