Will Smart Cities be Gentrified Cities?

By Frank Teng

Frank Teng is a current MBA in Sustainable Management student at Presidio Graduate School in San Francisco and is on the board of Sustainable Silicon Valley. He works with Jones Lang LaSalle, a global real estate services firm, to manage global energy and sustainability programs for corporate clients in the technology and financial services sectors. Please note: Frank's views are his own and do not necessarily reflect the views of his employer.

Dec 4, 2013 | Society, Technology | 0 comments

Can cities become victims of their own success as they enhance and prosper? The idea of dislocation and displacement from a community is contrary to the urban ethic, and yet this undercurrent is rising in the public discourse wherever revitalization is occurring. Cities such as New York and San Francisco are on the tip of our tongues, as their housing costs in certain neighborhoods climb 12%-40% and reports proliferate of longtime businesses and residents being driven out.

The Conundrum

As a backdrop, Fast Company announced their Top 10 Smartest Cities in North America on November 14th. The criteria were based on Boyd Cohen’s Smart Cities Wheel Framework, which helps to visually frame what makes a smart city and includes criteria such as GINI index (measure of inequality), data transparency, and support of entrepreneurship. Seattle, San Francisco, Boston, and Washington D.C. round out the top four.

Interestingly, those cities also appear at the top of a list of gentrifying cities in a study published on November 6 by the Federal Reserve Bank of Cleveland. Daniel Hartley employed metrics to quantify the actual occurrence of gentrification, something that has been notoriously difficult to capture.

Four cities saw significant shares of the neighborhoods that could gentrify, do so: Boston (61 percent), Seattle (55 percent), New York (46 percent), and San Francisco (42 percent). In Boston, the gentrifying neighborhoods represented about a fourth of the entire city’s population. In other cities, the proportion was much smaller.

He defines a gentrifying neighborhood as one that “is located in the central city of a metropolitan area and it goes from being in the bottom half of the distribution of home prices in the metropolitan area to the top half between 2000 and 2007″.  The rationale is that housing prices are a good overall reflection of the economic health of a neighborhood, including factors such as school quality and crime rate.

The Dynamics

While most would agree that investment in cities can help spur economies, stabilize tax bases, enhance civic culture, and contribute to a more environmentally sustainable society, they would also agree that putting longtime residents at a disadvantage by this growth is not the intention. Of course, issues of politics, race, socioeconomics, and social fabric play intimately into these discussions. As one blog notes, “simply put, gentrification is our word for how money controls our cities.”

Complex economics can play out here. An influx of people and businesses in a city without corresponding growth in supply of space will drive up demand and prices. Increasing real estate value should be a good thing, but that can also cause corresponding rise in property taxes, rents, and cost of living that impacts both homeowners and tenants. The other cause for resistance is that unchecked growth can irrevocably alter a neighborhood’s character, although in some cases this could be a welcome upgrade. The rise of housing prices can be aggravated further by Wall Street – not in the traditional sense of speculation and flipping real estate, but by commercial investment from private equity and real estate investment firms looking for long term returns from renting out homes, as billions of dollars have flowed to purchasing blocks of home inventories in the New York area.

Perhaps the cities of the future are not driving their citizens out, but shifting them around within. In New York City, while some areas such as the part of Brooklyn adjacent to Manhattan may see housing  prices rise, there may be other areas where housing prices are falling such as south Brooklyn , as this map depicts. Is the stereotypical blighted American downtown undergoing a shift to the city periphery, following the pattern of many megacities around the world?

Putting aside displacement, what if gentrification actually benefits current residents? Daniel Hartley seems to think so, as his research shows that “there is a positive change in the financial health of the existing residents of gentrifying neighborhoods as measured by their Equifax Risk Score ™ and delinquency rates. This positive change is present for mortgage holders, for nonmortgage holders, for those that stay in the neighborhood, as well as for those that move out.” More research is needed here, particularly over longer timelines than Hartley includes in his analysis, but these results certainly are enough to give some pause.

Revitalization not Gentrification

It’s clear that dislocation and displacement are not desired in our cities. Managed well, revitalization can bring increased funding for services that help people cope with rising prices, such as affordable housing allocations and increased taxes for human health services. In fact, from 2011 to 2013 there was a significant increase in public support for affordable housing, according to the 2013 American Community Survey conducted by the National Association of Realtors. The study also showed that Americans place more importance on community diversity across categories of race, ethnicity, income, and age. These are important trends for smart cities to monitor.

However, Americans can send very confusing messages about what they want out of a community, as Kaid Benfield points out in this article.

It’s not easy to take a single consistent set of messages from this survey. The evidence appears clear that Americans value convenience and walkability, but also large yards, privacy from neighbors, and travel by car.  Is it possible to have all that in the same community? To me, the poll suggests that figuring out how close we can get to supplying a diversity of housing and lifestyle choices in the same community may be key to the success of a sustainability agenda. Privacy from neighbors, in particular, seems so important to Americans that those of us who favor walkable neighborhoods should devote additional resources to designing solutions that supply it in less sprawling forms than we have now.

I think we can agree that smart cities should be shaped in way that does not depict income disparity via satellite images of tree cover. Maybe the theme here is that our society must be comfortable becoming more fluid in adapting to change, whether we view it as gentrification or revitalization. This graphical visualization of migration patterns between states is a good reminder that our communities are ever in flux.  As smart cities plan for growth, they will be well served to consider and articulate the balance they hope to strike between their history and their future.

Image via Mitchell J. Goldstein.

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