Over at Meisselspot (deep in the archives at this point), Yonah Meisselman has a thought-provoking piece on gentrification.  The whole post is worth reading (really, go click through and read it), but the core takeaway is this:

like “capitalism” and “essays I wrote in high school,” I find “gentrification” to be a rather incoherent mess

To start, I’ll look at Cambridge, a city I know and love.  It is also a city that, in 1995, dropped rent control. Prices have risen much more since then, but at the time they jumped a large amount, on the order of 10-30% according to Autor et al. The first order effects of this rise in housing prices are clear: property owners get richer, some renters pay more, and some renters move out.  It’s pretty obvious that this is good for people who own Cambridge property, and bad for the people who rent, or used to rent, Cambridge property.

The question here is then, when we have a large stock of housing currently occupied by middle class and poor people who pay reasonable rent, and a large number of very rich people who would like to pay dramatically more in rent, what is the best policy? Econ 101 says the most efficient outcome is for the non-rich folks to move out, and the rich folks to move in, but that answer is incomplete. First it is incomplete because it doesn’t cover the question of how the non-rich will be induced to move: will they be evicted, or will they be offered a large sum?  In San Francisco, tenants are offered tens of thousands of dollars to give up their rent-controlled apartment, which would be quite a windfall for a middle-income family.

The other major question that arrises when rich people displace non-rich people in a community is about the community itself. With the possible exception of beachfront property, housing is valuable not because of what it is near, but because of who it is near. It’s not always clear why rich people want to move somewhere, but generally it has at least something to do with the “hip” status of a neighborhood, an undefinable something that usually involves artist types and cool coffee shops. One of the many paradoxes of gentrification is that with enough rich people moving in, the artists and cool coffee shops are pushed out.

Additionally, I offer without segue another thought on gentrification–that perhaps it is the unavoidable consequence of positive returns to scale at the industry level.  Boston would not produce half the tech value if its tech sector were half the size, probably not even close.  Adding one more worker to Boston’s tech sector adds that worker’s output, but it also increases (slightly) the productivity of every other worker in the city.  What this means in practice is that it is socially optimal to put all the tech workers more or less in the same place, so they support each other.

As a final thought, I offer a heartfelt nod to process.  Regardless of where everybody ends up living, and what side-payements are made, it is crucial to keep in mind that we are talking about major life events for thousands, even millions, of real people.  As put by Jonah and Spike Lee, the newcomers need, at minimum, to show some respect.

1. Respect — People who migrate into a community — especially white people with money coming into a poor, historic, black neighborhood — need to respect the people who already live there.  Spike Lee says it better (video / transcript).***