Gentrification​

In both economic theory and in practice, international trade has made the great super powers of the world wealthy economic centers for opportunity and prosperity. The U.S. is the best modern historic example.  Trade is governed by the law of comparative advantage - which, at a simple level, states that countries will specialize in the production of goods and services which they can do so for relatively cheap, and trade them with the rest of the world. During the industrial revolution, The United States developed a distinct advantage in manufacturing and other types of heavy industry.  That industrial advantage helped to create wealth and opportunities for U.S. business owners and workers, and was sustained through the booming years of the auto industry - which concentrated wealth in industrialized American cities like New York, Detroit, Chicago, Pittsburgh, and so on.

 

As transportation costs fell with innovations in transportation technology and communication, industrial jobs began leaving the inner cities and relocating in suburban areas throughout the country where the costs of industrial real estate was less expensive. Later, these lower transportation costs induced firms in the developed world to exploit the lower costs of workers' wages abroad. Globalization as we know it began to take root as the production of industrial products like cars began to take place overseas.  At first, this change was slow - only some products were produced outside of the country, and the the places that were hurt the most by globalization were inner cities and districts that specialized in little else besides manufacturing.  

 

Similarly, other demographic and social trends paired with transportation innovations to further drive suburbanization. Families wanted to raise children in the suburbs and commute to work by rail, and they could do so easier than ever before.  Inner cities slowly became de-industrialized. Unemployment ran high, and inner cities turned into hotbeds of crime and unrest.  In America, social class is closely correlated with race.  As upper class, largely white people left the cities, poor Americans - largely minorities - were left without jobs or opportunity. Inner cities were abandoned as well-to-do white families fled to the suburbs, and in many cases, this trend was driven by racial attitudes towards minorities and their social position.  The jobs either followed the pattern of "white flight" or were exported.   

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Pictured: Abandoned Domino Sugar Factory in Williamsburg, Brooklyn

 

As trade accelerated throughout the later part of the second half of the 20th century, the U.S. saw a further decrease in manufacturing, and a rise of service industries requiring high skill and education.  This trend continues to the present moment - and has drastically accelerated over the past twenty years with the booming technology industry. The U.S. has solidified its comparative advantage in high skilled work - the U.S. has the worlds' biggest economy, but that is no longer propped up by the declining manufacturing sector.  In 2011, China overtook the U.S. as the worlds largest manufacturing economy.  Many of the jobs China added were lost by the U.S.  At the same time, the United States economy has accelerated almost exclusively by growth in the technology and service industries.  At the end of 2016, of the five largest companies in the world, four were U.S. technology companies.  In 2012, only one of those companies was in the top five.  This growth is unprecedented, and is still driven in part by comparative advantage in trade - just of a new type of good.

 

The rise of U.S. tech and service firms has two major implications for gentrification.  First, when paired with other trends impacting today's work force, it has helped to reverse the trend of suburbanization.  For years now, far more people have been moving to large cities than have been leaving them. Second, it indicates that the vast majority of economic growth has accrued to skilled workers with educations.  Google doesn't hire anyone without a college degree, and neither does Apple, Amazon, or Microsoft (those are the four largest tech companies in the world).  Furthermore, the growth in the American economy more recently has been almost exclusively reserved for smaller numbers of people with high educational attainment.  Advising large companies on financial decisions requires more skill and less people than assembling cars; while developing software contrasts similarly with exporting steel.  These jobs take place in our cities, and have played a significant role in sending the countries' most educated and affluent flocking to them.  The graph below shows the percentage of the United States population living in cities from 1970 to 2015.  The most drastic changes occurred once the U.S. began solidifying its comparative advantage in service oriented jobs in the 1990's, and continues to the present moment.

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United States urban population as a percentage of total population between 1970 and 2015 - published by the World bank.

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According to a study by CBRE, a global real estate investment services firm, this growth is the highest in the largest American cities.  Cities like New York, Chicago, San Francisco, and LA have accounted for the largest growth in jobs, and are predicted to continue doing so into the future.  With such a growing concentration of our countries' most educated and affluent workers with high earning potential into large cities, there is ever increasing demand for housing in already developed cities with, in many cases, limited housing supply. 

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When you look at the larger picture, its clear that a process of suburbanization which left inner cities without good jobs, and with largely lower class and minority populations has reversed.  It makes good sense, then, that those feeling the firmest pressure applied by that reverse are those lower class and minority people that remained in the inner cities after white flight so drastically changed America's urban landscape.  First, the jobs left the cities and left affordable neighborhoods for lower class people to live for decades, and now the jobs are returning to the cities and challenging their economic position via increased costs of living.

 

Of course, neighborhoods which have been gentrified are commonly praised as thriving.  An economist article declares:

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"Gentrifiers can make life better for locals in plenty of ways, argues Stuart Butler of the Brookings Institution, a think-tank. When professionals move to an area, 'they know how to get things done'. They put pressure on schools, the police and the city to improve. As property prices increase, rents go up—but that also generates more property-tax revenue, helping to improve local services... However annoying they may be, hipsters help the poor. Their vintage shops and craft-beer bars generate jobs and taxes. So if you see a bearded intruder on a fixed-gear bike in your neighborhood, welcome him."  

 

The process described isn't wrong, and there are many economic benefits to gentrification.  The problem, however, is that the type of job creation that occurs in gentrified neighborhoods and in the nation's largest cities in general don't include the participation of low skilled workers.  Sure, maybe a few craft beer bars or restaurants can help some native residents get new jobs.  Those jobs, however, won't help to resist the long term rent increases being driven by 'the professionals who know how to get things done.'  Ultimately, gentrification is reinforced by nature with it being a return of upper class, educated people to city districts filled with middle and lower class, less educated people.  The economic position of the former almost always trumps that of the latter, particularly in a country experiencing labor market shifts and increasingly concentrated wealth generation.

 

It is important to note that these same trends are causing unrest elsewhere in the country, as more and more people are beginning to realize that a majority of wealth generation has been accrued to the wealthiest people in the country.  The following graph shows earnings of five quintiles of U.S. workers, and maps how they have changed with respect to time from 1979 to 2014.

 

      

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Source: U.S. Bureau of Labor Statistics 

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Because class and race are so tied up in America, it is no surprise that economic inequality rears its ugly head as what appears, and in many cases is, gentrification led by one culture overtaking another.  Effectively, gentrification led displacement is about more than having to leave a neighborhood or a home; its about our changing economy forcing people to leave a social class.

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Having understood how larger economic processes are driving urbanization in America, we will try to understand how gentrification manifests itself in cities, who leads it, and where it occurs.

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