Moving Forward, Gentrification

By Greyson Havens-Morris and Walter E. Block

Greyson Havens-Morris is a senior business management major at Loyola University New Orleans in New Orleans, Louisiana, and a US Army Reserve Sargent. Walter E. Block is the Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans in New Orleans, Louisiana.

MOVING FORWARD, GENTRIFICATION

It is safe to say that most people want to live with four walls and a roof over their head and that anybody should be allowed to bid on property, whether they seek to buy or to lease. But should people be entitled to live in whatever state, city, neighborhood, or street they choose even if they cannot afford it? More specifically, should residents who have been members of a community be afforded special treatment to enable them to remain in their neighborhoods, rather than be priced out? Are renters entitled to a price ceiling on their apartment leases?

American cities have faced these questions since the latter half of the 20th century, and the issue that encompasses them is gentrification. Adam A. Millsap, We Shouldn’t Stop Gentrification, But We Can Make It Less Painful, Forbes, Mar. 29, 2018, https://bit. ly/3Fn0Ob2. Citizens wrestle with the tension between gentrification’s vast development opportunities and the stark potential of displacing current residents. Is gentrification good or bad, fair or unfair? Many dismiss this process as an unwarranted displacement of long standing residents. E.g., Margaret Kohn, What Is Wrong with Gentrification?, 6 Urb. Res. & Prac. 297 (2013), https://bit. ly/3iBOfyU. Critics favor alternatives such as affordable (public) housing mandates and rent control. There are many critics of rent control. E.g., Charles Baird, Rent Control: The Perennial Folly (1980); Rent Control: Myths and Realities (Walter E. Block & Edgar Olsen eds., 1980); Walter E. Block, Joseph Horton & Ethan Shorter, Rent Control: An Economic Abomination, 11 Int’l J. Value Based Mgmt. 253 (1998); Walter E. Block, A Critique of the Legal and Philosophical Case for Rent Control, 40 J. Bus. Ethics 75 (2002), https://bit.ly/3FoPbjV; Milton Friedman & George Stigler, Roofs or Ceilings? The Current Housing Problem (1946), https://bit.ly/3FlWXev; Gary Galles, Rent Control Makes for Good Politics and Bad Economics, Mises Wire (Apr. 9, 2017), https://bit.ly/2YpBrnU; W.S. Grampp, Some Effects of Rent Control, 16 S. Econ. J. 425 (1950); R.W. Grant, Rent Control and the War Against the Poor (1989); M. Bruce Johnson, Resolving the Housing Crisis: Government Policy, Decontrol, and the Public Interest (1982). Gentrification, however, is a natural, free-market consequence that brings development to an otherwise underinvested neighborhood. It is part and parcel of a free-market system that maximizes economic welfare. Adam Smith, The Wealth of Nations (1776); James Gwartney, Robert W. Lawson & Walter E. Block, Economic Freedom of the World, 1975–1995 (1996).

Positive Impacts of Gentrification

Gentrification can have a positive impact on a community. More specifically, this practice can help transition an area to benefit the needs of the current market, restore disinvested communities, and promote economic growth. Neighborhoods have always evolved, but the idea of gentrification—when an influx of new money and new people transforms a community—has emerged as an issue since only the 1960s. Jesse Van Tol, Perspective, Yes, You Can Gentrify a Neighborhood Without Pushing out Poor People, Wash. Post (Apr. 8, 2019), https://wapo.st/3aePhfI. Whether gentrification is a problem is debatable, but the idea that neighborhoods have changed over time is not. Most cities would be unrecognizable to hypothetical time travelers journeying back 100 years. The reason is that much of the land and the structures built on it have changed with the times. They move forward. The architect Louis Sullivan wrote, “Whether it be the sweeping eagle in his flight or the open appleblossom, form ever follows function, and this is the law.” Eve Sneider, Roundtable: Form Follows Function, Lapham’s Q. (Sept. 29, 2020), https://bit.ly/3ljAoPm. Louis Sullivan was a pioneer of the steel-frame skyscraper—responsible for the Prudential [later Guaranty] building in Buffalo, New York, and St. Louis’s Wainwright Building, both prototypes of the modern office building—and a forefather of American modernist architecture; he saw patterns in nature and felt that urban design ought to follow suit.

Gentrification allows for the development of land based on the market’s needs. Consider waterfront property over the past two hundred years, for example. Most waterfront property was previously occupied by manufacturing, warehouses, and merchants because they wanted access to cheap shipping and water-generated power. Millsap, supra. Later, fossil fuels, trains, the internal combustion engine, automobiles, the interstate highway system, and airplanes eliminated many of the production advantages of locating near the water. Id. Today, one would be hard-pressed to find an old “warehouse district” (in any major US city) that has not changed in this manner with the times. If we do not adjust our built environment in response to technological progress that changes the best use of land, our local economies will stagnate. Id. Likewise, not only does gentrification mold the area to the market’s will, but also it pumps much-needed investment into neighborhoods. Van Tol, supra.

Residents welcome the resurrection and revival of neglected and disinvested areas. Id. Think of condemned houses with windows smashed out or abandoned commercial property covered in graffiti. Consider the weed-filled lot a neighborhood uses as a dump. When gentrification occurs, somebody buys that old house, graffiti-covered building, or lot and builds something new, investing in a neighborhood. Nobody living in that neighborhood says to herself, “You know, that new house they built? Yeah, it is nice and all, but I preferred the trash-filled lot. That really would have been better for the community.” In addition to transitioning disinvested property and pumping money into neglected neighborhoods, gentrification brings economic growth to an area.

Community leaders desire capital investments, leading to better services, jobs, thriving businesses, and other components of a healthy, vibrant neighborhood. Id. With new money injected into a disinvested neighborhood come job opportunities for the residents. New businesses appear on the scene, and they need employees. The new economic activity may increase the property value of a neighborhood, wages in the local labor market may increase, and existing unemployment rates fall. Daniel Fernández Méndez, The Economics of Gentrification, Mises Wire (Nov. 29, 2017), https://bit. ly/3oExxTp. This process renders residential housing more scarce and has the same effect on work. Id. Setting aside all the superficial positive impacts for a moment, the most positive side effect that comes with gentrification is maintaining our free-market economy. Consider the subject from the theoretical price system.

Prices are fixed by supply and demand and in turn affect supply and demand. When people want more of something, they offer more for it. The price goes up. This increases the profits of those who have something. Because it is now profitable to make that something than other things, the people who have something create more of it. Other people are attracted to that business. The increased supply then reduces the price and reduces the profit margin until the profit margin on that something once more falls to the general level of profits. Demand may also fall, or supply will be increased so much that price will go down.

Henry Hazlitt, Economics in One Lesson, ch. 15: How the Price System Works (new ed. 1979).

Gentrification is the natural product of our price system. The demand is high for housing in cities. Many neighborhoods are experiencing an urban revival as an influx of young, college-educated singles move in to live, work, and play. Millsap, supra. Because the demand is high, this population of young, collegeeducated workers is willing to spend more on housing. As the productivity and wages of a city’s inhabitants increase, so do the housing prices relative to a place where the inhabitants’ productivity is low. Méndez, supra. Landlords raise rents and compete with one another for tenants. Subsequently, real estate is bought up in disinvested neighborhoods to increase the supply of housing. Eventually, the increased supply of housing in the city reduces the price and reduces the profit margin until it returns to the level available elsewhere. Demand also changes from one neighborhood to the next. This is the natural order of the free market. Regardless of development, gentrification is the natural response of the free market. It can only be tampered with at great harm to the economy. Change is a natural part of economic growth, and interference will stifle increased productivity. Millsap, supra. Whether one agrees or disagrees with the side effects of gentrification, one cannot deny that it is the natural order of economic growth. It is the way forward. “We should not expect, nor is it generally desirable, for neighborhoods to remain frozen in time.” Id. Allowing property values to rise to the free-market level allows all tenants or would-be tenants an equal opportunity to bid for space.

Opposition to Gentrification

As the positive impacts come to light, there must be an acknowledgment of the opposition to gentrification. Although it is a natural event brought on by the free market that ultimately benefits all market participants in the long run, we must consider why some oppose it. There are many reasons why some oppose gentrification. Some of the reasons include blockbusting (post–World War II, real estate brokers “encouraged [B]lack families to pay a premium to move into particular urban neighborhoods so that white families would sell their houses at a low price to move out to the suburbs”), redlining (after blockbusting, “the new majority-African American communities were denied the money they needed to invest in improvements to their neighborhoods”), and acceleration. Nat’l Geographic, Gentrification, https://bit.ly/3D3XFeP. Opposition to gentrification indicates displacement is becoming a larger issue in knowledge hubs and superstar cities, where the pressure for urban living is increasing. The most controversial reason, these authors conclude, is residential and cultural displacement. Public policies implementing rent control measures and mandatory affordable housing are the gentrification opponents’ solutions.

“Direct displacement” is when residents are forced to move because of rent increases and/or building renovations. “Exclusionary displacement” is when housing choices for low-income residents are limited. “Displacement pressures” are when supports and services that low-income families rely on disappear from the neighborhood.

Gentrification and Neighborhood Revitalization: What’s the Difference?, Nat’l Low Income Housing Coalition (Apr. 5, 2019), https://bit.ly/2Yw4w1z.

When it comes to the potential displacement aspect of gentrification, three populations are affected, and one negatively so, in the view of most commentators. The first two categories are landlords and tenants. More specifically, it is the tenants of the “outmovers” population who are negatively affected. Méndez, supra. They claim that they are being “evicted” from the homes they do not own because they cannot afford the increase in rent that gentrification produces. Id. Displaced low-income households most likely end up in new low-income neighborhoods. Gentrification and Neighborhood Revitalization, supra. Many vulnerable households that do move comprise renters and are at greater risk of moving to neighborhoods with lower home values, higher unemployment rates, lower median incomes, and poor public-school performance, as compared to their original neighborhoods. Id. Gentrification can further harm this population with added moving costs or security deposit requirements for a new apartment, which—given that few people have enough cash to cover emergency expenses—could quickly unfold into an even more precarious financial situation. Alex Baca & Nick Finio, Gentrification Is Beneficial on Average, Studies Say. That Doesn’t Mean It’s Not Painful for Some., Greater Greater Wash. (Aug. 6, 2019), https://bit.ly/3oGSpcw.

A basic economic aphorism, however, is that the free enterprise system necessarily benefits all participants. How can we square this with the view that the tenants turfed out of their newly more-expensive apartments are actual beneficiaries? The reconciliation is that these tenants are no longer market participants, at least not in that gentrified neighborhood.

Consider the in-movers. Landlords buy property and then charge the inmovers significantly higher rents. But they are necessarily beneficiaries, at least in the ex ante sense, because they voluntarily pay these heightened prices so as to enjoy the newer, better neighborhood amenities.

The final group to feel the effects of displacement are the “stayers.” Landlords who already owned property, pre-gentrification, find themselves in a developing environment with benefits previously unknown. The tenants who decide to stay must not be too negatively affected if they can still afford the rent.

As former residents are displaced, gentrification opposers point out that the area’s culture is also displaced. The people and businesses that move into gentrifying neighborhoods may have goals that are at odds with those of long-time residents. Nat’l Georgrahic, supra. The closing of local landmarks like historically black churches or local restaurants can erase the history of a neighborhood and, with it, a sense of belonging. Gentrification and Neighborhood Revitalization, supra. These changes may also drive out people of color and, specifically, minority-owned businesses. Nat’l Georgrahic, supra.

The National Low Income Housing Coalition has noted that there is no silver bullet or list of sure-thing policies to prevent displacement, but some of the many tools that can help combat gentrification include baseline protections for the most vulnerable residents, producing and preserving affordable homes, non-market-based approaches to housing and community development, and better approaches to community participation. Gentrification and Neighborhood Revitalization, supra.

Critics of gentrification point to implementing rent control measures and mandatory affordable housing to alleviate these problems. Rent control sets a cap on how much a landlord can charge for rent. Id. The theory and goal are to help the poor raise their standard of living by making housing more affordable. N. G. Mankiw, Principles of Economics (2007). Mandatory affordable housing, or public housing, is another solution gentrification detractors favor. Apartments, duplexes, single-family homes, and accessory dwelling units (granny flats) are all viable housing options that should be allowed by default, in this view. Millsap, supra. A range of housing options at different price points makes it easier for lower-income people to find housing in redeveloping neighborhoods. Id.

Flaws in Arguments Against Gentrification

There are flaws in the opposition to gentrification and the alternatives to it discussed above, staring with the displacement argument. Some question the displacement theory altogether against the numbers of nongentrifying neighborhoods. Quentin Brummet, with the University of Chicago, and Davin Reed, at the Federal Reserve Bank of Philadelphia, released a paper in July 2019 that challenges the displacement narrative. Alex Baca and Nick Finio report that the paper’s main findings are as follows:

Neighborhood mobility is already high across income categories: 70% to 80% of renters change neighborhoods over a decade, and 40% of homeowners do, too. When a neighborhood is gentrified, the likelihood that original residents move increases only slightly, by about 5%. That likelihood is slightly higher for lower-income renters.

Baco and Finio, supra. They further note that “Brummet and Reed conclude that gentrification only marginally increases out-movement and, importantly, that those who remain experience certain benefits. Those benefits include exposure to lower poverty rates, increases in home values, and other correlates of neighborhood opportunity.” Id.

Other researchers question the link between gentrification and displacement altogether, as some believe the research is unclear. As noted by the National Low Income Housing Coalition:

Ingrid Gould Ellen and Gerard Torrats-Espinosa have studied the long-term effects of gentrification and tracked the racial change over time. They defined “gentrification” as an increase in a neighborhood compared to the larger metro region over time. The researchers found that a growing number of low-income neighborhoods occupied predominantly by people of color have gentrified in recent decades, although most have remained low-income.

Gentrification and Neighborhood Revitalization, supra.

So, what does all this mean? Over three-quarters of the “renter” population already changes locales whether the locales are gentrifying or not. Further, these gentrifying neighborhoods usually remain low-income. The fact is that people move all the time for all kinds of reasons. Based on both researchers’ conclusions, we cannot say that gentrification is the sole reason for displacement.

According to Jesse Van Tol, director of the National Community Reinvestment Coalition, gentrification does not have to mean displacement—if the circumstances are aligned correctly. Tol’s analysis of the US Census Bureau and demographic data between 2000 and 2013 showed significant displacement across the country and yielded some unexpected results. Displacement of black people in gentrified neighborhoods was not uniform across all cities. Counterexamples include Los Angeles, California, which saw the displacement of 13 neighborhoods out of 73 gentrified neighborhoods, yet Minneapolis, Minnesota, experienced displacement in only one of its 22 gentrified neighborhoods. Van Tol, supra.

Why isn’t displacement uniform? The typical response is, “Gentrification is this big, complicated event that affects every city differently. There is no way to avoid displacement.” Before we throw out the proverbial baby (gentrification and development) with the bathwater (displacement) , we need to examine the population vulnerable to displacement. Is it gentrification leading to displacement, or is it the policies these cities are trying or not trying? Or is it something else entirely? (Hint: It is something else entirely.)

Before we arrive at an answer, let us consider other possibilities. Two of the most popular answers are rent control and mandatory affordable public housing. Initially, rent control seems to have a lot to be said in its favor. Rent control offers protection from sudden rent increases, establishes maintenance standards, provides the right to lease renewal, provides the framework for organizing and litigation, and sets limits on security deposits. Gentrification and Neighborhood Revitalization, supra. Although, in the short run, these exceptions made for renters seem reasonable, they might destroy the very neighborhood they were meant to save.

Swedish economist Assar Lindbeck stated that, “[i]n many cases, rent control appears to be the most efficient technique presently known to destroy a city except for bombing.” James D. Gwartney et al., Macroeconomics: Private & Pubic Choice 76 (2021). In the view of Swedish socialist Myrdal, “Rent control has in certain western countries constituted, maybe, the worst example of poor planning by governments lacking courage and vision.” Walter E. Block, Defending the Undefendable III 159 (2021). In 1989, Viet Nam Foreign Minister Nguyen Co Thach said: “The Americans couldn’t destroy Hanoi, but we have destroyed our city by the very low rents.” Bob Dhillon, The Perversity of Rent Controls, Nat’l Post, June 28, 2007, at FP15. The adverse effects of rent control are less apparent to the general population because these effects occur over many years. Mankiw, supra.

Public housing may not be better in the long term, even though in the short term it may seem like it is helping renters. Housing projects radiate dysfunction and social problems outward, damaging local businesses and neighborhood property values. They hurt cities by inhibiting or even prevent-

ing these rundown areas from coming back to life by attracting higher-income homesteaders and new business investment. For decades, cities have zoned whole areas as public housing, forever shutting out in perpetuity the constant recycling of property that helps dynamic cities generate new wealth and opportunity for rich and poor alike. Howard Husock, How Public Housing Harms Cities, City J., Winter 2003, https://bit.ly/3lhLRPF; Jane Jacobs, The Death of Life of Great American Cities (1961). One of the worst examples of public housing in United States history comes from Chicago, Illinois, and the Cabrini Green housing projects. William Voegeli, Public Housing’s Most Notorious Failure, City J., Summer 2019, https://bit.ly/3mqIkh6. Cabrini Green was a public-housing project (named after Saint Frances Xavier Cabrini and labor leader William Green) where 23 towers, constructed between 1950 and 1962, provided 3,000 apartments. The towers came to be known almost solely for their crime and squalor. The Chicago Housing Authority tore down the last high-rise in the Cabrini-Green Homes in 2011.

Rent control and public housing are not long-term solutions and should not be considered even in the short term. A solution to displacement (if indeed any displacement takes place due to gentrification) is educating people on homeownership. Jeremy Hobson, What Do “Newcomers” Mean for a Neighborhood? The History of Gentrification in the U.S., WBUR (Dec. 6, 2019), https:// wbur.fm/3adnDzP. It gives people more power as to how gentrification will personally affect them. There is no public policy or initiative that will prevent gentrification. It will keep happening because it is a free market event. When one owns her home, she can opt to live there or rent it, tear it down or make additions, sell it for the market rate or move somewhere else. When municipalities impose policies because a particular group of renters cannot afford to rent in such neighborhoods, it affects the entire city.

If that is the solution for tenants experiencing displacement, then the solution for homeowners is to stay put if community, history, and culture are more important. What often happens, though—more than gentrification opposers like to admit—is that homeowners decide (of their own free will) to take the money and move out. Longtime homeowners benefit from rising property values and increased credit scores, allowing them to sell their property and move to a higher-income area. Patrick Gillespie, How Gentrification May Benefit the Poor, CNN Bus. (Nov. 12, 2015), https://cnn.it/3uRIfH2. Community, togetherness, history, culture, and neighborhood are not the be-all and end-all of life, as opponents of gentrification would have us believe. Walter E. Block, The Gentrifier, LewRockwell.com (Feb. 9, 2015), https://bit.ly/3oGSvB5. Displacement is not forcing them out; rather, they are choosing to leave. There is one example, however, of displacement that accomplishes forced removal: eminent domain (the Fifth Amendment provides that the government may exercise this power only if it provides just compensation to the property owners). Richard A. Epstein, Takings: Private Property and the Power of Eminent Domain (1985).

When the Olympics come to town, people are moved en masse (via eminent domain) to make way for the new stadiums, swimming pools, ball fields, etc. Ditto for the World’s Fairs. They, too, export inhabitants with a long history, willy nilly. They, too, eradicate cultures and communities thriving before the rampage took place.

Block, The Gentrifier, supra.

Conclusion

In summary, though some dismiss gentrification as displacement and fight for destructive alternatives like affordable housing mandates and rent control, in the view of the authors gentrification is a natural, free-market event that brings much-needed development to an otherwise disinvested neighborhood. Gentrification is as natural to the free market as a thunderstorm is to nature. Of course, if one is not prepared for a thunderstorm, one will get rained on, but that thunderstorm facilitates the earth’s natural biosphere. To keep from getting wet, then one needs to find one’s own shelter. In other words, one needs to buy a house. The creation of comprehensive public policies that aim to provide certain people with shortterm shelter harms everyone in the long run. Focusing on a particular group of people is like creating a weather machine for a neighborhood and choosing when to allow thunderstorms to come through. Some areas are going to be flooded and dangerous. Some are going to be dry and ripe for wildfire. The weather machine does more damage to the earth than letting individual thunderstorms occur naturally.

Published in Probate & Property, Volume 36, No 1 © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.