Hung Up on Gentrification? Don’t Be
Posted by Alan Mallach on July 16, 2013
In my last Rooflines post I described an approach—centering on a tax credit for families to buy substandard houses in targeted neighborhoods, fix them up, and occupy them as owner-occupants for at least five years—that I believe would be far more effective than NSP, Project Rebuild, or anything like that as a way to actually revitalize neighborhoods.
The post triggered a thoughtful response from Mike Hodge of Nashville:
“How is gentrification dealt with? […] wouldn’t the end result of the proposed program be to raise property values (and taxes and rents) in the neighborhood? Wouldn’t people of modest income be priced out? Are there modifications to the program that might help maintain affordable housing in such neighborhoods? […] But gentrification seems to be the elephant in the room of any neighborhood development project.”
It’s a big issue. If property values in a neighborhood are significantly below the homes’ replacement cost, one goal of any serious neighborhood revitalization program should be to raise property values. Not the only goal, but an important one.
Low property values are the curse of urban neighborhoods. They discourage buyers who have good credit and can get mortgages because they don’t feel their investment will be rewarded. They discourage property owners from putting money in their properties because they don’t think they’ll ever get it back. They discourage people from rehabbing empty homes or building new homes on vacant lots (except with lots of government subsidy) because they can’t sell the house for what it costs them.
The only people who are attracted by low prices are predatory real estate investors, who aim to recoup their investment in three or four years from cash flow, and then walk. Finally, low property values are sign of low demand; they are a signal that people who can choose where they want to live have chosen not to live there.
Unless prices increase to the level where people start to believe that it is worth their time and money to buy in the neighborhood, to improve their properties, and to start fixing up vacant houses, the neighborhood is unlikely to thrive. And even if unlimited public subsidy money were available to fix up houses and build new ones, it would not be a substitute for the decisions of thousands of individuals to put their money into homes in a neighborhood. In any event, that’s academic; the money’s not there.
This is where we bump into the elephant. If house prices go up, what happens to low income residents who can’t afford rent and tax increases?
It’s actually two separate questions: first, what happens to the individuals and families who live in the area when house prices start to go up? And second, what happens to the neighborhood’s housing stock, and ultimately its social mix? A third question, which seems to preoccupy some people more than the first two, is what happens to what one might call the "social ownership" of the neighborhood. Each question needs to be addressed separately.
As far as families are concerned, I believe the principle that they should be protected from the impacts of rapid or steep housing cost increases is fundamental. No one should be forced to leave their home or neighborhood until or unless they want to. Ultimately, most homeowners will benefit from higher prices, if they can keep their homes long enough; many low-income senior citizen homeowners already benefit from property tax "circuit-breakers" that cap property taxes as a percent of income.
Cook County, Illinois, has adopted a number of tax relief programs to help homeowners in appreciating areas, and Philadelphia is considering similar actions. Tenants can be protected through different means, including carefully targeted rent control, requiring landlords to provide relocation assistance, enforcing laws barring landlord harassment, incentives to landlords to maintain affordable rents, and programs like Washington DC’s Tenant Right of First Refusal, which gives tenants the right to buy their building if the owner puts it on the market.
The second question is more complicated. As Peter Byrne of Georgetown Law writes, “the most negative effect of gentrification, the reduction in affordable housing, results primarily not from gentrification itself, but from the persistent failure of government to produce or secure affordable housing more generally.” Given that failure, preserving existing affordable housing in a gentrifying neighborhood should be a no-brainer. How much additional affordable housing should be created in such a neighborhood is more complicated, and would depend on the existing amount of permanent or long-term affordable housing in the neighborhood, the availability of affordable housing in other parts of the city and region, and the market price of housing in the city and region.
Where it makes sense, there are a variety of tools available, including inclusionary housing and land banking, as I discuss in my paper "Managing Neighborhood Change." Keeping people from buying houses, or developers from building for the market, however, is counterproductive.
Finally, though, I am deeply skeptical about "social ownership" of any neighborhood by any racial, ethnic, social, or economic group. Neighborhoods in the United States are constantly changing, and the group (however defined) that lives in an area today is likely to have displaced some other group, which displaced a yet earlier group, and so forth as long as the neighborhood has been around. The specter of governmentally-enforced racial segregation is not such an ancient memory that we should seriously contemplate using any form of public power to create or enforce neighborhood entitlements, no matter for whom.
Whatever one does to prevent displacement or preserve affordable housing, though, it must be kept carefully distinct from the effort to build a stronger housing market that’s a key to neighborhood revitalization. Treating the two as an either-or proposition is in nobody’s interest.
(Photo by Brett VA CC BY)
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Alan Mallach, senior fellow of the National Housing Institute, is the author of many works on housing and planning, including Bringing Buildings Back and Building a Better Urban Future: New Directions for Housing Policies in Weak Market Cities. He served as director of housing and economic development for Trenton, N.J. from 1990 to 1999. He is also a fellow at the Center for Community Progress and the Brookings Institution.