PPA786: Urban Policy

1. PPA786: Urban Policy Class 5: Neighborhood Change

2. Urban Policy: Neighborhood Change • Class Outline • Neighborhood change • Increase in low-income residents • Gentrification • Outmigration • The ripple effects of neighborhood change • Long-term urban trends

3. Urban Policy: Neighborhood Change • Housing Bids and Neighborhood Change • The tools we have developed help us to understand neighborhood change. • The key is to recognize that change in population or income shift bid functions up or down. • If people move into an area, for example, competition for housing intensifies and bid functions are pushed upward. • This leads, in turn, to declines in housing unit size or quality.

4. Urban Policy: Neighborhood Change • 1. Increase in Low-Income Residents • Suppose that an urban area experiences a large increase in the number of low-income residents (due to immigration or job losses). • Then the bid function for low-income households will shift upward. • The low-income section of town will expand; housing units there will be converted. • Low-income households will consume less H and pay more per unit of H.

5. Urban Policy: Neighborhood Change Neighborhood Change These neighborhoods shift from high-to low-income

6. Urban Policy: Neighborhood Change • Downward Housing Conversion • This housing conversion can take many forms • Dividing large units into smaller units • Renting previously single-household units to more than one household (or to larger households). • Allowing units to decline in quality.

7. Urban Policy: Neighborhood Change • Type A Neighborhood Decline: Overcrowding • In some cases, this process leads to clear neighborhood decline due to: • Severe overcrowding and/or • Extensive housing deterioration—to bring quality-adjusted square feet, H, down to a level that the entering low-income people can afford.

8. Urban Policy: Neighborhood Change • 2. Gentrification • Neighborhood change can also involve higher-income households moving into previously low-income areas. • This is called gentrification. • Now conversion involves improving units. • People must expect neighborhood amenities to improve.

9. Urban Policy: Neighborhood Change Gentrification These locations change from low- to high-income

10. Urban Policy: Neighborhood Change • The Role of Expectations • The role of expectations is worth emphasizing. • Housing is a long-lived asset. Home buyers bid on housing based on their long-term expectations concerning neighborhood quality. • High-income people will not move into a poor neighborhood if they do not expect its amenities to improve.

11. Urban Policy: Neighborhood Change • The Role of Expectations, Continued • Many local policy makers have figured this out. • Programs providing moderate-income housing in poor neighborhoods are likely to fail • Unless the city is committed to improving the neighborhood. • And moderate-income households believe the city will succeed.

12. Urban Policy: Neighborhood Change • Gentrification and Displacement • One great dilemma of local housing policy is the trade-off between gentrification and displacement. • Cities want better housing and nicer neighborhoods. • Existing low-income renters may be pushed out as a neighborhood improves and rents go up. • Existing low-income homeowners benefit from gentrification because the value of their homes goes up.

13. Urban Policy: Neighborhood Change • 3. Outmigration • Sometimes economic or social changes pull people out of a city. • Low-income jobs move to another region. • Housing subsidies or new highways pull middle-income households to the suburbs. • This leads to the opposite of the first case.

14. Urban Policy: Neighborhood Change Neighborhood Change If P(u) shifts downward: The fate of these locations depends on expectations

15. Urban Policy: Neighborhood Change • Type B Neighborhood Decline: Emptying Out • As P, the price per unit of H, declines, landlords have less incentive to maintain their units and housing quality (H) deteriorates. • If high-income households cannot be convinced to move in, some neighborhoods will experience vacancies and abandonment—which have a strong negative impact on neighborhood quality. • We will return to these topics in the next few classes.

16. Urban Policy: Neighborhood Change • The Ripple Effects of Neighborhood Change • Change in one neighborhood often has ripple effects in other neighborhoods. • If low-income households move in and some neighborhoods change to low-income neighborhoods, for example, high-income people will not have enough room. • The resulting increases in high-income bids will lead to additional neighborhood change.

17. Urban Policy: Neighborhood Change An Illustration of Ripple Effects Note: u* stands for the inter-group boundary and u′ stands for the outer edge of the urban area. Initial shock shifts low-income bid function to here. u*1 u′1u*2 u′2

18. Urban Policy: Neighborhood Change • Evidence on Neighborhood Change from Ellen/O’Regan • They studied changes in “gaining” low-income neighborhoods in the U.S. in the 1990s. • Gaining neighborhoods are those in which average incomes grew. • They put together a unique data set that could track people within neighborhoods. • Their key question was: Did economic growth lead to displacement?

19. Urban Policy: Neighborhood Change • Findings of Ellen/O’Regan • There is no evidence of heightened exit rates for renters or for poor households—i.e., no displacement! • Selective entry and exit among homeowners (e.g. richer owners moving in) are key drivers of neighborhood change. • Incumbents had larger income increases in gaining than in other neighborhoods. • Neighborhood satisfaction increased a little more in gaining than in other neighborhoods. • Populations in gaining neighborhoods did not became more white in the course of change.

20. Urban Policy: Neighborhood Change • Long-Term Urban Trends • Two key long-term urban trends are • Declines in transportation costs, t • Increases in income, which lead to increases in H • These long-term trends obviously flatten the slope (-t/H) of bid functions.

21. Urban Policy: Neighborhood Change The Impact of Long-Term Trends Slope flattens as t/H declines. And bid function shifts downward to keep population constant.

22. Urban Policy: Neighborhood Change • The Impact of Long-Term Trends • This picture leads to three clear predictions: • Density will decline in central cities • Density will increase in suburbs • The physical size of urban areas will grow • The predictions are supported by evidence from many countries.