Gentrification

Gentrification is the process whereby urban neighborhoods are revitalized through the use of economic incentives, designed to induce residents or businesses to acquire degraded property and restore it. Examples of economic incentives are reduced property taxes, or even the complete suspension of such taxes for a set period of time; the sale of condemned property for a reduced price, with the agreement that such property will be improved and utilized for a specific purpose; or in the case of residential neighborhoods, the refurbishment of housing either through local government incentives or strictly by private investment. Gentrification not only has obvious economic effects on neighborhoods, but also brings substantial demographic and cultural changes to an area, and therefore is a controversial method of urban renewal.

Gentrification is a response to the decline of inner-city neighborhoods and districts. Beginning in the 1970s, cities found that they could attract relatively wealthy buyers to declining urban housing, especially if the housing had some historic or cultural interest, by offering the real estate at bargain prices. They were able to attach certain restrictions on the use of the property as well, and in this way were able to greatly increase property values. A municipal government or a local neighborhood association might buy houses that are in dilapidated condition at a low price, and then offer the property to qualified buyers, who must agree to improve the property’s value to a certain level. The property may have conditions and covenants that restrict its use. For example, a common requirement for gentrified property is that it must be occupied by the property owner, he or she may not rent the property, and the property must be used solely for residential purposes.

The great advantage of this process is that low-value housing is converted, with minimal investment on the part of the city government or local entity, into high-value housing that raises property values in the area (a major incentive for neighborhood associations and local residents to promote gentrification), and generates much greater revenue in the form of higher property taxes (a major incentive for local governments to promote gentrification). There are additional benefits as well. Gentrified areas typically attract more businesses, due to the more affluent consumer base that results from the addition of higher-income residents, which in turn results in greater revenue for the city in the form of increased sales taxes.