Should Government Stop Gentrification?

Gentrification is a political issue affecting cities coast to coast. In one prominent example, middle class residents of San Francisco have recently been demonstrating against workers at tech companies such as Google and Apple who are making so much money they are driving up real estate prices in the city. Some long time inhabitants can no longer afford to live there as a result. Protesters were particularly upset that a Google executive bought a building containing rental apartments, decided to turn it into condos and sent eviction notices to the tenants. Similarly, during last year’s campaign for Mayor in New York, then candidate Bill de Blasio promised to do something to stop gentrification and focused considerable attention on the problem.

San Francisco

Gentrification in San Francisco

The basic issue stems in part from changing demographics and personal preferences. As young professionals are getting married later in life, many wish to live in cities, either because their work is there, or because of the cultural, entertainment and social opportunities. Those that are well-to-do are buying houses and apartments in urban areas that were previously working or middle class, often inhabited by minority populations. This has focused attention on both class and racial issues. In some cases, such as in New York, gentrification has also been driven by an influx of out-of-town buyers who have bid up prices in prime locations.

The downside of this gentrification process is that less affluent people are being displaced.  Sometimes these are long-time residents of an area and they may have a difficult time finding alternative housing that is close to their work. In San Francisco, for example, demonstrators have complained that teachers and firefighters are being uprooted to make way for tech workers. If middle and lower income earners can no longer afford to live in the cities where they work, how will this affect recruitment, for example? If restaurant workers cannot pay for housing in New York, how will the hospitality industry survive? Sometimes elderly residents are displaced, causing considerable disruption and hardship.

What is less clear is whether there is a role for government in dealing with gentrification. Bill de Blasio notwithstanding, there are two related questions we need to ask. The first is whether government, especially at the city level, is actually able to do much to stop or slow the process of gentrification. The second question is whether government should take action if it is able.

Turning first to the question of the government’s ability to stop gentrification, we can see that in fact there are serious limitations to what can be done. The basic problem is that local government has very few tools at its disposal to reverse the demographic and economic trends that cause gentrification in the first place. Short of making a particular city a less desirable place to live, it is hard to keep people from moving in. San Francisco cannot pass an ordinance that prohibits tech workers from buying or renting property. Real estate prices are subject to the law of supply and demand and greater numbers of wealthy people living in a city will simply drive up prices.

New York

Gentrification in New York

Rising prices do not generally bother homeowners since the value of their homes goes up, so those most negatively affected are renters. There are a few potential tools available to protect renters that cities have tried with limited success in the past. A tempting solution has been to establish rent control or rent stabilization schemes. It is possible, for example, to limit how much a landlord is allowed to raise the rent in a given time period. The problem with this in practice is that rents below market value provide a disincentive to construct new housing or to maintain existing housing stock. Over time, these schemes often lead to housing shortages and deteriorating housing stock. They can also lead to efforts to turn rental properties into condominiums. This process can sometimes be limited by city ordinance, but again at the cost of creating distortions in the housing market. Developers for example can buy a rent controlled building, let it deteriorate to the degree that it is no longer habitable, then tear it down and build something that is not rent controlled. Generally speaking, businesses will find ways to beat the regulators over the long haul.

The difficulty of coming up with ways to counter gentrification is demonstrated by the limited options articulated by Mayor de Blasio since taking office. Essentially he has suggested making mandatory a provision for developers who are building housing units to construct a certain amount of “affordable” housing as part of any project. While that may not be a bad thing, it is unlikely to have a major impact on the problem. This proposal does not affect already existing housing and developers will most likely find ways to game the system anyway. De Blasio and his fellow progressives simply have not come up with many ideas to stem the tide.

The other issue is whether government should even try to stop gentrification. As an ethical and political issue, this is somewhat more complicated. It is true that long-term residents may be  disadvantaged when newer and wealthier folks come to town. But that does not necessarily mean government needs to be involved. There are many things in life that are not ideal, but government is not always required to solve those problems. There are many reasons that people have to move, sometimes it is even the government itself that makes them move when it exercises the right of eminent domain. There is no “right” that says a person will not have to move. Yes this problem impacts renters more than homeowners, but perhaps that is just one more reason to buy a home, or to drop the price of renting.

Going back to the case of San Francisco, let’s assume a school teacher is being displaced by a tech worker. Can we say that the teacher has a greater right to live in a particular residence than the guy from Google? What determines a person’s “right” to live in a certain place. In our system it is essentially up to market forces. Is there anyone who really wants to leave those decisions up to government? While the present system may be imperfect, the alternatives appear much worse. If teachers can no longer afford to live in San Francisco, the city may simply have to pay them higher salaries.

What about the argument that minority communities are being disrupted by this process. It also appears to me that this is hardly a reason for government intervention. It is not the role of government to determine the ethnic or racial composition of a neighborhood. That was done in the past and led to legalized segregation. The principle is no better when meant to protect minorities. Just a quick example of this. Harlem in New York City was majority African American for many decades, but now it is no longer so. Should the city government keep out Hispanics and other minorities to keep the area “ethnically pure?” The idea is repugnant. The whole civil rights movement was premised on the idea that a person should have the right to live where he wants, as long as he can afford it.

So yes, gentrification has its downsides. But let’s not forget that there are positive benefits as well, such as the influx of new people into the city, reduction in crime as neighborhoods are renewed, and the benefits that longtime homeowners reap when their property values go up. The city’s tax base may go up as well, perhaps allowing it to pay its workers higher salaries. As is so often the case in life, there are winners and losers to gentrification, and it should not be left up to government at any level to arbitrate the issue.

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