One thing that’s difficult about social stratification and the existence of subcultures is that ideas that have failed to penetrate the general consciousness at all, let alone actually win over enough people to be enacted into law, have saturated some environments to the point of parody:
A developer wanted to put up a tall building in that neighborhood. Longtime residents were vehemently opposed on the grounds that this would cause gentrification.
Cue the frustrated cries. “Don’t they understand that keeping buildings low causes more gentrification?!?!?!?!” We all solemnly agreed that this was very aggravating.
But most people are not Megan McArdle’s friends, and so it’s worth pounding on this particular drum until the soldiers are marching, so to speak, even if you’ve already driven your neighbors crazy.
Anyway, McArdle goes on to make a good point that is somewhat related to my taxonomy of gentrification:
But in the short run, the longtime residents who are resisting — call them “the gentrified” — may be right that allowing a big building will accelerate gentrification in their immediate environs. The housing market, after all, is city-wide. But the building is going to be right there next to them.
This first part is really about what we mean by gentrification. New construction may only displace the people who lived in the old building that was torn down, and in the long run create more room for people of moderate income, and thus actually slow or halt overall displacement. But it certainly speeds up the process of wealthy people moving in, which, if you consider gentrification to mainly be about community ownership and neighborhood character, is indeed a problem. Not really a solvable one, I don’t think – if you don’t build, the neighborhood will change anyway – but a problem.
McArdle’s second argument is the more interesting and difficult one. Even though adding housing supply will lower prices in the medium- to long-term, she says, it can raise them, and price people out, in the short-term.
[W]hy should adding supply raise the price?
One answer is that these buildings are often bringing amenities that the existing apartments don’t have: The one near us has a dog park, fitness center, and, I believe, a pool, as well as better views than you get from a typical row house. So they bring people into the neighborhood who wouldn’t previously have wanted to live there; essentially, we’re importing extra demand for the services that affluent young people want to consume.
This is basically what Stephen Smith wrote a couple years ago at Forbes: when a low-income neighborhood first attracts higher-income residents, it begins to attract upper-income amenities, like fancy restaurants and cafes and gyms and so on. These amenities make more people want to live there, which means demand increases faster than supply, which means prices go up.
At some point, though, new amenities stop being so special. The first cocktail bar that opened in Wicker Park probably made a lot of new people consider living there. The second one probably attracted a lot more. But it’s unlikely anyone who wasn’t considering Wicker Park when there were 19 cocktail bars changed their mind after the 20th. At that point – when the neighborhood has already significantly gentrified – new apartments help push down prices. Before it, they might push them up.
A few thoughts:
1. This is another reason why a totally market-based approach to housing affordability won’t work. Although large-scale rent control is probably counterproductive, cities with rapid housing price increases really ought to work on some sort of anti-displacement protections so that people aren’t pushed out by this dynamic in the early years of gentrification.
2. Paradoxically, just when allowing new development becomes most effective at pushing down prices, neighborhood residents become most effective at blocking new development. Currently, affluent people across the country consistently win zoning restrictions to protect the exclusivity of their neighborhoods; pro-development people need to remember that despite the added difficulty, pushing back on precisely these powerful groups is where the greatest gains to affordability lie.
3. It’s also worth remembering that the vast majority of American neighborhoods where high prices are the result of a housing shortage aren’t the gentrifying districts of New York or San Francisco, but very low-density suburbs. As I’ve written before, the face of pro-development affordable housing isn’t a high-rise in Brooklyn; it’s a three-story apartment building in, say, Deerfield, IL. Most American neighborhoods already have decent amenities; most American neighborhoods are drastically under-zoned. McArdle’s argument, while important, applies to a relatively niche set of places.
Deerfield, IL. No crime, excellent schools, ~30 minutes to downtown Chicago on commuter rail. Imagine how many families would love to live in three-flat right here. Current average list price: $590,000.
4. In the end, McArdle and Smith agree, preventing the construction of new homes to keep down short-term prices will lead to medium- and long-term housing crises and much worse displacement. That’s not theory – that’s the increasingly dire reality we’ve been living in for half a century. Allowing short-term concerns to dominate planning decisions, as is currently the case in Chicago, as in most places, is a recipe for continued disaster.