The Impact of Gentrification on Homeowners

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When wealthy new residents move into lower-income neighborhoods, they often renovate homes and open upscale businesses. This drives up property values, property taxes, and rent. This chain of events may force current lower-income residents to move out. Gentrification is a major issue nationwide, and cities are searching for the “magic” policy solution to promote investment in neighborhoods without displacing residents. In their recent paper in the Urban Affairs Review, Isaac William Martin and Kevin Beck of the University of California San Diego provide evidence that policies addressing displacement should focus primarily on renters. Contrary to common assumptions, the authors found that while gentrification did directly displace property renters, it did not directly displace property owners.

There is a widely-held belief that gentrification specifically affects homeowners by driving up property taxes, leading residents to sell their homes. However, the authors suggest that this argument is flawed for several reasons. Firstly, many regions have policies such as property tax freezes to protect long-term homeowners from unaffordable taxes. Furthermore, property assessments are infrequent and unlikely to keep pace with actual changes in market value in rapidly gentrifying neighborhoods. To address these factors, Martin and Beck sought to answer the question: is movement out of gentrifying neighborhoods more significant than movement out of non-gentrifying neighborhoods for both renters and owners?

The authors measured gentrification by identifying changes in neighborhood characteristics between the 2000 and 2010 censuses. They classified a neighborhood as “gentrifying” if average housing prices increased from 2000 to 2010 and if the neighborhood experienced an increase in the share of adults with four-year college degrees. The authors measured residential mobility through the Panel Study of Income Dynamics (PSID), a national survey of households that collects a variety of social and economic data. They identified households that moved in the past two years and whether the respondent indicated that the move was “involuntary.”

Martin and Beck first attempted to replicate results from previous studies suggesting that renters are impacted by displacement. They found a positive correlation between gentrification and moving, but the correlation was not statistically significant. Conversely, when they isolated moves considered “involuntary,” they found that renters in gentrifying neighborhoods were 2.6 percentage points more likely to move out than renters in non-gentrifying neighborhoods.

Shifting their analysis from renters to homeowners, the authors found no significant relationship between gentrification and move-out of homeowners, even when controlling for differences in a household’s property taxes as a share of income and differences in property tax policy across cities. Even when measuring the effect of involuntary moves only, they found no impact of gentrifying neighborhoods on displacement. It is important to note that the authors did find evidence that families who spend higher proportions of their income on property taxes were more likely to move, but that this correlation was equally common in both gentrifying and non-gentrifying neighborhoods.

A potential limitation of this study was the catch-all “involuntary move” category. The survey asked an open-ended question about reasons for moving, and the PSID then coded the response as voluntary vs. involuntary. The involuntary category included responses that discussed neighborhood safety, divorce, or financial constraints unrelated to gentrification. The inclusion of these reasons in the involuntary category could have produced an overstatement of the impact of gentrification on move-out. Another issue is that people may have simply reported incorrectly—saying they moved voluntarily when they didn’t, or vice versa. Depending whether there are more false positives or false negatives, the authors’ results could be over- or understated.

Beck and Martin concluded that the displacement of homeowners was not impacted by gentrification, but the displacement of renters was. These results have important policy implications. When designing policies to address gentrification, it is important to distinguish between renters and homeowners. Though the property tax burden faced by homeowners is an important issue, cities often have tax relief programs specifically designed to protect homeowners. Instead of focusing on homeowners, cities should devote policy resources to focus on challenges faced by renters in gentrifying neighborhoods.

Article source: Marin, Isaac William and Kevin Beck. “Gentrification, Property Tax Limitation, and Displacement.” Urban Affairs Review. Vol. 54(1) (2018): 33-73.

Featured photo: cc/(Feverpitched, photo ID: 960624848, from iStock by Getty Images)

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