Gentrification

We asked the experts whether they agreed or disagreed with the following statement, and, if so, how strongly and with what degree of confidence:

Residents of big European cities would be better off, on balance, if governments did more to counter gentrification, for example, by using rent and other housing subsidies, public housing investments, zoning regulations, or similar policies.

Survey results

Of our 50 experts, 37 participated in this survey, and the reaction was mixed. Weighted by each expert’s confidence in their response, 1% strongly agreed, 15% agreed, 41% were uncertain, 41% disagreed, and 1% strongly disagreed. The short comments that the experts are able to include when they participate in the survey reveal some of the key issues surrounding gentrification and housing policies that might counter the process.

Among those who agreed with the statement, Jan Pieter Krahnen of Goethe University Frankfurt summarized why gentrification might be a problem: ‘Too homogeneous a neighborhood in inner cities, as well as in “les banlieues”, may undermine cohesion and solidarity in society at large.’ Olivier Blanchard of the Peterson Institute, whose survey response was ‘uncertain’, expressed similar concerns: ‘On net, having cities with social and economic diversity is a good thing. But some residents will benefit, others will lose.’

Several other experts who said that they were uncertain about whether governments should intervene noted the potential for unintended consequences of chosen policies. Agnès Bénassy-Quéré of the Paris School of Economics commented: ‘Difficult in practice since housing subsidies may be captured while public housing may end up crowding out the middle class.’

Hélène Rey of the London Business School said that ‘Subsidizing demand is not a good idea; increasing supply (public housing, zoning) is.’ Patrick Honohan, Trinity College Dublin added: ‘Some interventions clearly desirable; potential for dysfunctional action also evident.’

Among those who disagreed with the statement, Per Krusell at Stockholm University questioned the proposed policy responses to gentrification: ‘A solid public education system is important, as is public health, in my view. Paying people to live in certain areas is more questionable.’ And Christopher Pissarides at the London School of Economics highlighted the key challenge: ‘In principle the suggestion sounds good but governments are unlikely to do a good job and the result will be worse than before.’

Christian Leuz of Chicago Booth responded ‘uncertain’ to the statement but took a similar view: ‘Concerned about gentrification, but not much evidence on benefits of policies to counter it; have evidence policies have non-trivial costs.’ He provided links to relevant studies, including evidence of the misallocation of housing under rent control in New York City and a review of the basic economics of US housing supply.

Research evidence on this issue in European cities includes an OECD study of a number of housing policies, such as housing taxation, land use and rental regulations, and social housing policies. One main finding is that badly designed policies can have substantial negative effects on the economy, for example, by increasing the level and volatility of real house prices and preventing people from moving easily to follow employment opportunities.

Romesh Vaitilingam
@econromesh
May 2019