Gentrification study released by Federal Reserve Bank of Philadelphia on American cities

Gentrification study released by Federal Reserve Bank of Philadelphia on American cities

A new study released on July 17, 2019 by the Federal Reserve Bank of Philadelphia looks at the consequences of gentrification in American citizens.

Quentin Brummet
NORC at the University of Chicago

Davin Reed
Federal Reserve Bank of Philadelphia Community Development and Regional Outreach

Over the past two decades, high-income and college-educated individuals have increasingly chosen to live in central urban neighborhoods. This gentrification process reverses decades of urban decline and could bring broad new benefits to cities through a growing tax base, increased socioeconomic integration, and improved amenities. Moreover, a large neighborhood effects literature shows that exposure to higher-income neighborhoods has important benefits for low-income residents, such as improving the mental and physical health of adults and increasing the long-term educational attainment and earnings of children. Gentrification thus has the potential to dramatically reshape the geography of opportunity in American cities.

However, gentrification has generated far more alarm than excitement. A key concern is that the highly visible changes occurring in gentrifying neighborhoods are driven by the direct displacement of original residents, making them worse off and preventing them from sharing in the aforementioned benefits.

These concerns are central to current debates about the distributional consequences of urban change and about policies associated with those changes. More specifically, they have emerged as an obstacle to building more housing in high-cost cities and have helped fuel support for policies like rent control, both of which could have large, unintended welfare costs. Thus, understanding how gentrification actually occurs and whether it harms or benefits original residents is of primary importance for urban policy. Yet despite its importance, there is little comprehensive evidence on this question. Largely because of data limitations, previous research has focused on particular outcomes, specific cities, or relied on purely descriptive approaches.

We define original residents as all individuals living in initially low-income, central city neighborhoods of the 100 most populous metropolitan areas (CBSAs) in the year 2000. These are “gentrifiable.” Low-income neighborhoods are census tracts with a median household income in the bottom half of the distribution across tracts within their CBSA.  Central cities are the largest principal city in their CBSA.

In this paper, we provide the first comprehensive, national, causal evidence of how gentrification affects original neighborhood resident adults and children. For adults, we estimate effects on a number of individual outcomes that together approximate well-being.

For children, we estimate effects on individual exposure to neighborhood characteristics known to be positively correlated with economic opportunity and on educational and labor market outcomes. We focus on original residents of low-income, central city neighborhoods of the 100 largest metropolitan areas in the US and explore heterogeneity along a number of dimensions.

Three innovations are central to our approach. First, we construct a unique data set of longitudinal individual outcomes by linking individuals responding to both the Census 2000 and the American Community Survey 2010-2014. For each person, we observe at both points in time their neighborhood (census tract) of residence, detailed demographic and housing characteristics, and a variety of outcomes. The data allow us to identify original residents and to follow changes in their outcomes whether they move or stay.

Second, we develop a stylized neighborhood choice model to provide a comprehensive picture of how gentrification affects original resident well-being and to anchor our empirical approach. It shows that the overall effect on well-being is captured by its effect on two margins: the number of residents choosing to move instead of stay (out-migration or displacement) and changes in the observable outcomes of both movers and stayers. We capture the latter with changes to each original resident’s income, rent paid or house value, commute distance, and neighborhood poverty rate. Out-migration matters even conditional on these changes because movers may experience unobserved costs of moving from the origin neighborhood.

Finally, we use three complementary methods to argue that our results are causal. We first estimate Ordinary Least Squares (OLS) models of the relationship between individual outcomes from 2000 and 2010-2014 and gentrification over the same period, controlling for a detailed set of individual, household, and neighborhood characteristics and pre-trends. To address potential bias from remaining omitted variables and spatial spillovers, we use coefficient stability methods from Altonji et al. (2005) and Oster (2017) and spatial first differences (SFD) methods from Druckenmiller and Hsiang (2018). These three methods use different assumptions and identifying variation yet yield quantitatively similar results, suggesting they provide plausible bounds for the causal effects of gentrification.

Overall, we find that gentrification creates some important benefits for original resident adults and children and few observable harms. It reduces the average original resident adult’s exposure to neighborhood poverty by 3 percentage points, with larger (7 percentage points) reductions for those endogenously choosing to stay and no changes for those endogenously choosing to move. Gentrification also increases the average original resident homeowner’s house value, an important component of household wealth, with effects again stronger for stayers. Importantly, less-educated renters and less-educated homeowners each make up close to 25 percent of the population in gentrifiable neighborhoods, and 30 percent and 60 percent, respectively, stay even in gentrifying neighborhoods. Thus, the benefits experienced by these groups are quantitatively large. Gentrification increases rents for more-educated renters but not for less-educated renters, suggesting the former may be more willing or able to pay for neighborhood changes associated with gentrification.3 We find few effects on other observable components of adult well-being, including employment, income, and commute distance.

Given the importance of neighborhood quality for children’s long-term outcomes (Chetty et al. 2016; Chetty and Hendren 2018a,b; Chyn 2018; Baum-Snow et al. 2019), we also study how gentrification affects original resident children. We find that on average, gentrification decreases their exposure to neighborhood poverty and increases their exposure to neighborhood education and employment levels, all of which have been shown to be correlated with greater economic opportunity (Chetty et al. 2018). We also find some evidence that gentrification increases the probability that children of less-educated homeowners attend and complete college, with these effects driven by those endogenously staying in the origin neighborhood.4 Taken together, the results for children and adults show that many original residents are able to remain in gentrifying neighborhoods and share in any neighborhood improvements, answering a key unresolved distributional question.

At the same time, gentrification increases out-migration to any other neighborhood by 4 to 6 percentage points for less educated renters and by slightly less for other groups.

However, these effects are somewhat modest relative to baseline cross-neighborhood migration rates of 70 to 80 percent for renters and 40 percent for homeowners. Importantly, we find no evidence that movers from gentrifying neighborhoods, including the most disadvantaged residents, move to observably worse neighborhoods or experience negative changes to employment, income, or commuting distance. Our model shows that the key remaining channel through which gentrification may cause harm is through unobserved costs of leaving the origin neighborhood. These may be small given the high rates of baseline mobility we find and existing structural estimates of the value of community attachment.5 We provide additional evidence that the highly visible changes associated with gentrification are driven almost entirely by changes to the quantity and composition of in-migrants, not direct displacement.

Our results have important implications for how policymakers should respond to concerns about gentrification. Foremost, they should weigh the benefits of gentrification that accrue to original residents, including less-advantaged residents, against any harms.

Moreover, neighborhoods are far more dynamic than typically assumed, with high baseline migration allowing them to change quickly without the wholesale direct displacement of original residents. Instead, neighborhood demographic changes are driven almost entirely by changes to those willing and able to move into gentrifying neighborhoods. Thus, preserving and expanding the affordability and accessibility of central urban neighborhoods should primarily take a forward-looking approach that seeks to accommodate increasing demand for these areas. A growing recent literature suggests that building more housing (whether market-rate or affordable) is a promising way of maintaining and expanding housing affordability (Mast 2019; Nathanson 2019; Favilukis et al. 2019). It would also maximize the integrative and opportunity benefits we find. These policies could be complemented with rental subsidies or other inclusionary policies carefully targeted to the relatively small population of the most disadvantaged original residents, for whom outmigration effects are highest. Additionally, targeting inclusionary policies to low-income families with children could encourage them to stay in neighborhoods improving around them, complementing existing programs like Moving to Opportunity (MTO) that seek to increase moves from low- to high-opportunity neighborhoods.

Washington D.C. had the largest share of gentrifying neighborhoods
The study used data compiled from the 2000 census and the American Community Survey 2010-2014.
Much more development has occurred since 2014.

The Effects of Gentrification on the Well-Being and Opportunity of Original Residents Adults and Children