A mas model based on Smith’s RGT

1. A mas model based on Smith’sRGT 8th Design and Decision Support System in Architecture and urban Planning Heeze, 4-7 July 2006 Lidia Diappi Dpt. Architecture and Planning Politecnico di Milano

2. A mas model based on Smith’sRGT A simply preliminary model of Gentrification is presented The model is based on the Smith’s Rent Gap Theory A Multi Agent simulation approach is adopted to model the Gentrification spread in Milan Self organized Criticality (SOC) emerges.

3. A mas model based on Smith’sRGT Almost every historic city exhibits the Gentrification phenomenon: certain run-down inner-city neighbourhoods at some point suddenly ‘take off’, showing signs of regeneration, spontaneous rehabilitation of buildings and economic revival. The old community is replaced by a new one, which is young, cultured and affluent, and able to pay rapidly rising real estate prices . The scale of the phenomenon is the “neighbourhood”, an intermediate scale between a few blocks and statistical urban areas (in Italy).

4. Gentrification and Land Rent Theory A mas model based on Smith’sRGT The classical LRT (Ricardo, Von Thünen, Marshall and Alonso) explains land value in terms of “location” and accessibility. But many cities show decayed neighbourhoods in the city centre. Empirical evidences against LRT: High “Position value” and “accessibility to the centre” do not always mean “high rent” (i.e. the pioneering Hoyt’s analysis on land rent valleys) Land rent is affected by land use; Land rent depends on spatial context and scale effects.

5. A mas model based on Smith’sRGT The spatial influence of a degradated block on the neighbouring rents Real estate values near the “Inganni” social housing settlement in Milan

6. A mas model based on Smith’sRGT The “demand side” explanations of Gentrification Gentrification is “..a demand pressure of the suburban middle and upper class which want come back to the city” ( Ley, 1996), Changes in lifestyles…”decrease the relative desiderability of single family, suburban homes” (Lipton,1977)

7. A mas model based on Smith’sRGT The Neil Smith’s “Supply Side” approach [Gentrification is] “.. a back to the city movement by capital, not people”Smith identifies a crucial nexus between property value and land value.Smith argues that the production of “gentrifiable areas“ is explained in terms on building cycle in urban neighbourhoods.

8. price house value potential ground rent rent gap capitalized ground rent The devalorisation cycle and the rise of the rent gap N. Smith , 1995, The new urban frontier, Routledge, p. 71, Capitalized ground Rent is “the actual quantity of ground rent that is appropriate by the landowner, given the present land use” (Smith, 1979, p.543) Potential ground rent is the rent which might be realized , given the site location, under the “highest and best use” House value is the construction cost minus the depreciation due to wear and tear Price is the sum of house value plus the capitalized ground rent Rent gap is the disparity between the potential ground rent and the actual ground rent capitalized under the present land use Dollars Time (from construction date)

9. Capital depreciation in the inner city REDLINING AND ABANDONMENT 6 WIDE RENT GAP REDEVELOPMENT GENTRIFICATION 5 1 SOCIAL SEGREGATION DISINVESTMENTS BY LANDLORDS AND FINANCIAL INSTITUTIONS INITIAL DEPRECIATION (WEAR AND TEAR OBSOLESCENCE IN STYLE, NEED OF MAJOR REPAIRS) 4 2 NEIGHBOURHOOD TENDENCY TO RENTAL TENURE UNDERMAINTENANCE OUT FLOW OF CAPITALS INHABITANTS FILTERING DOWN LANDLORDS AND HOMEOWNERS SELL OUT AND SEEK NEW HOMES 3

10. A mas model based on Smith’sRGT The relevance of the neighbourhood In the first stage home owners act individually, whereas in the following five stages the process is brought about by the collective action at the neighbourhood scale.

11. A mas model based on Smith’sRGT The CA MAS model

12. A mas model based on Smith’sRGT

13. The transition rules A mas model based on Smith’sRGT Every building is undergoing a continuous decay process, which drops the rent with a constant annual rateλ. Landlords and homeowners decide to invest only if the neighbouring rent is higher than the expected rent after rehabilitation. After rehabilitation: Capitalized rent ini= Neighbouring rent

14. Transition rules A mas model based on Smith’sRGT Investors perceive the Rent Gap between potential rent and local capitalized rent. Given residual capital availability if PR(i) –CR(i)> or PR(i)/CR(i) >  investors choose the locations where to invest among cells showing the highest profitable Rent Gap. After rehabilitation: CR(i,t+1)=PR(i,t)

15. The Milan case study • In the last thirty years the housing market in Milan has experienced periodical “bubbles”of real estate market. • In the same period the city, as many other European cities, had lost most population, approximately 500.000 inhabitants (37%) • The historical centre is an highly speculative market, where the unsatisfied demand of investments pushes up the prices.The population turn over concerns high income families. • In the middle peripheral areas the decay process in Milan has been contrasted by the massive renovation process promoted by fiscal incentives and new external demand. • Population turnover mainly concerns new emerging professionals in design, fashion, communication which deplace middle income families in the suburbs. • Milan has shown recursive waves of Gentrification affecting central and semicentral rings

16. A mas model based on Smith’s RGT Parameters setting Other parameters: Annual Decay rate λ = 0,02 Available capital = 100.000 Construction cost for each building = 1.000 Neighbourhood radius = 10 cells Capitalised rent ranges from 1.500 to 7.000

17. A mas model based on Smith’s RGT Parameters setting Potential rent is assumed to be a conic surface which interpolates the highest rent values for each ring

18. 1993 Initial state Real estate Zoning system : 67 zones identified by Borsino Immobiliare of Camera di Commercio di Milano The data base supplies mean transaction values (sales) for each zone in the period (every 6 months)for different land uses. These values for residence are the Capitalised rents at time t

19. 34.0 - 35.0 33.0 - 34.0 32.0 - 33.0 31.0 - 32.0 30.0 - 31.0 29.0 - 30.0 28.0 - 29.0 27.0 - 28.0 26.0 - 27.0 25.0 - 26.0 24.0 - 25.0 Maintenance status For each zone has been identified a distribution of maintenance status (Very good, good, bad, very bad) on the base of Census Data 1991. The allocation of the status to each cell has been implemented through a Monte Carlo procedure.

21. Stato iniziale

22. 0

23. 10 21-3-1

24. 20 21-3-1

25. 30 21-3-1

26. 40 21-3-1

27. 50 21-3-1

28. 60 21-3-1

29. 70 21-3-1

30. 20 30 40 50 10 80 90 60 70 100 130 140 150 110 120 160 170 180 200 190 0 21-3-1

31. A mas model based on Smith’sRGT Concluding remarks A systematic exploration of the model is already underway, concentrating on the relationships between model parameters and the way different values lead to different spatial pattern. The Smith’s theory has provided a sound starting point for a MAS model. The model was able to give an approximate description of the spatial pattern of Gentrification and their recursive waves. From numerical simulations emerges the key role of potential rent and the way by which rent gap measure influences the evolution of the market. In order to build a more realistic scenario both PR and RG should articulated at local level taking in to consideration local values (historical buildings, accessibility, housing stock level, parks, etc.). Necessity to measure and investigate the elasticity of RG vs. the dynamics of the local R.E. market.