This piece first appeared on Forbes.com.
Many cities, especially their downtown neighborhoods, are experiencing an urban revival. Young, college educated workers—many of them single—are moving to dense, walkable neighborhoods, drawn in by the variety of restaurants, shops, bars, and other places where they can socialize with friends.
The urban revival is contributing to higher real estate prices, which is making it difficult for many lower-income residents who currently live in these downtown neighborhoods to remain in their homes. Cities are trying to slow the transition with affordable housing mandates, rent control, and similar polices, and their intentions are laudable. Change, however, is a natural part of economic growth, and too much interference will stifle growth and make us all worse off.
On the one hand, an urban renaissance should be welcome news for cities that were hollowed out during the late 20th century’s mass migration to the suburbs. The higher prices for space are incentivizing developers to invest in downtown neighborhoods, which boosts cities’ coffers. But the shiny new apartment buildings, retail/commercial space, and infrastructure also come with higher prices, which makes the area unaffordable for some current residents and business owners.
One neighborhood going through this process is the Fruitvale Village Neighborhood in Oakland. It’s being touted by some as a model of “good” development—an improving neighborhood that doesn’t result in the displacement of current residents. Redevelopment in the neighborhood started in the mid-1990s with a 47-unit apartment complex, 10 of which were designated as affordable units.
A recent study from researchers at UCLA compared Fruitvale’s demographics before and after redevelopment to other similar neighborhoods and found that median household income grew faster in Fruitvale, more residents became homeowners, and more residents had high school and college degrees. However, median rent in Fruitvale also rose by 83%, compared to only 71% in similar Bay Area neighborhoods.
Since the study doesn’t follow individuals over time, the researchers can’t tell for sure if the faster income growth or higher educational attainment accrued to residents who lived in Fruitvale prior to redevelopment or if the neighborhood improvements are due to different people moving in to the neighborhood.
The latter—different people moving in—is the type of gentrification many people worry about. But we shouldn’t expect, nor is it generally desirable, for neighborhoods to remain frozen in time.
Neighborhoods change over time for a variety of reasons. Waterfront property used to be occupied by manufacturing, warehouses, and merchants because they wanted access to cheap shipping and water-generated power. Over time, fossil fuels, trains, the internal combustion engine, automobiles, and the interstate highway system eliminated many of the production advantages of locating on the water.
Today, a lot of waterfront property is valued for its views and recreational uses. As a result, former industrial waterfront neighborhoods in cities around the country have become hip residential spots.
For example, Cleveland’s Warehouse District, located along the Cuyahoga River, was once full of—you guessed it—warehouses used to store goods being shipped and delivered by rail and the river. Once this use of the land no longer made financial sense, the owners of the warehouses moved their operations elsewhere.
Over the ensuing decades the warehouses fell into a state of disrepair before redevelopment began in the 1980s. Now the area is one of Cleveland’s most popular mixed-use neighborhoods, full of restaurants, shops, and apartments.
The economic forces that transformed Cleveland’s warehouse district into a mixed-use neighborhood are constantly at work. Lower-income residential areas may be in proximity to firms that become more profitable due to a new innovation, and greater profits may incentivize the firms to expand and bid up prices for nearby land. If firms expand or new firms move in, some of their workers may relocate as well, which would also increase demand for nearby housing.
Transforming old warehouses into apartments usually doesn’t cause as much commotion as redeveloping residential neighborhoods. However, similar economic forces are at work in both scenarios. If we don’t adjust our built environment in response to technological progress that changes the best use of a piece of land, our local economies will stagnate.
Local government projects such as sports stadiums, convention centers, or parks—often with the help of big taxpayer subsidies and eminent domain, unfortunately—can also be a catalyst for gentrification. Nationals Park in Washington, DC contributed to the rapid transformation of its surrounding neighborhood over the last decade.
Even though redevelopment is crucial for economic growth, it doesn’t mean we need to be satisfied with the status quo. There are some policies that can moderate gentrification and give people more time to adjust.
First, diverse neighborhoods—meaning neighborhoods that contain people with different occupations, education levels, and incomes, as well as people from different cultures and racial backgrounds—require diverse housing options. Apartments, duplexes, single-family homes, and accessory dwelling units (granny flats) are all viable housing options that should be allowed by default. A range of housing options at different price points makes it easier for lower-income people to find housing in redeveloping neighborhoods.
Incremental redevelopment would also help reduce the pain of gentrification. New development projects are fraught with uncertainty—nearby homeowners often oppose projects, environmental reviews can take months or years to complete, and necessary zoning changes may not materialize.
Uncertainty and delays go hand-in-hand, and delays cost time and money. It often doesn’t make financial sense for developers to deal with all the uncertainty just to build a few apartments, so they propose big projects with big payoffs.
These big projects drastically alter neighborhoods and create a lot of change in a short period of time. If there was less uncertainty, smaller developers would feel more comfortable proposing smaller projects, and neighborhoods would be able to change more gradually. This wouldn’t stop gentrification, but it would make it easier for people to adapt.
Governments should also quit subsidizing big projects like sports stadiums and using eminent domain to speed up private redevelopment. It’s bad enough that most of these projects waste taxpayer money, but they look even worse when we also consider the often unjust use of eminent domain and the subsequent harm done to the residents displaced by them.
Change doesn’t always benefit everyone affected by it, and it’s understandable that cities want to help residents who are struggling with the changes caused by the recent urban revival. But change is part of growth, and helping people adapt to redevelopment is a better approach than stifling it.
Adam A. Millsap is the Assistant Director of the L. Charles Hilton Jr. Center at Florida State University and a Senior Affiliated Scholar at the Mercatus Center at George Mason University.
The featured image is from Business Insider.