Who Benefits From Neighborhood Improvements?

Over-the-Rhine, Cincinnati. (Source: Wikimedia Commons.)

We are about eight decades into America's suburban experiment: the radical reshaping of a continent around a new and untested way of building cities. This experiment and the deliberate public policies that facilitated it propped up an economically unsustainable pattern of development on the fringes of our communities while hollowing out the urban neighborhoods of a prior generation — subjecting many of them to decades of painful economic and physical decline.

As we’ve learned more and more about what was lost, the number of voices and movements advocating a literal or metaphorical "return to the city"—to the principles of traditional, human-scaled urban design, and to building and investing in urban places—has ballooned.

If we want to ensure that this return lasts and that urban areas can grow to be truly strong and resilient, we have to get serious about working with the people who have stuck it out in those neglected neighborhoods.

Unfortunately, many of the most enthusiastic boosters of urbanism itself (as a set of design principles, land-use arrangements, and approaches to development) don’t seem to be doing that. 

Lafayette, Louisiana, where an analysis by Strong Towns and Urban3 found that the city's less affluent neighborhoods delivered the highest return on investment in terms of tax base versus infrastructure expense.

There is and has long been brilliant activism within the hearts of our cities. Much of it is concerned with the pressing needs of those communities: for economic opportunity; for safe, healthy, and affordable housing; for responsive and accountable policing. With exceptions, very little of it is what I'd call "urbanist"—principally concerned with urban form and land use. And very few urbanists spend enough time grappling deeply with the concerns of the people who live in the kind of urban places that we tend to view as full of unfulfilled promise.

This is the second in a series of articles about this deep disconnect between the discourse and concerns of urbanists versus those of activists from many urban places, specifically concerning the hot-button subject of gentrification. (Read the first article here.) Urbanists don't do a good job of talking about gentrification in a nuanced way: too often they misunderstand the issue, they are suspicious or dismissive of those who raise it, or they simply don't see it as their primary concern.

I think it's essential to bridge this gap. Urbanists need an urbanism that isn't agnostic to questions of "Who benefits?" and "Who's in control?" If we want to truly build strong towns, we’re going to need everybody on board.

Gentrification and Decline: Two Parts of the Same Process

Urbanists are often dismissive of gentrification and related concerns. Prominent voices will tell you that disruptive gentrification is rare, that it's an overblown concern, that it's an outright "myth", or even that it's a good thing. Chronic, concentrated poverty, the common narrative goes, is the real problem: not gentrification. This view is often delivered with a smugness that alienates potential allies and ends up being dismissive of real problems, not unlike the dismissive attitude that many Americans hold toward rural residents and their concerns.

Even luminaries such as Andres Duany, one of the most consistently brilliant and thoughtful urban thinkers alive today, can fall prey to this smugness. In a 2000 essay—which is otherwise very insightful and still worth reading in full—Duany heads off a rhetorical cliff with the accusation, "The only clear losers [from gentrification] may be the poverty advocates who have their constituency diluted... Perhaps it is that community leaders cannot bear the self-reliance of the incoming middle-class." Ahem.

If you see gentrification as the antidote or alternative to crushing poverty and blight, then those in neighborhoods still grappling with the latter who tell you they're worried about the former will no doubt look like they're putting the cart way before the horse.

In my first piece earlier this month, I argued that urbanist discourse misses the point of what people are actually talking about on the ground when they talk about gentrification—even in places where there is persistent poverty and disinvestment, rather than an evident wave of reinvestment or influx of wealth. They're talking about a combination of economic exclusion, insecurity, and lack of agency. These factors operate much the same in chronically disinvested neighborhoods as they do in dramatically gentrifying ones. In both cases, low-income residents may deal with rising rents, few jobs and services in the neighborhood that benefit them, chronic housing insecurity, a constant threat of eviction, and a lack of ability to meaningfully participate in shaping the neighborhood's future.

Abandoned block in Detroit. (Source: Wikipedia)

It's best to avoid getting mired in semantic squabbles over whether the “gentrification” label is correct or applicable and to instead ask some basic questions: "What do you see happening in your community? Why are you worried about it? What would help make your neighborhood stronger?"

It is also a mistake to treat gentrification and decline / disinvestment as resulting from separate economic forces or processes. They're in fact two sides of the same coin. In both processes, wealth is extracted from poor neighborhoods as profit for those who typically do not live in those neighborhoods.

Matthew Desmond's Evicted, one of the most important books about cities from this decade, shows through detailed and often infuriating examples how this extraction of wealth works in poor neighborhoods. Landlords defer maintenance on their properties, knowing that it's hard for desperate tenants to object. Frequent evictions (keeping the security deposit each time) disrupt lives but are a lucrative business for the landlord.

Gentrification is often associated with displacement, but more poor people are displaced from chronically poor neighborhoods than from neighborhoods that are getting wealthier. This is part of a steady depopulation, in some places to a staggering degree (Detroit and St. Louis are famous examples of cities with huge swaths of near-total abandonment). This emptying-out can pave the way for entrepreneurial developers to assemble land at bargain-basement prices and make a windfall profit on it—the gentrification phase of the disinvestment / reinvestment cycle.

This idea was formalized academically in 1979 by Neil Smith, who coined the idea of the Rent Gap. This is the difference between the potential rent in a neighborhood—the profit that could be extracted from what developers call the "highest and best use" of the land—versus the actual rent, or profit currently being realized from that land.

Illustration of how a rent gap grows over time. By Daniel Herriges, based on a similar chart by Neil Smith in "Toward a Theory of Gentrification", 1979

Where there is a large rent gap, there is a strong incentive to buy up land and redevelop it. This is fundamentally what real-estate development is by definition: increasing the economic value of a piece of land by an amount greater than the total cost to do so, and pocketing the difference as profit.

Many properties decline in value over time because the buildings age and physically deteriorate, and because other attributes that affect a neighborhood's market value (access to jobs, schools, low crime, et cetera) are also going to change over time. There are small rent gaps on individual properties constantly. Incremental redevelopment closes these gaps: a building is renovated or replaced with one that generates more value for the owner.

But where there is a massive, neighborhood-wide rent gap, and there has been little or no incremental redevelopment, the stage is set for rapid, disruptive gentrification. And the decline and disinvestment phase is essential for creating this gap. At Strong Towns, we have talked about the problems that come from speculation and sudden massive investments (instead of incremental development) in everything from megaprojects to transit-oriented development.

A similar thing is happening in urban neighborhoods, and often the same people who benefit from the initial decline phase benefit from the rapid investment phase too, while leaving everyone else out. Urban geographer Tom Slater of the University of Edinburgh, writing in 2016 about the Rent Gap theory, highlights the active nature of this process:

(Source: Vanishing STL)

The “shells” referred to above do not simply ‘appear’ as part of some naturally-occurring neighbourhood ‘decay’ – they are actively produced by clearing out existing residents via all manner of tactics and legal instruments, such as landlord harassment, massive rent increases, redlining, arson, the withdrawal of public services, and eminent domain/compulsory purchase orders. Closing the rent gap requires, crucially, separating people currently obtaining use values from the present land use providing those use values -- in order to capitalise the land to the perceived ‘highest and best’ use.

This doesn't mean the process is an organized conspiracy, but sometimes it honestly takes on the character of one, as in the case from St. Louis of a landlord using tax incentives to buy up properties and literally encourage their looting and decay.

So the absence of current redevelopment activity does not imply the absence of a rent gap. Ongoing decline and disinvestment, which may persist for years or decades, can still widen the gap and clear the way for eventual redevelopment. It's all part of a long term cycle.

This is why it’s not entirely wrong for residents of a neighborhood in concentrated, persistent poverty to describe their plight as part of the gentrification process, contrary to the simplistic notion that “gentrifying” neighborhoods and neighborhoods mired in poverty are two fundamentally different things.

Who Wins This Time?

If gentrification is a second round of profit-taking on a disinvested neighborhood (the first round being its initial construction), then who makes the profit? Is it the residents who have been quietly struggling to make their neighborhoods livable and successful for decades, or is it the moneyed investors who suddenly show up when they see an opportunity to make a windfall?

Imagine that the life cycle of a neighborhood's real-estate value looks like this graph:

Who owned the neighborhood during its initial build out? How about during the decades of stagnation? And who’s going to own it during its upswing?

What poor urban communities are rightly afraid of is getting robbed a second time. They fear that after sticking it out through decades of disinvestment, they will not have the opportunity to profit from their own neighborhood's revitalization.

It's important to understand that long-term neighborhood disinvestment—the kind that creates a massive rent gap, and thus the opportunity for windfall profits that go primarily to outside investors—is a result of policy decisions, not something that just happened organically.

Redlining, adopted as federal policy in the 1930s, shut virtually all integrated and non-white neighborhoods out of the federally-insured mortgage market. It shut off the spigot of capital that could have incrementally upgraded and improved those places, and it shut generations of non-whites out of the wealth-building opportunity of homeownership. (For a lot more on this topic, read Richard Rothstein’s The Color of Law.)

A redlining map of Philadelphia used by the federal Home Owners' Loan Corporation. (Source: Wikipedia)

The Federal Housing Administration, through its mortgage insurance rules, also explicitly subsidized suburban forms and declined to insure mortgages for traditionally urban types of buildings—mixed-use and "missing middle"—at the same time as non-white urban Americans were largely denied access to these new suburbs, whose explosive growth was being fueled by cheap credit.

When freeways were rammed through central cities in the 1950s and 1960s, all of a sudden you could get to the central business district of many U.S. cities in 15 minutes from a brand new tract home on the suburban fringe. And so the portion of the potential rent in inner-city neighborhoods that was a result of their convenient location was obliterated overnight. (Not to mention the cases in which these neighborhoods were physically bulldozed for freeway construction.)

The result of these factors and many others has been a staggering gap in generational wealth between white Americans, who tend to live in suburbia or well-off urban neighborhoods, and non-white Americans, who were disproportionately stuck in declining urban neighborhoods through the late twentieth century, and still are so today.

The median white family has twelve times the wealth of the median black family. This fact cannot be comprehended without knowing how non-white Americans were prevented from participating in the windfall profit-taking on suburbanization (that is, closing the rent gap on rural land by developing it to its most profitable potential use: suburban-style development).

And so it makes no sense to talk about gentrification, especially where it affects majority-minority neighborhoods and communities of color today, outside of this historical context.

The suspicion around gentrification in poor neighborhoods not undergoing demographic change is not about some delusion that the neighborhood is actually on the cusp of a rapid influx of new residents or new wealth. It's about understanding that the neighborhood is being exploited for profit, and eventually will see a rebound. And when it does, who will benefit? Who will be in a position to take advantage? Not the locals. They're not the ones with the capital to invest in real estate.

Phillips, Minneapolis. Source: Daniel Herriges.

Minneapolis's Phillips neighborhood, just south of downtown, is one of those places that went into steep economic decline after being ripped apart by freeway construction in the 1960s. From Phillips, you can clearly see the city's new billion-dollar, heavy taxpayer-subsidized NFL stadium, which will host the Super Bowl this coming February.

While working on a project in Phillips last year with a local nonprofit, Hope Community, I asked Hope's associate director, "Are the residents you talk to worried about gentrification?" I remember his answer well: "They frequently tell us, 'We think the neighborhood is going to get better. We don't think it's going to get better for us.'"

A Community-Rooted Tradition in Urbanism

There is an intellectual tradition in urbanism that is deeply concerned not just with the physical form of a neighborhood, but with the social structure that is deeply interwoven with that form: whom the neighborhood is for, whom it serves. Jane Jacobs, for whom many (if not most) urbanists profess admiration, looms large for her prescience in grasping the importance of local knowledge and local self-determination in making successful, resilient places.

A lot of Jacobs's seminal book, The Death and Life of Great American Cities, is concerned with the web of weak and strong ties that comprise a community rooted in a neighborhood, and how those ties provide informal services to residents. These are comparable to the "ecosystem services" described by conservation biologists—things like erosion control, flood mitigation, and pest control that intact, stable ecosystems provide which have real, quantifiable value.

Specialty businesses provide one type of "ecosystem" value in neighborhoods that can be lost during a wave of redevelopment. (Source: Wikimedia Commons)

A neighborhood with a distinct sense of community is a social ecosystem, and it too provides ecosystem services:

• Eyes on the street for public safety

• Businesses and services that appeal to residents and meet specific needs

• Public gathering places

• Spontaneous and planned social interaction at "third places"

• Solidarity and mutual support in times of crisis

• A sense of shared history and civic pride

Many of these benefits of an intact neighborhood are not realized in a property appraisal or itemized on a development pro forma. But they are very real. It is entirely possible for new development to destroy value even as it "revitalizes" the physical fabric of a neighborhood: something that Jane Jacobs understood extremely well. What she called "cataclysmic money"—extremely rapid, transformative change fueled by a massive influx of capital—tends to have this effect. Gradual, incremental transformation led by those with local knowledge—what Jacobs called "unslumming"—preserves the "ecosystem" services, and revitalizes a neighborhood in a way that benefits longtime residents.

We need to focus on getting back to that model. Put the wealth of the neighborhood under the control of the people in the neighborhood—as a matter of justice and fairness, yes, but also as a common sense economic proposition: the best way to ensure resilience and long-term prosperity.

Boston's North End in 1974. Jane Jacobs famously praised the North End as an example of "unslumming:" a neighborhood that had incrementally improved and revitalized itself without large-scale redevelopment. (Source: City of Boston Archives.)

What's the Problem That Urbanism is Trying To Solve?

If you think that urbanism is trying to solve the problem of a lack of places with traditional urban form—places which are financially productive, human-scaled, walkable and all the other things that urbanism does well—then the solution is simple: build more such places. As a bonus, this will also alleviate a key cause of gentrification: the upward rent pressure on existing walkable areas that are in high demand because of the scarcity of such environments after half a century of suburbanization.

If you think the problem is a lack of investment in urban places, then the solution is simple: more investment.

But cities are complex, and not all investment is created equal. A major reason anti-gentrification activists and tenants' rights activists are so hesitant to embrace the cause of redevelopment is because so much of the urbanist community seems indifferent to questions of equity, and uninterested in grappling with the deep history of who has profited at the expense of whom. We haven't proven ourselves trustworthy allies.

If urbanists want a renaissance of inner-city neighborhoods, and want those neighborhoods as their allies in calling for one, they should be advocating policies that really transfer capital and control from the big guy to the little guy—that give the people who stuck it out through the lean years a controlling stake in their neighborhoods' rebirth.

In my next and final article in this series, I'll go into detail on such policies—outlining a "gentrification-proofing" agenda that achieves the goals of urbanism in a better way than simply upzoning and removing regulatory barriers to development would do so.

The Dudley Street Neighborhood Initiative has used a land-trust model to preserve a working-class neighborhood in modern-day Boston. Image Source: Google.

In my mind, this agenda would be a combination of some of the best ideas that urbanist thinkers have to offer with the best ideas that community developers and tenants' rights advocates have to offer. From urbanists, we get policies that can reduce the barriers to entry for incremental and small-scale developers and make more "bootstrapping" opportunities in neighborhoods for resourceful would-be revitalizers. From community advocates, we get such things as hybrid ownership models like land trusts and co-ops, which can allow a broader range of people to have a direct financial stake in the success of the place they live, and to prosper as their neighborhood prospers.

The fact that most neighborhoods in poverty aren't yet rebounding out of poverty—that there isn’t a flood of redevelopment in places like North Minneapolis yet—is all the more reason to deal with these issues now. If we can do that, we will enable our neighborhoods to be resilient over the long-term—not just momentarily overflowing with big investment dollars that will move on when they see the next shiny object ahead. If we do that, we will be building strong towns.

Read the next article in this series: "Rough Waters: Gentrification and Cataclysmic Money."

(Top photo source: Johnny Sanphillippo)

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