How Gentrification Affects the Real Estate Industry
Gentrification is a buzzword that has become popular in the real estate industry. Gentrification is the name for the socioeconomic shift in an urban area’s demographic. Wealthier people move in, which in turn makes the area too expensive for poor people to live. Gentrification is a complex issue with both positive and negative benefits. Here are a few of the good and bad effects of the process.
Positive Effects of Gentrification The process of gentrification instantly makes an area a seller’s market. The influx of new businesses and lower crime rate that comes along with the process contributes to a spike in property value. If you own a property in a gentrified area you will make a nice profit on a sale, or you could generate a substantial long-term income through charging high rent. A perfect example of this is the Williamsburg neighborhood in Brooklyn, New York. Over the last few years rent in this neighborhood has skyrocketed to rates on par with an apartment in midtown Manhattan.
Gentrification also makes what used to be tough to sell properties into hot commodities. This in turn increases the commission level, making it a win-win for both the agent and the seller. Gentrification also increases the value of commercial real estate. When the socioeconomic demographic of an area reaches a higher level, it makes opening a business in that area more attractive. It also draws a diverse selection of businesses that may not have otherwise came to the area.
Negative Effects of Gentrification On the flip side, gentrification makes the market a tough one for buyers. When one buys a property in a gentrified area they buy a property they could have gotten at a fraction of the cost before the popularity spike.
Gentrification also out-prices the current tenants of an area. The rise in property value causes spikes in property taxes and rent that forces original residents of an area to move. This often causes great controversy since the majority of displaced people tend to be poor minorities. This is another one of the big problems currently plaguing the Brooklyn area. Spike lee has been very vocal on the negative effects of this process. All in all, gentrification is both a good and bad thing for real estate, depending on which side of the coin you are on. Essentially gentrification is a great thing for sellers and renters, and an economic hardship for those who cant afford the area’s rising costs.
Gennady Barsky is the CFO of JetSmarter and Real Estate Mogul. Barsky is a lover of all things automobile and has a passion for Social Media.