Partners (Second Quarter 2004)

Managing the Negative Impact of Gentrifying Neighborhoods

The last decade has been marked by a nationwide resurgence in urban areas. Driven by a strong economy, strategic public and private investments, and increasing urban sprawl, communities that were destroyed by urban renewal and out-migration to the suburbs are once again becoming desirable.

The benefits of successful urban revitalization are widespread. Local governments can capitalize on renewed interest in urban living to attract higher-income residents, to revitalize the city’s tax base and to reduce the concentration of poverty that has plagued many urban communities.

However, such revitalization may also be accompanied by the negative impacts of gentrification—a force that can impose social and economic hardship on the individuals with the fewest resources to adapt to change. The key challenge for local government, business leaders, community activists and residents is to maximize the benefits of the revitalization process while also ensuring that the adverse effects of gentrification are minimized.

What is gentrification?

Gentrification rose to the forefront as a national concern in the 1960s when government-funded urban renewal projects shredded the social fabric of inner-city neighborhoods. In contrast to the engineered gentrification of that time, recent gentrification is driven by a mix of public and private investment and regional economic forces.

The term is often used loosely and can have both positive and negative connotations. It may simply describe urban revitalization in a depressed urban neighborhood. Or it may be framed in the context of the decades of disinvestment and subsequent reinvestment in urban areas, seen as a takeover of a low-income community by wealthier residents and entrepreneurs.

According to a 2001 study by the Local Initiatives Support Corporation (LISC) Center for Home Ownership, gentrification is defined as “the process by which higher- income households displace lower-income residents of a neighborhood, changing the essential character and flavor of that neighborhood.” Within this context, gentrification is acknowledged to have been historically associated with displacement of lower-income minority individuals by higher-income white residents.

The causes of gentrification

Gentrification has been a significant concern in a limited number of cities nationwide, and within these cities, only in certain neighborhoods. Neighborhoods with little vacant land or few unoccupied buildings are more likely to experience gentrification.

Regional housing market dynamics appear to play the largest role in determining whether urban revitalization will produce gentrification. LISC research has shown that gentrification is driven by an imbalance in housing supply and demand. In regions of the U.S. where housing prices have risen markedly in the past several years, real estate developers vie for low-cost land to maximize potential profits. In the communities where housing prices have increased dramatically, there is a rapidly growing shortage of affordable housing, particularly for the lowest-income residents.

Job growth in a region also creates the potential for gentrification, putting pressure on housing supply and increasing demand for previously undesirable housing stock. Even when jobs are located throughout the region, gentrification can still occur when other forces create increased demand for urban living.

Traffic congestion created by sprawling development has led to gentrification as individuals look for residential opportunities that will shorten their commutes. Others have been drawn back to the city by the cultural amenities, historic neighborhoods and unique architecture.

Public sector policies to encourage revitalization have also produced gentrification. To increase the tax base and attract higher-income residents, public officials have designed targeted incentives such as tax abatements and below-market financing to draw households and businesses to depressed communities. While incentives attract new investment, they can also change social and economic conditions in a community significantly.

Consequences for new and long-term community stakeholders

Although revitalization benefits many community residents, the costs of gentrification often fall on the lowest- income households. The impacts of gentrification vary according to the stage of the revitalization process. Early in the process, the benefits tend to outweigh the costs for all stakeholders. In the later stages, however, benefits may accrue to new, higher-income residents at the expense of the lower-income, long-term residents unless the adverse effects of gentrification are addressed.

Different stakeholders in community revitalization—new and existing residents and businesses, the city, developers, and others supporting the revitalization process—will experience the revitalization in different ways. Cities, for example, are likely to enjoy the positive impacts of gentrification, including increased tax revenues. New residents and new businesses improve perceptions of a community, as well as attract additional investment.

New business owners also generally benefit from gentrification as new residents create a higher-income market and generate demand for a wider range of goods and services. Escalating property values, higher rents and jumps in housing prices are good for both new and existing property owners. New residents are often active in shaping the future of the community and tend to demand improvements in public schools and other facilities that will benefit long-term residents as well.

Long-term residents and businesses, on the other hand, are most likely to be divided over the impact of revitalization. If they can afford to stay, lower-income residents will probably benefit from appreciation in the value of their homes, improved public services and access to new businesses. However, revitalization can also result in involuntary or voluntary displacement of existing homeowners, renters and businesses. Such displacement is the most significant negative consequence of gentrification.

Involuntary and voluntary displacement

Research has shown that involuntary displacement is most likely among the lowest-income residents. Rising property values may force some residents, especially the elderly and those on fixed incomes, from their homes when they can no longer afford the property taxes. Renters may also be forced to relocate as landlords raise rent, opt to convert affordable rental housing to market rate housing, or sell rental property for conversion to condos.

Managing gentrification, especially in the early stages of revitalization, can help to maximize benefits and minimize adverse effects.

Whereas existing businesses may benefit from a higher-income customer base, especially if they provide certain basic services demanded by the new residents, they may also be forced to close due to escalating rents. Expensive specialty stores or restaurants that move into the neighborhood often cater to the new population, leaving existing residents without needed goods and services.

Long-time residents may also voluntarily leave the community. Developers often entice homeowners to sell their homes with offers that far exceed the original home price, but rarely will the seller make enough to purchase another, comparable home. Residents may also leave if they don’t feel comfortable with the new demographics of the population or the accompanying changes in community leadership and institutions.

Managing gentrification, especially in the early stages of revitalization, can help to maximize benefits and minimize adverse effects.

Regional approaches to equitable development

Strategies to manage gentrification are most effective within a broad framework of equitable development that considers the role of the community in the larger region. Such strategies aim to create and maintain “economically and socially diverse communities that are stable over the long term, through means that generate a minimum of transition costs that fall unfairly on lower income residents,” state researchers Maureen Kennedy and Paul Lenard in the LISC Center for Home Ownership study.

Although community development has traditionally focused on individual neighborhoods, regional strategies offer new paradigms for addressing the negative effects of gentrification. Promoting and preserving affordable housing, creating job opportunities and providing adequate transportation are critical antidotes to the problems of gentrification, and they must be examined in a regional context.

Within these larger frameworks, there are specific strategies that local communities can implement to address gentrification:

Affordable housing production and protection. Preserving and producing affordable housing is the most important component of a gentrification strategy. Public policies can protect affordable rental and owner-occupied housing for existing low-income residents. Some cities, including Atlanta, allow existing residents to defer property tax payments until they sell their homes. This is particularly important for elderly homeowners living on a fixed income who can not afford higher housing costs.

Cities can also protect affordable rental options. For instance, because of limited affordable rental housing, the city of San Francisco restricts when landlords can remove their units from the rental market.

Cities and states can further exercise public policy options to ensure continued production of affordable housing. Housing trust funds, for example, exist in many states and local jurisdictions to provide dedicated funding for affordable housing. The Florida housing trust fund, a national model, has helped over 150,000 families access affordable housing since its creation in 1992.

Another example is the enactment of fair-share housing policies that require communities to plan for both affordable and market rate housing. These policies emphasize location of affordable housing near jobs throughout the region in order to minimize residents’ transportation costs.

Inclusionary housing policies that require new housing developments to provide options for lower-income residents represent another public policy tool. Some programs require that developers either designate a percentage of units as affordable or pay fees in lieu of constructing affordable units. Fees go into a local fund to construct affordable housing in other locations. In other programs, developers are encouraged to provide affordable housing through incentives such as density bonuses, streamlined permitting processes, and fee waivers.

Consumer education and protection are equally important for preserving affordable housing. Residents in lower-income communities must know what programs are available to assist them, and they must know their legal rights to stay in their homes. Renters should be protected from eviction in gentrifying neighborhoods and homeowners must be educated about predatory lending to prevent unscrupulous lenders from taking their homes.

Using public assets. In addition to public policies to promote affordable housing, cities and states have other resources available to help manage gentrification. If the city acts in the early stages of the gentrification to secure land and facilities, it can use them later to help those who might be negatively impacted by gentrification. As demand for land in underserved communities increases and prices rise, these public assets can support affordable housing and community facilities that would be otherwise too expensive. Many cities partner with nonprofit organizations, providing them with land to develop permanent affordable housing. Cities have developed similar partnerships with for-profit developers, offering land in desirable neighborhoods in return for a commitment of affordable housing. Cities have also given existing public buildings to nonprofits or social service agencies to keep these services in the neighborhood for residents who need them.

Improving employment opportunities. Increasing access to employment is another important component of a gentrification strategy. Although linking regional employment growth to lower-income residents through improved access to jobs has not been widely practiced, such a strategy would improve residents’ chances of participating in the benefits of the economic transformation in their community.

Planning and developing a regional vision. Cities can mitigate the adverse impacts of gentrification if they identify early signs that gentrification is a concern. Although communities are unique, characteristics such as distinct architectural style, good transportation access and low housing values make a neighborhood a likely target for gentrification. A shift from rental housing to homeownership, an influx of young or artistic individuals or a change toward services that appeal to higher-income residents may all be indicators that gentrification is already occurring. Anticipating gentrification in advance allows cities to implement policies to manage the change, thus helping to capture the benefits and minimize potential problems.

Finally, a long-term, unified vision for a neighborhood, city and region can help prevent the adverse impacts of gentrification. The process of developing this vision must include all stakeholders in the revitalization process. In addition to creating a shared vision for the community, this process creates the working relationships between new and existing residents needed to implement a plan over time.

Conclusion

The regional forces that produce gentrification show no sign of changing, and affordable housing and urban sprawl are growing concerns in many cities. Since more cities and communities undergoing revitalization are likely to see gentrification, it is critical to develop strategies to maximize the benefits of this revitalization while limiting displacement and the other significant costs. The plans and public policies adopted by states and local jurisdictions must ensure that resources, housing, transportation, and jobs are available and accessible for all residents, regardless of income.

This is part two of a three-part series exploring the issue of communities in transition in the Sixth District.

This article was written by Jessica LeVeen, Regional Community Development Manager in the Atlanta Fed’s Nashville Branch.


ANDP Speaks to the Challenge of Gentrification

A prime example of the two-sided nature of gentrification, metro Atlanta is one of the fastest growing regions in the country and is widely regarded as a paradigm of suburban sprawl. Aided by the interstate system, people and jobs fled the city for the suburbs, leaving lower-income minority residents behind.

Growth dynamics in the city have changed dramatically in the past decade, however. Weary of long commutes and high suburban housing prices, people are moving back to the city. Middle- and upper-income homeowners are purchasing homes in poorer urban neighborhoods ripe for revitalization because of their historic character and other attractive amenities.

New interest in these neighborhoods has driven up property values and property taxes. Existing homeowners, particularly the elderly living on fixed-incomes, cannot afford the rising property taxes. Affordable rental housing has been converted to market-rate rental housing or sold for condominium development, forcing the lowest-income renters to compete for a limited supply of affordable rental housing. The displacement of lower-income minority residents by higher-income white households has fueled racial tensions.

Although gentrification has brought some benefits—tax revenues are returning to the city, and landowners are enjoying increased equity in their property—protecting existing residents from displacement remains a challenge. In addition, the shortage of affordable housing is becoming acute, particularly for those with the lowest incomes.

The Atlanta Neighborhood Development Partnership (ANDP) is working to address these challenges. In the past 12 years, ANDP has helped develop or renovate over 7,800 units of affordable housing. Since its inception, ANDP has focused on mixed-income communities in its neighborhood revitalization efforts, and in 1999 it launched the Mixed Income Communities Initiative (MICI), which promotes policies to make metro Atlanta neighborhoods accessible to people of all incomes. “We must push public policy with a mixed-income agenda,” said Hattie Dorsey, President and CEO of ANDP.

To that end, MICI is working to inform policy makers and to ensure that there is a voice pushing for mixed-income development. MICI has documented the growing housing shortage in Atlanta and the need for a regional solution. Job accessibility is also a concern. “Affordable housing is removed from jobs,” said Ms. Dorsey, and as a result “there is an additional transportation penalty for low-income workers.” She notes that people can’t afford to live where their jobs are located, that they can’t afford to stay in the neighborhoods where they grew up, and that the lowest-income residents are increasingly pushed into the least desirable neighborhoods. “We need neighborhoods of choice that provide a range of housing options from birth to death,” said Ms. Dorsey.

MICI brings together community development corporations, government, environmental groups and businesses to build awareness and develop solutions that speak to the systemic problems driving gentrification. This diverse coalition is making the case for an equitable distribution of affordable housing throughout the region and appealing to the interests of the business community, environmentalists, and others focused on social justice. In the future MICI plans to advocate for inclusionary housing, a housing trust fund, expanded protection for seniors and programs to help those with the lowest incomes secure affordable housing.

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