© 2004 Tom Wetzel
The patterns of capital flows have a visible effect on working class communities in the United States. Some communities see de-industrialization, abandoned stores, boarded-up dwellings, scarce jobs. Such are signs of disinvestment. Capital has moved elsewhere.
In other times and places an inflow of investment fuels gentrification. Upscale condos are erected, houses are rehabbed. Candle-lit restaurants and stores catering to people with higher incomes displace bodegas and used appliance stores. Rents rise as landlords realize they can attract professionals and business people as tenants. An area of "valuable city real estate" is being cleansed of its working class residents.
Both gentrification and disinvestment are processes made up of the activities of certain kinds of social agents or institutions. Landlords, developers, and banks all play key roles. To understand how both decay and gentrification of urban neighborhoods happen, we need to look at the dynamics of capital flows into and out of the built environment.
Buildings represent a major investment. For this reason, they are not replaced for many years after they are built. An older area in an American city may have been converted from open agricultural land to urban uses in the 19th century or early 20th century. As the lots in a newly subdivided area get built upon, builders and subdividers move outward into more outlying areas in search of new building sites.
A building is like a piece of machinery or a motor vehicle — it depreciates in value over time. Parts wear out; the roof may need to be replaced after years of beating back the rain. The building style may go out of fashion. Technological changes such as new standards in electrical or plumbing systems may erode the value of a building.
Of course, the electrical or plumbing systems in a house, or the lighting system in a commercial building, may be upgraded. This is new investment; a neighborhood where this is continuous is not in decline.
Some neighborhoods continue to retain their ability to attract professional and business people to live there. Owners of rental properties in such areas will have an incentive to upgrade their buildings because they can command rents high enough to generate a good return on that investment. Other areas may fall out of favor.
Capitalism generates a division into classes. At the top of the social pyramid is the tiny class that owns the bulk of economic wealth. Filling their need for control over labor is another class — the techno-managerial "middle class" who manage, plan, advise. Their class position is based on monopolization of skills, education and connections rather than ownership of capital. Below them are ranged the mass of workers who are forced to work under the control of this sort of hierarchy — the working class. This class hierarchy in the economy generates great inequality in wealth and income.
The housing market tends to sort the population by income into different areas. Racism may add another type of sorting. If an area is increasingly filled by lower income residents, landlords have an incentive to not maintain their properties. If they were to invest in upgrades, they'd need to charge a higher rent to make this a profitable investment. People with higher incomes who could pay the higher rents may not be willing to live in that neighborhood. So landlords simply "milk" the decaying buildings of their rent. By putting off repairs, they can save money to buy other buildings elsewhere.
The failure to continually upgrade buildings and replace the wornout building stock with new buildings amounts to a process of disinvestment — shrinkage of capital — in an area.
Houses serve a dual function to live-in owners. They are a source of shelter, a respite for private life, a realm of personal control. But in the context of a capitalist economy, house ownership is also a form of investment since it represents equity with sizable potential revenue from its sale. Owning a home is not inherently a speculative investment but the market governance of urban real estate gives it this character. If an area is declining a homeowner may decide that it wouldn't pay to put money into rehabbing their house. They may choose to sell and buy a house in a newer neighborhood to protect their investment. As an area becomes more of a low-rent area, some houses may be cut up into separate rooms or apartments to increase the rental revenue.
The Dollar mansion (above), in the Alamo Square historic district, is an example of a large San Francisco house that was cut up into small units.
In the early 20th century deteriorated "fringe" areas tended to develop around downtowns of major cities in the USA by the sort of process described above. This process of inner-city disinvestment was particularly prolonged in the USA in the decades after World War II. Rising real wages, Federal Housing Administration loan policies, the homeowner interest deduction on income taxes, corporate decisions to relocate plants to outlying areas, massive freeway construction, white flight — all these things contributed to the outflow of investment into suburbanization and lack of investment in older city areas.
As the urban area grows, the terrain now occupied by deteriorated buildings and a low-income population may be close to areas of concentrated economic activity such as a downtown. Closeness to downtown jobs, easy transit access, and interesting older architecture may give the area the potential to attract higher income residents or more well-endowed businesses.
A gap thus emerges between the rents that an area of deteriorated buildings and low-income residents can generate and the potential rents that the area could generate if it were completely rebuilt or renovated to its "highest and best use" (in real estate jargon). Neil Smith coined the phrase "rent gap" to refer to this phenomenon. When this rent gap becomes large enough, the area may be ripe for gentrification, that is, for a new round of investment. Speculators may begin to buy properties in anticipation of increased market values of properties once such a process gets underway.
To make investment in new construction and rehab profitable, developers must be able to attract residents who can pay higher rents such as professionals and managers (the urban "gentry"). Once this process gets underway, landlords will have an incentive to evict low-income residents in favor of more affluent tenants who can afford higher rent. Deferred maintenance by landlords during this phase may be motivated by a desire to drive out the lower income tenants. Banks and other financial institutions turn on the faucet for mortgage and construction loans. Construction of new upscale condos and office buildings raise real estate values as other landowners realize that more upscale uses of the land are now possible.
Some studies have been used to suggest that gentrification — inflow of investment and rising rents and real estate prices — does not cause displacement. An example is Lance Freeman's study of low-income residents of Harlem and Park Slope in New York. Freeman found that low-income residents stay in their apartments longer than residents of non-gentrifying neighborhoods in New York. Some have inferred that gentrification, by enhancing the neighborhood, makes the low-income residents more desirous of staying. But there are other explanations. Working class neighborhoods that are at risk of gentrification are generally those that have features that make them more desireable, and this may account for the lower turnover. In addition, once a neighborhood is gentrifying, the low-income residents of that neighborhood will have greater difficulty finding an apartment in that neighborhood they can afford — they may hold on to their current apartment longer for this reason.
Displacement is a change in the class composition of a neighborhood over time. Once the rents and housing prices are not affordable to people with lower incomes, people with lower incomes cannot move into the neighborhood, and people in the neighborhood who need to move for some reason will have a harder time staying. If the neighborhood is the center of a particular ethnic community, as with Harlem in New York or the Mission District in San Francisco, displacement of the working class residents may also mean destruction of that ethnic community.
Displacement, whether via urban renewal and the bulldozer or by market forces, is an act of force. It is anti-democratic because it denies self-determination to an existing community.
Displacement usually doesn't happen without a fight. Tenant activists have pushed for things like anti-eviction or rent control ordinances. In the long run, though, these are not likely to be more than a speed bump in the process of displacement.
One way to ensure that the residents are not displaced is to change the ownership structure of the land and buildings. Community land trusts offer one promising approach. On the community land trust concept the residents own the buildings they live in, and a community land trust — a non-profit neighborhood membership organization — owns the land under the buildings. Under this model, restrictions are placed on the price or rental of dwellings. For example, if a resident owns a house or apartment sitting on community-owned land and wants to sell it, she must offer it back to the community land trust at a restricted price. Permanent price restrictions thus ensure that the housing will always be affordable.
Learning from Vienna
About the Vienna housing program of the 1920s.
A Self-management Approach to Housing
About community land trusts as a way to combat displacement.
Neil Smith, The New Urban Frontier: Gentrification and the Revanchist City
Eric Clark, in "The Rent Gap Re-examined," Urban Studies, no. 9, 1995
John Emmeus Davis, "Beyond the Market and the State: The Diverse Domain of Social Housing," in The Affordable City, 1994.
Todd Harvey et al, "Gentrification and West Oakland: Causes, Effects, and Best Practices," 1999
Tom Wetzel, "San Francisco’s Space Wars," Processed World, 2001.
Simon Velasquz Alejandrino, Gentrification in San Francisco's Mission District: Indicators and Policy Recommendations, Summer 2000