Gentrification is often held as a sign of economic progress, improving living conditions, and a worthwhile use of public and private funds. As most world economies are now recovering steadfastly from the impact of COVID, projects from London to Seoul have promised to gentrify lower-income neighbourhoods, revitalizing previously derelict communities, increasing the tax base, and improving public safety. Yet, whilst gentrification is widely considered an economic force for good, it is crucial to understand not only its negative social impacts, but indeed the wider negative effect it can have on both the local and macroeconomy.
Gentrification is inherently harmful to low-income communities and disproportionally affects minorities. It often lacks policies that value community input, offer equitable rezoning policies, and provide suitable housing options. Characteristics which are considered beneficial, such as rising property prices and the influx of new businesses, are the main driving force behind the widespread displacement of lower-income households, which is considered the “defining feature” of gentrification. In the gentrified districts of Mitte and Friedrichshain-Kreuzberg in Berlin, for example, over 22.5% of the original residents have been displaced thus far. These displaced residents encounter several problems because of such displacement: longer commutes to work, little or no job opportunities, and lack of affordable housing to name a few.
Furthermore, the households that do remain, in part due to the fact that moving itself can be an expensive affair, often reside in “unhealthy or overly expensive apartments”. For example, residents in gentrifying neighbourhoods in NYC (where median rents increased by 53% whilst median household income rose 25%) are forced into “accepting poor quality housing, coping with high-cost burdens, and/or sharing housing with other residents”. Rising rent prices and increased property taxes are particularly to blame, as well as landlords who, driven by the profit-motive, often convert residentialbuildings into non-residential spaces such as retail centres and business spaces, reducing the available supply of housing and thus affordable options for those with lower incomes. Landlords will also often coerce their tenants to move through unethical means: for example, a development corporation in New York’s Chinatown evicted tenants and demolished a rent-controlled building before having received the permits to do so. Residents can attempt to use legal means to fight the terminations of their leases (the main strategy pursued by landlords attempting to raise their rents) and thus avoid having to relocate, yet this strategy incurs “significant financial losses” which for many is simply not an option.
Although rent-control has been proposed as a solution to this problem, rent-control has not only been on the decline in places where the policy already exists, but there is also the consensus that it ultimately reduces both the quality and quantity of available housing. Whilst in the short-term it may guarantee affordable housing for a small proportion of residents, it will exacerbate problems in the long run. Even if residents do manage to remain, the reality of exclusionary displacement (whereby rent increases in one apartment building increases the overall prices in the whole region) remains, disallowing other potential low-income residents from moving in. As cost of living rises, even individuals who manage to remain in these neighbourhoods experience a reduction in their disposable incomes and thus standards of living, and in the long-term are more likely than not to relocate as well. This process of widespread displacement itself is also responsible for increasing property prices in the surrounding areas, making the search for affordable housing an even harder task for the original residents.
Gentrification can also be a major driver of higher levels of community conflict. Both class and racial tensions between the original residents and the “transplants”, the new higher-income residents, have been shown to increase after major projects are undertaken. Higher levels of crime, shown to be a consistent effect of the gentrifying process, can drain local resources. Lower-income residents are the most affected by this, with cuts to local welfare programs and provisions being commonplace.
Yet the problem does not come only in the form of housing and widespread displacement. The influx of higher-income residents and businesses can surprisingly make the existing communities poorer. Original businesses, so-called “mom-and-pop” stores, struggle to compete with large corporations as they do not benefit from ‘economies of scale’ (whereby the average cost per unit of output decreases as the magnitude of output increases). A large percentage of such stores are forced to close, reducing the size of the local economy. Furthermore, gentrifying neighbourhoods on average do not experience consistent, meaningful gains in local employment comparable to other non-gentrifying neighbourhoods. In fact, the number of local jobs available tends to decrease as a consequence of gentrification, increasing both the unemployment rate in these communities as well as increasing commute times for those employed.
These problems are further exacerbated as gentrification is often run by the private sector – even when sponsored by local governments, these projects become a public-private partnership. As such, the private firms behind these investments have little consideration for the welfare of existing residents, with their number one priority being maximising their profits. The only community outreach programs or low-income household growth that occurs during the gentrifying process are in efforts that can lead to future profits and, due to the very nature of such programs, are therefore infrequent.
Gentrification is a double-edged sword. Indeed, it does positively impact the community, creating more development, rapid economic investment, and supporting projects related to consumption and entertainment. Yet the status-quo clearly isn’t working, and most projects worldwide pay little consideration to the original residents, with investors focusing solely on maximising their profits. Government intervention could likely be part of the solution, yet as the example of rent-control shows, it can be difficult to implement effective, long-term policies. Strategies must be adopted that minimise the negative externalities imposed on the existing communities, and the original residents must be given a larger role in determining the way these projects are undertaken. Gentrification is an inevitable consequence of economic progress, yet the negative impact it brings is not