What is Gentrification, and What Does it Do?

All this week, we’ve been listening to NPR’s series on gentrification in the Los Angeles neighborhood of Highland Park and thinking about the different perspectives reflected on the series. While some people are of the opinion that gentrification does a much-needed job of cleaning up rough neighborhoods and bringing new business and jobs, others resent the fact that longtime residents are often forced out by rising property values and cost of living. Many businesses were vandalized last month in protest of gentrification, and though this article seems to suggest that not all of the protesters completely understood  what they were protesting, it certainly reflects the dissatisfaction of some. Gentrification

So what is gentrification? Well, every neighborhood experiences a life cycle that is broken down like this:

  1. Growth: A neighborhood is “born,” or developed, and is desirable, causing growth.
  2. Stability: A stage of balance without huge growth or decline. Most neighborhoods in our area (Sacramento/Roseville) fall into this category.
  3. Decline: Desirability falls, perhaps due to crime or widespread deferred maintenance.
  4. Renewal: A period of revival within the neighborhood and resurgence of desirability.

Gentrification can happen between Decline and Growth. It occurs in poorer areas when wealthier people move in, invest money in the area, attract businesses, and improve schools. This causes desirability and property values to increase, the cost of living goes up, and the original residents of the neighborhood are often forced out to find more affordable areas. The most prominent modern example of this phenomenon may be Brooklyn, New York, which was once known as a much cheaper, working class alternative to Manhattan and is now a yuppie and hipster haven, crawling with specialty coffee shops and pricey independent boutiques.

Gentrification Gentrification occurs in cities all over the U.S., though, not just Los Angeles and New York City. In fact, it is currently occurring in neighborhoods we appraise. Oak Park is one example, a once desirable neighborhood sometimes hailed as the “first suburb” of Sacramento that is now best known for poverty and crime. About a year ago, we appraised a home there that was being purchased by investors with plans to flip it. They had their work cut out: the home was uninhabitable with no flooring, windows, doors, few undamaged walls, and almost no updates at all since the home was built almost 100 years ago. Our opinion of value was well under $80k, which is absolutely dirt cheap by California standards. However, the investors were excited– they said that remodeled homes were selling hot in Oak Park. As we drove around, we noticed new businesses marked the landscape, including a trendy looking new brewery and condos. The gentrification of Oak Park is actually a rather hot topic in Sacramento right now, though the jury’s still out on whether it will be successful or not. Another neighborhood the city hopes to revitalize is downtown, where the new Sacramento Kings arena will be built. Given that the zip code has one of the lowest median incomes in the Sacramento area, the plans for revitalization will certainly displace many of the current residents.

Appraisers and realtors, do you see gentrification happening in your areas currently? How does it affect (or not affect) your work? Let us know in the comments!

Comments

  1. Haha… I have used the term ‘Gentrification’ in many reports. It’s amazing to me that many senior level review appraisers have never heard the term before. I stopped using it as I got tired of having to politely explain it to them. Now I use little words in my lender reports (grin).

  2. Michael Brandlin says:

    This is an excellent article and happens in so many city’s around the world. Thank you for explaining this in more detail.

  3. Great idea for a blog post Jeff. We have lots of gentrification in Portland, Oregon market as well. The area that we see this most is in taxes. In our area, there was a measure that does not allow taxes to rise above a set annual rate, unless a property is renovated and reassessed. This means that properties in recently gentrified areas have the lowest taxes in relation to market value, but there are some properties in those areas that have much higher taxes because they have been reassessed after a major renovation or addition. This seems unfair to the renovated properties and seems to penalize the person who gets permits and makes the neighborhood better.

  4. Great info Jeff. I definitely see this happening in certain neighborhoods of Chicago like Ukranian Village where property values are up over 20% year over year.

  5. This is currently taking place in the Jefferson Park area of South L.A. What worries me are agents, owners and less experienced appraisers who can be misled by the homes selling significantly higher than average. Could lead to unreal expectations.

Speak Your Mind

*