What Is Gentrification?
Reasons for Gentrification
Digging deeper, much gentrification is a result of an oversupply of rundown housing, coupled with an influx of available jobs in larger cities. This comes as there was an exodus from American cities in the 20th century.
San Francisco, CA, gentrification started in the 2000s thanks to the dot-com bubble, which led to an influx of predominantly white technology and Internet workers. What happens (and is happening) in areas like San Francisco is that homes that were selling for $50,000 years ago now sell for $250,000 or more.
Once gentrification starts happening, an area (and its associated properties) can see large and quick moves in real estate values. Real estate investors and developers are attracted to the area for investment and profiting purposes.
Gentrification starts with a few properties (homes or apartments) being renovated or retail businesses opening up. Larger developers or investors will build bigger complexes and housing developments. Ultimately, the city takes notice and makes further investments in the community, such as infrastructure and more public transportation.
Gentrification vs. Revitalization
Gentrification is often seen as profit-driven and racially charged, because investors and developers make money, while many residents must relocate due to rising prices. Thus, to limit gentrification governments will put in place various controls and laws. Cities looking to keep gentrification or its effects at bay may implement rent controls or zoning limits and use community land trusts.
Gentrification and Displacement
The original residents are then forced to leave the gentrified area and relocate to higher crime and potentially even lower-income areas than their original neighborhoods. Ultimately, a neighborhood can be completely changed, including any previous cultural roots and affordable housing. The effect of gentrification is a shift, not only in income levels, but ethical and racial composition.
A lot of it comes down to perception: Is gentrification revitalizing a neighborhood or is it effectively kicking out the “poor” and minorities? On the upside, an otherwise desolate or rundown area may now be rejuvenated thanks to gentrification, bringing jobs and economic activity to the area. Oftentimes, gentrification poses an ethical dilemma, but for real estate investors, identifying gentrifying neighborhoods can be a profitable strategy.
Investing in Gentrification
The beauty (for investors) is that gentrification happens all over the U.S. Some of the fastest growing gentrifying neighborhoods today include Detroit, MI.; Miami, FL.; Charlotte and Raleigh, NC; Austin, TX; and Oakland, CA. Per RentCafe research, some of the most gentrified cities in the U.S. from 2000 to 2016 include Los Angeles, CA; Washington, D.C.; Houston, TX; Philadelphia, PA, and Manhattan, NY.
Investing in Gentrification
Broadly, look for these things when seeking out gentrifying neighborhoods:
- Improving neighborhood stats, such as crime rates
- Rising number of building permits, renovations
- Rising sales prices based on Multiple Listing Service (MLS) data
- Declining number of “for sale” or “for rent” signs, as well as less vacant and burned out buildings
In the early beginnings, neighborhoods can often be identified by a number of burned out and vacant properties that have also seen revamps in the area. Increased social media mentions and discussions of locations can help identify gentrification as well, based on a Cambridge University study.
Other signs that various real estate investors and experts have noticed are a shift away from dollar stores toward higher-end drug stores (such as Walgreen or CVS), opening of wine specialty stores, renovation of local stores, revamp in the types of goods sold by grocery stores, and mainstream banks opening locations.
Gentrification does have its advantages, bringing economic growth to an otherwise desolate area. But the rise of social issues, such as race and income inequality, has brought to light that gentrification can sometimes be a questionable version of urban growth. Still, that could mean less competition for investors who believe the advantages outweigh the disadvantages.