Could Growth In Urban Cores Remedy Problematic Gentrification?

The argument that increased supply of urban housing will lower prices is rapidly being disproved by successive waves of gentrification throughout American cities. Stephen Smith offers a considered analysis of the economics behind this dynamic.
September 29, 2011, 2pm PDT | George Haugh
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For the original, and often poor residents of newly gentrifying neighborhoods, the market remedy of increasingly supply doesn't make anything cheaper. Rather, they find themselves pushed out by the increased cost of housing, and amenities.

Smith believes that price increases respond to new amenities along an S-curve. "The first 100-unit rental building with the neighborhood's first high-quality grocery story is a huge boon, but the hundredth glass tower with the neighborhood's fifth bank won't even be noticed. It's at this point that the price-lowering effect of dumping new units on the market will outweigh the price-raising effect of the new amenities – in other words, prices will start to fall."

The problem is that once a neighborhood has all its amenities, new housing construction is ground to a halt by a NIMBY shield and any remaining original homeowners who are unlikely to allow their home values to fall.

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Published on Thursday, September 29, 2011 in Forbes
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