GENTRIFICATION

by Matthew Roberts, Certified General Real Estate Appraiser

October 2018

Let’s talk about a bad word: gentrification. 

In 2018, words matter, probably more than they should, especially in their ability to trigger strong emotions and disagreements.  Gentrification is just such a word, but let’s not cast it into the memory hole just yet. 

There are many definitions of gentrification. According to Merriam-Webster, it is, “the process of repairing and rebuilding homes and businesses in a deteriorating area (such as an urban neighborhood) accompanied by an influx of middle-class or affluent people, and that often results in the displacement of earlier, usually poorer residents.” Meanwhile, Wikipedia defines it as, “the transformation of neighborhoods from low value to high value…and is a housing, economic, and health issue that affects a community’s history and culture, and reduces social capital.”

Despite the differences in definitions, gentrification is just a display of normal market forces at work.  And the opposite of gentrification is much worse. 

Gentrification is a story of change.  And it makes sense.  Neighborhoods have a life cycle: growth, stability, and decline.  Gentrification adds a fourth stage to the cycle: renewal.  The story goes that investors buy up cheap real estate in urban centers and renovate to attract higher-paying tenants.  The new tenants are typically higher-income earners or college students (with their parents’ money).  If successful, rents are bid up, occupancy of these new tenants increases, and the investors earn a return.

Opponents of gentrification point to the poorer, previously renting tenants who, because of new higher rents, must find a new place to live, and argue that this is an injustice.  The previous tenants cannot compete with these much higher rents and therefore are “forced” to move out.  Previous communities vanish, and families and friends go their separate ways. 

Opponents fail to recognize how gentrification affects existing property owners in the affected area. It is important to note the distinction between owners and renters.  If property values and rents dramatically increase, current property owners are in a better position than the renters.  Owners may also leave the area of gentrification, but for them it will be voluntary. That choice will be made even easier by all the new entrepreneurs throwing money at them as they attempt to capture more returns. As opponents often argue that community and history are the be-all and end-all of enjoyable life, property owners often prove them wrong by happily selling for inflated prices. 

The previous renters, however, are not so lucky.  Once their current leases are expired, the asking rent prices will go through the roof.  They then must move and find more affordable housing, in a less desirable area.  While this may sound cruel, and it can be, it could not be prevented without harming markets and real estate values.  The market is constantly in flux, and an attack on gentrification is an attack on the freedom of people to buy and sell.  If prices go down, it is property owners who really suffer as they are the ones taking on all the financial risk.  Renting is less risky.  Renting is an agreement between tenant and landlord, and the tenant cannot be expected to have a greater say over how the property is used once their lease is expired.  Engagement in a voluntary commercial activity, even for a number of years, does not give either party the right to continue it without the others consent.  A long-time tenant does not gain any special property right over the actual property owner.  Nor does the landlord gain the right to compel tenants to stay if they wish to move.

Things can be much worse without gentrification.  Neighborhoods can deteriorate completely.  People may move out, and no one may move back in.  This anti-gentrification could be much worse for people left behind in these communities.  In neighborhoods that are in decline and are not followed by the cycle of renewal, the result is much worse than rising rents.  Empty houses become homes for illegal activities, squatters, and wild animals. 

So the next time you hear an outcry against gentrification, remember that the lack of gentrification is a much worse fate for a neighborhood.  Property owners who move out of areas experiencing gentrification often leave with extra money in their pockets.  Property owners who move out of areas where no one wants to move back in are left with nothing at all. 

At Spurgeon Appraisals, we are familiar with the forces driving real estate markets and how to apply them to the properties we appraise. Whether your property is affected by gentrification or some other force for change, we have the competency and expertise to assist you in your buying, selling, and financing.

Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.