Calming the Waters: How to Address Both Gentrification AND Concentrated Poverty
We are living in a contentious age, and the places in which we live are contested space. Overheated rhetoric and protest from all sides over neighborhood change are a reflection of the insecurity many of us feel over the future of places we love.
The American development model is broken. Housing unaffordability is at crisis level in many parts of the country. But so is concentrated poverty.
We increasingly live in socioeconomic monocultures. Mixed-income neighborhoods are often unstable; they tend to be in the process of becoming wealthy or becoming poor. According to a recent Stanford study, from 1970 to 2012, the share of U.S. households living in middle-income neighborhoods fell from 65% to 40%, while the share living in very poor or very wealthy neighborhoods more than doubled from 15% to 35%. And disparities across regions — not just within them — are growing dramatically.
A stunning series of maps at BuildZoom by economist Issi Romem recently drove home the proliferation of "no-build zones" in metropolitan areas across the country over recent decades. These zones are mostly neighborhoods that are built-out with single-family homes, and where it is illegal to replace a single-family home with a duplex, triplex, apartment building, or commercial use. The result? As Romen puts it:
In the past, virtually every patch of land in the metropolitan U.S. continually sprouted new housing.... [Now] a tiny fraction of the land area, scattered in small pockets throughout the metropolitan landscape, is responsible for a growing share of new home production, primarily in large multifamily structures.
In regions where housing is expensive and the market is hot, these pockets may look like San Francisco's Mission District, a historically low-income, heavily Latino area whose Latino population is on track to fall by half as longtime residents are priced out by staggering rent increases and rampant eviction.
In regions where the market is less hot, this looks like more like profound, tenacious inequality between "have" and "have not" areas. In Minneapolis, the total dollar value of building permits from 2009 to 2016 in the swanky former warehouse district of the North Loop (population 5,000, median household income $105,000) was more than three times that in all of North Minneapolis (population 65,000, median household income $40,000).
Concentrated wealth and concentrated poverty are two sides of the same coin. They are symptoms of a development model in which places are built and financed in a way that makes long-term decline inevitable, an "all or nothing" development environment in which investment is distributed extremely unevenly, and a bias toward "big-ness" — big projects, big price tags — that excludes small players from the market. Small crafts can't sail in big waves.
Address those sources of turbulent economic waters, and you just might create an economy in which the problems associated with gentrification and the problems associated with stagnation and entrenched poverty get a bit more solvable.
In past articles in this series, I've advanced the argument that "gentrification," as used by low-income and minority communities and their advocates, is often a sort of catch-all term for the ways in which the prevailing urban development model is failing poor communities. This doesn't mean it fails all communities in the same way, or that all of the experiences people might refer to as "gentrification" are equivalent.
You will likely get nowhere toward earning the sympathy of community advocates if you open the conversation by critiquing their use of the term "gentrification" or telling them they have nothing to fear from it. Better to lean into what their on-the-ground concerns are because many are valid. Then there's common ground on which to build solutions.
How would we go about building a city of neighborhoods that all provide for basic safety, health, and access to opportunity? A city of neighborhoods that are fiscally productive and sustainable? A city where residents poor and rich can have a stake in their neighborhood's success, as well as the ability to put down roots and stay as long as they wish to stay? What kind of economy would produce that city?
To someone concerned about the future gentrification of their neighborhood, you might call this "gentrification-proofing." To someone concerned about its decline, "decline-proofing." No matter where a neighborhood is in the real-estate cycle — decline, stagnation, or rebound — it can benefit from a policy agenda that emphasizes incremental rather than cataclysmic change, local financial and political stakes, and stability and security for individuals.
I'm not the guy to tell you exactly what policies are right for your city or your neighborhood. I'm just some dude with a Master's degree, and that's a gargantuan task for someone with far more nitty-gritty policy expertise than I have. I am interested in talking about how we might frame a more productive discussion than some of the usual ones that get hashed out ad nauseam.
Too often, policies intended for one context get imported to another one in which they're completely inappropriate or inadequate. So let's talk not about prescriptive fixes, but about objectives and principles of an economic ecology that would lead to stable and resilient neighborhoods and inclusive wealth-building. I've argued before that planners should be the conservation biologists of cities. We don't decide exactly what grows where. Our job is to get the ecology right.
Ecological Principles for Policy Makers
1. Counteract the "big-ness" bias.
I had an illuminating conversation last year with a developer working on a project in South St. Anthony Park, a working-class neighborhood in St. Paul, Minnesota that is home to modest older houses, dozens of nonprofits' offices, a few income-restricted affordable apartment complexes, and as, of four years ago, a shiny new light rail line. This guy saw the writing on the wall. "When the big guys like Ryan Companies show up, it's all over," he told me. "They'll outbid us for any piece of land they want."
This concern reflects the gold-rush mentality of development capital as neighborhoods become the Next Big Thing. But it also reflects the fact that big developers are able to push small ones out of the market because of several ways in which the game is rigged in their favor. There are many costs associated with development that don't scale up in proportion to square footage or the number of units. Some of these are the result of local regulation. This includes application and permit fees, and exactions (money or space a developer must contribute toward a public purpose as a condition of approval).
Perhaps the biggest obstacles to smaller projects are not fees, but delay and uncertainty. To seek approval for a development project, you need to control the land, and it's very expensive to sit on land you own, waiting to break ground on a project you're not sure can even go forward. Daniel Hertz explains here why this is often prohibitive for small developers:
If you’re going to go through the process of getting a zoning variance, battling neighborhood opposition, and so on, there needs to be a big payoff on the other end—and building a three-unit building probably isn’t going to cut it. That means when cities do add density, they generally do it with buildings that are often quite a bit larger than their surroundings.
Local governments can address this through measures like those championed by the Lean Urbanism project. It should be possible to dramatically reduce red tape associated with smaller projects, like Missing Middle housing (anything from duplexes to small apartment buildings), while still applying extra scrutiny to large projects where the downside risk to the neighborhood is greater if a project goes bad, and thus applications deserve more scrutiny. This kind of selective regulatory reform would put a thumb on the scale in favor of smaller-scale development, recognizing its inherent advantages to cities in terms of resilience and adaptability.
"Big-ness" in multifamily housing leads to big, disruptive shocks to the housing market. In the Minneapolis suburb of Richfield, the 2015 sale and renovation of an apartment complex displaced more than 1,000 low-income renters, offsetting in one transaction an entire year's worth of new affordable housing production in the whole metro area.
Smaller-scale landlords have a more intimate relationship with the community. They have to; their business model doesn't depend on economies of scale but on local knowledge and relationships for its profit margin.
Large institutional landlords, like the purchaser of that Richfield complex, have less incentive to care if a neighborhood's social fabric is harmed by demographic turnover: they care about their investment and that's it. And they will buy or sell at an advantageous point in that investment. They know how to make money on decline as well as prosperity. (Bloomberg had an article last week about the move of big real-estate investment firms into working-class neighborhoods.)
The big-ness bias also needs to be addressed in capital-A Affordable housing. The Low-Income Housing Tax Credit (LIHTC) program is by far the largest funding source for subsidized housing, but its structure makes it incredibly difficult to use for small projects. Applying for tax credits is complex and labor-intensive, and the tax-credit market attracts mostly multimillion-dollar investors. This means LIHTC projects tend to range from several dozen to even hundreds of apartments.
When a LIHTC project hits a certain age (usually 30 years), its affordability requirements expire, and the owner at that point can charge market-rate rents if they wish. This can result in the destabilizing loss of huge amounts of income-restricted housing in one fell swoop. The LIHTC program is also in crisis right now, because recent changes to the corporate tax rate have reduced the market value of credits by 20% and sent developers scrambling to fill the funding gap.
Regions and municipalities desperately need to develop new funding models for affordable housing that are locally controlled and that can be dedicated to smaller-scale projects that are hard to finance through the traditional affordable housing pipeline. Seattle's $290 million housing levy, reauthorized by voters in 2016, is one promising model.
Of course, market-rate development too — not just income-restricted development — can benefit from access to financing on terms that smaller-scale, less-established developers struggle to get from the big banks. There's a huge role to play for community banking, investment co-ops, and crowd-sourcing in killing the "big-ness" bias in development.
2. Reduce speculative public investment at the regional level.
Real estate development does not operate in a truly free market because it is so dependent on public infrastructure. Public investment has tremendous power to direct private investment through decisions about where spending on roads, sewers, schools, parks, and so forth is allocated. These decisions, especially when speculative — i.e. infrastructure is built in anticipation of future demand, instead of in response to current demand — influence land prices and constitute hidden subsidies for some places over others. I think it's safe to say that in many cases, these effects completely dwarf any direct public investment in revitalization, affordable housing, or local economic development initiatives.
We all know the story of how the interstate highway system helped blow up inner-city neighborhoods. A big part of centrally-located land's intrinsic value is in its location, highly accessible to jobs and recreation. When a freeway went in and suddenly, a suburban home site next to a cornfield had a comparable commute to downtown to an inner-city home, there was a massive transfer of land value from the city to the cornfields.
Research suggests big-budget transit investments may well do a similar thing. My home region of the Twin Cities has been all-in on "development-oriented transit." The Metropolitan Council recently touted $8 billion in investment along light rail corridors, including $1 billion in planned development around the as-yet-unbuilt Southwest line.
Will the Southwest light rail line grow the region's economy by enough to create $1 billion more in new development above and beyond what would have happened without it? If not, then some of that $1 billion is being redistributed from other parts of the metro area. Some of it likely represents growth that doesn't happen in neighborhoods that could use it more (the Southwest line will run through some of Minneapolis's most affluent suburbs).
This isn't always or inherently a bad thing. But it is the reality of large, targeted public investments. They create winners and losers. They create big waves that make the real-estate market less friendly to small players.
Thus, one big thing that regions (and there has to be regional cooperation — few individual cities have enough market power alone) can do to create an economic ecosystem more friendly to incremental growth and broad-based revitalization is to rethink how they spend infrastructure dollars. Instead of large, highly speculative projects, we should be making more small, high-return investments in improvements to infrastructure and transit service, in places where there is strong existing demand.
3. Don't ever let neighborhoods be finished.
If the elephant in the room is public infrastructure investment, then the woolly mammoth is zoning. Zoning restrictions are the single biggest reason that neighborhoods fail to incrementally evolve and remain desirable: because they are legally frozen in amber.
Those BuildZoom maps of "no build zones" across the country are, to a large extent, maps of areas zoned for exclusively single-family homes. Once they fill up with single-family homes, that's all she wrote. None of them can ever be replaced with anything else, except maybe a larger single-family home. No duplexes, accessory dwelling units, small apartment buildings, or corner stores.
A neighborhood built to a finished state is wired for decline, because it will never be as nice as it was the day the buildings were brand new. The neighborhood in the top photo (median home value $86,400) is functionally the same as the neighborhood in the bottom (median home value $466,600). Both are suburban subdivisions full of exclusively single-family homes. Both were built to be middle-class communities, a little slice of the American dream. The only difference is one was built out in the 1960s, the other the 2000s. Shall we place bets on what demographic will live in that bottom neighborhood in the 2040s?
Decline is not natural. It's a function of the way we develop in America: all or nothing, and to a finished state. A monocultural neighborhood — all the same type of building, all built around the same time — is wired for decline because if market tastes and needs shift, it affects every property in the same way. It's like investing your whole net worth in bitcoin. A neighborhood with a diversity of buildings of different ages, sizes, and uses within a neighborhood has a diverse portfolio — it has hedged its bets. In such a place it's possible for renewal to be an ongoing process.
To the extent that renewal is possible at all in single-family-only neighborhoods, it occurs in a way that is destructive of socioeconomic diversity: demolition of modest homes, only to build huge homes on the same lots, with no increase in total housing units. Portland, Oregon, is growing and has a strong economy. But if your budget for a house is under $400,000, the city is shrinking before your eyes, as an eye-popping animation by the Sightline Institute reveals. And a major culprit is that neighborhoods that might incrementally densify and take some of the pressure off the housing stock can't do so because of single-family zoning. Instead, the city has had several record years of residential teardowns.
Hold on, you say. Many neighborhoods that have suffered blight and disinvestment actually do have a diverse mix of building types and uses. Why wasn't this enough to hedge against decline? There are historical answers that have to do with mortgage lending discrimination and racial redlining. There is also, I suspect, the fact that the prevailing development pattern has introduced enough distortion into regional real-estate markets that no place is fully immune from the waves.
Remember Rent Gap theory. As a developer with the finances to work at a huge scale, if I can exploit a massive rent gap — that is, dramatically increase the value of a piece of land and reap a windfall profit — why would I even pay attention to a neighborhood where the available opportunities are piecemeal, incremental investments? I likely wouldn't.
We have the fire hose or the vacuum. Nothing in between.
The political battle to re-legalize incremental change is uphill, maybe impossible in many neighborhoods, but those of us who want cities without deep disparities between booming and disinvested areas need to advocate for sweeping changes to how we regulate land use. The next increment of intensity should be allowed everywhere as of right — converting a house to a duplex, adding an ADU, putting in most types of Missing Middle housing.... A neighborhood should always be a work in progress.
4. Don't just calm the waters; nurture the reeds.
Even if we managed sweeping policy changes — removing regulatory barriers to small-scale development, a return to incremental patterns of public investment, and a zoning regime that allows the gradual, organic evolution of neighborhoods — it would be naive to think the magic of the market would lead to inclusive development in short order. A dam may destroy the ecosystem of a river, but blowing up the dam does not instantly restore it. Those who disproportionately corner the market on development capital, expertise, and political connections right now are likely to enjoy self-perpetuating advantages unless we actively nurture an economy based on small-scale, local wealth creation.
Local policy makers can and should foster small, locally-originated investments. This is the only way to build long-term, sustainable wealth: with a thousand small bets, instead of a few huge gambles. Whether you're a rich city or a poor one, your human capital is your best resource.
Crucial to this is that people should be able to get some skin in the game at whatever level they’re able. Entrepreneur not in the position to rent a brick-and-mortar space, but want to start a food truck or a pop-up shop? That should be attainable and permitted just about anywhere.
In the residential sector, too, people should be able to get into the game for a lower cost of entry. There's a typical winner-loser dynamic in gentrification: living in a poor neighborhood hurts for everyone, but when that neighborhood improves, homeowners win and renters lose. Yet fee-simple homeownership is simply not appropriate for everyone. It is a significant financial risk to tie up much of your net worth in a single asset and be responsible for whatever upkeep and repairs are needed.
Hybrid ownership models, somewhere between owning and renting, are thus long overdue to play a bigger role in low-income neighborhoods. Limited-equity cooperatives are one; residents own a share in the co-op that guarantees them a place to live, but large unforeseen expenses are pooled among the co-op's members, cushioning any one resident from the financial risk of needing a new roof or furnace. Community land trusts are another tried and tested way to make a form of homeownership — in this case, one in which the resident buys the house, but the land trust retains ownership of the land underneath — accessible to lower-income buyers. These and other models stabilize neighborhoods and help established communities build wealth, by giving more residents a stake in neighborhood success.
The ideal role of the public sector in all this is up for debate. No local government is flush with cash, and even if the moral case for funding some of the above ideas is strong, you can't share the wealth where there is none to share. Here are a few more modest things local government can do:
Legalize small. Regulatory barriers to building an ADU or tiny house, operating a food truck, and other "entry-level" investments in your neighborhood should be minimal to nonexistent.
Be a pathfinder. Every city should have someone on staff whose job is to be a one-stop shop for residents who have an idea to improve their community and need to know how to get it off the ground. Start a business? Put an addition on your house? Get together with neighbors and plant a community garden? No one should be deterred from doing these little things because they need permission and can't figure out how to get it, or need financing and can't figure out where to ask for it.
Rethink economic development. Long before this year's cringeworthy Amazon HQ2 rat race, the economic development profession was in a sad state. There's no shortage of good ideas out there for how to better use public resources to promote local economic development, but once politics is added to the mix, the toolkit is often limited to some of the worst ideas public policy has to offer. Lavish tax giveaways to lure jobs. Publicly-funded stadiums and entertainment districts... The same tax dollars that go into these things could likely yield a much higher return through an approach more like that of venture capital. If we're going to spend money on economic development, we should have flexible pools of loan and grant money that can go, in small increments, to good ideas with limited downside risk and high upside potential. They don't all need to pan out. A few just need to be spectacularly successful — and any local government assistance for, say, a startup business that takes off, should be structured so that the public gets a return on its investment that provides the funding for the next generation of small bets. Community-Wealth.org is an amazing set of resources for local, bottom-up economic development.
Local control and connections are essential to effective economic development that lifts up people, not just places. Federal programs have a role, especially in regions where the economy is weaker overall and the local resources available to draw on are meager. But they are a blunt instrument, not tailored to local needs, and not always a helpful one. There is no shortage of federal programs for revitalization, but the funds often fail to flow to the communities they're intended to help. A study by Matthew Freedman, for example, finds that jobs created using New Markets Tax Credits go predominantly to people who live outside the target neighborhoods.
Alan Mallach suggests an alternative federal tax-credit program here, which would be available to owner-occupiers in distressed neighborhoods. He argues that this might incentivize house-hunters on the fence to choose a neighborhood where they qualify for the credit over one where they don't. It's still not delivering the money into the hands of pre-existing residents of the neighborhood, but at least it's targeting small-scale investments by people who will then have a strong incentive to be personally invested in a neighborhood's livability, rather than speculators who can land bank and make windfall profits.
5. Invest in the unsexy things.
The macro economy being what it is, there are going to be poor people. Personal preferences and social network mean that poor people are likely to concentrate to some extent. The social engineering necessary to get 60% or 80% or 100% of Americans living in mixed-income neighborhoods, where there is significant locally-generated wealth to invest, would require measures that are completely politically off the table in a democracy.
Given that, can we have a societal consensus that even the poorest people deserve to live in neighborhoods that are safe, healthy, and pleasant? Is that so much to ask?
No one should have to take their life in their hands by walking. Yet poor places are often the ones where basic pedestrian infrastructure doesn't get provided, as in this recent article about Ferguson, MO. The state of our sorriest bus stops likewise says a lot about whose safety and comfort gets valued.
Sidewalks. Bike lanes. Lighting. Street trees. Bus stops that actually tell you when the bus is going to come and where it's going. These things are modest investments that get overlooked in policy discussions of "infrastructure" because they're so modest and unsexy, but they are some of the highest-returning things we can do in our cities.
The urbanist brand is bad in some low-income places, because high-quality design, walkability and bike infrastructure are associated in residents' minds with gentrification. This is indicative of a huge societal failure to invest in public space for those not in cars. The fear of making a neighborhood "too nice" is really a fear of the shortage of cities: there is pent-up demand for urban neighborhoods with a high-quality public realm, and so those who can afford to live in such places bid up the cost of real estate.
Nice places to live, and safe places to be, shouldn't be a luxury of the well-to-do. We know how to build them for everyone.
6. Take the right to remain seriously.
I'm likely to get more pushback on this part than others, but I think a principle of a good neighborhood should be that those who want to stay can stay. It's not that neighborhoods shouldn't change or that they are "owned" by one ethnic or demographic group. It's about the intangible benefits of social capital and community stability, which are washed away when the makeup of the community is in dramatic flux.
Displacement is often a bigger problem in poor neighborhoods than in gentrifying ones, so this isn't just an issue for wealthy cities. But the toolkit should differ in most places from the one that might be appropriate in a New York or San Francisco or Vancouver.
Policies that suppress development in poor neighborhoods by increasing its cost — such a rent control and inclusionary zoning — should be non-starters in most cities, which should be chasing investment, not driving it away. Instead, try to get some land out of the speculative market to create a permanent stock of affordable housing, through mechanisms like community land trusts. This is easier to do when property values are still low, and it "locks in" affordability for whatever the future may bring.
Many cities could stand to follow the example of Washington, D.C.'s Tenant Opportunity to Purchase Act (TOPA), enacted in 1979, well before the city's recent wave of intense gentrification. TOPA allows tenants to match any third-party offer and buy their landlord's building, in the event that the landlord decides to sell. Many TOPA acquisitions in DC have become co-ops.
There's a myth that subsidized affordable housing, through programs like LIHTC, is the enemy in low-income neighborhoods because it will exacerbate concentrations of poverty. In fact, research suggests it increases property values in many such neighborhoods. In neighborhoods with high levels of poverty, subsidized, income-restricted housing is likely to be of higher quality than nearby market-rate housing, and its residents may not be the poorest of the poor.
7. Always ask, "Who benefits?"
In graduate school, I had a professor who would refer critically to the "white proximity model" of neighborhood revitalization. Shelterforce describes this model as follows:
Somehow, policymakers and government officials have bought the myth that simply by living next door to each other, wealthy white professionals will lift poor Black people out of poverty — serving as role models and handing out job referrals.
Few people might consciously agree with that provocative statement, but common narratives about how to deal with concentrated poverty — disperse it, and facilitate moving poor people into "opportunity neighborhoods" and wealthy people into poor neighborhoods — are laden with unconscious and unexamined bias about what makes a neighborhood rich with opportunity in the first place.
Derek Hyra's research in Washington, D.C. points out that diverse neighborhoods — formerly poor, minority areas where wealthy whites have been lured to move in — are not necessarily integrated neighborhoods:
Most of the mechanisms by which low-income people would benefit from this change are related to social interaction—that low-, middle-, and upper-income people would start to talk to one another. They would problem solve with one another. They would all get involved civically together to bolster their political power. But what we're really seeing is a micro-level segregation. You see diversity along race, class, sexual orientation overall, but when you get into the civic institutions—the churches, the recreation centers, the restaurants, the clubs, the coffee shops—most of them are segregated. So you're not getting a meaningful interaction across race, class, and difference. If we think that mixed-income, mixed-race communities are the panacea for poverty, they're not.
Hyra's book is a problematic take on gentrification in other ways — I highly recommend Alex Baca's excellent critique of it — but I think he has a point well taken here. Physical integration is not always meaningful integration.
Throwing money at investing in physical neighborhoods while being agnostic to who's making the investments and who's reaping both the direct profit and indirect benefits is not a solution to either entrenched poverty or gentrification.
The context hanging over all of this is that a debt is owed.
Federal policy, in the form of such things as racial redlining, Federal Housing Administration lending standards, subsidized suburban expansion and freeways cannibalized the wealth of communities, many of which are still poor today. Homeownership in the mid-20th century was the biggest wealth-generating engine America has ever seen... for white suburbanites. The inherited wealth gap between their descendants and the descendants of those who stayed in decaying inner cities is enormous.
We will never redress this level of inequality by simply making it a bit easier for those in poor neighborhoods to bootstrap their way to a bit of profit. There needs to be a net transfer of wealth into communities that have gotten the short end of the stick for generations. Nothing else substitutes for cold hard dollars. Not sweat equity, not enthusiasm, not local initiative and passion. Every city in America is full of people doing brilliant work to lift up poor communities. And yet that work is a drop in the bucket compared to the havoc that market forces can wreak.
We can start with the wealth created by public investments, such as increases in real estate value associated with a major transit or road project. We should be using value capture to retain this wealth for its creators — the public — and we should use it to fund the kinds of high-returning, thousand-small-bets investments discussed above at a meaningful level.
The alternative is that the cycle of all or nothing, fire hose or vacuum, continues to shape the patterns of wealth and poverty in our cities. Those who are in a position to profit from both growth and decline will do so. Those who are poorest and most vulnerable will get shut out of the gains.
A Concluding Thought: Ground Truth
The story of neighborhood change in any particular neighborhood is deeply idiosyncratic in some ways. But it's inextricable from the story of macro forces that dominate American society and economy in other ways. The connection of the fate of particular neighborhoods to bigger stories about who we are and what's becoming of us are why people get so impassioned about issues of neighborhood change — why it's so inescapable and why debates about it can bring out the worst in us.
I set out to write a long-form series examining the gentrification debate because I've seen so many people absolutely talking past each other. In my profession — urban planning — there is a lack of a common language for understanding gentrification and what it means for effective practice.
There's a mantra of mine that I find helpful in trying to close this understanding gap. Far too many of us listen to people looking for where they're wrong. We immediately go into dissecting, "Fisking" mode. At our worst, we're hoping to score points rather than engage with what we might learn from what they're saying.
Instead, when you listen to someone you disagree with (especially someone you disagree with), listen for where they're right. Everyone is right about something. Everyone believes what they believe because of something in their own experience, some basic truth that motivates his or her world view. Find that person's ground truth.
You can learn something from everyone who cares about your city.
Why is it that when a place is [pick one: walkable, bikeable, beautiful, lovable, inviting, human-scale], it so often gets coded as being “gentrified” and therefore elitist? When only the rich can afford nice places, the solution isn't to stop creating such places but to create vastly more of them.