Fighting gentrification with socially conscious capital investments
Anyone paying even cursory attention to the real estate markets over the past ten years would think that things are going pretty well. Many metro areas, from San Jose to Tampa, are seeing substantial home value growth with many parts of the country hitting double-digits. However, with growth comes growing pains, and one particular issue is garnering a lot of attention: gentrification.
Is gentrification too big to solve?
There’s no sugar-coating it. People are being priced out of their homes in cities across the country. The reasons for this phenomenon are diverse and debatable. Urbanization and lack of economic opportunities have driven many talented workers from the suburbs and exurbs into cities, which has driven up demand for housing, and thus prices.
Wall Street and investment firms also hold much of the blame. Seeing growth opportunities, many institutional investors have scooped up vacant land and old properties and gone on a development spree. Unfortunately, much of the development in cities like San Francisco and New York city has been targeted at high-end luxury condominiums and is out of reach of most prospective homeowners. Despite substantial construction and even with many developments coming online, lower to middle end buyers in the housing market cannot find affordable, quality housing in many major metros.
This problem is expected to get worse, partially due to new legislation passed as a result of the Tax Cuts and Jobs Act of 2017. That bill created “Opportunity Zones” which are federally-designated census tracts that lag in economic development. Investors will be eligible for significant tax breaks by investing in these zones- the kinds of areas that gentrification is hitting the hardest. Now, we can throw our hands up in the air or we can blame the government- but what can we do, as investors and businesspeople, to actually solve the problem?
Developing bridges and opening doors
An inclusive process is key to meeting gentrification head-on. By including minority and female developers and investors in development opportunities, the same populations most impacted by lack of affordability, we may stand a better chance of meeting community needs. Empathetic developers are critical to the future success of gentrification-opposed development. We can do this by bringing more powerful financial tools into underserved communities.
One solution might be a neighborhood trust, an idea being experimented with in a number of cities in Texas, Massachusetts, California, and New York, with some success. These trusts are usually run by local nonprofits who acquire parcels of land and pledge to use them for projects that benefit the local community. Typical uses range from affordable housing to community-owned businesses.
Paradoxically, despite the government being the cause of many gentrification-related problems, it can also be a part of the solution. Cities like Washington D.C. and San Francisco are exploring ways in which to help homeowners, threatened by soaring neighborhood and property values, to stay in their homes. Changing the way that municipalities collect property taxes is one strategy being adopted in a few different cities.
When property values rise, the corresponding increase in property taxes often leads to long-term, low-income residents losing their homes. If cities offer tax credits or reduced tax rates for community residents, that could go a long way toward solving gentrification-related flight.
Real estate accelerators
Another strategy involves the creation of a “Real Estate Accelerator” by local nonprofits or other interested parties. An accelerator can provide community members with the tools to become real estate developers and investors themselves, by providing educational workshops and classes. Mentoring those that want to pursue real estate opportunities in their own neighborhood can be especially beneficial. Programs like these act as a steppingstone for low-income and underserved community residents to achieve careers in real estate development.
The housing affordability crisis is not going away anytime soon, but a multi-pronged attack on the problem, led by both the private and public sectors, may help to alleviate some of the issues associated with gentrification.
Image “Gentrification Writ Large” by Matt Brown is licensed under CC BY 2.0
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