Sunday, June 15, 2008

Who Gentrifies Low-Income Neighborhoods? A Problem for Relative Happiness Literature

New NBER working paper by McKinnish, Walsh, and White. Abstract:
This paper uses confidential Census data, specifically the 1990 and 2000 Census Long Form data, to study the demographic processes underlying the gentrification of low-income urban neighborhoods during the 1990's. In contrast to previous studies, the analysis is conducted at the more refined census-tract level with a narrower definition of gentrification and more closely matched comparison neighborhoods. The analysis is also richly disaggregated by demographic characteristic, uncovering differential patterns by race, education, age and family structure that would not have emerged in the more aggregate analysis in previous studies. The results provide no evidence of displacement of low-income non-white households in gentrifying neighborhoods. The bulk of the increase in average family income in gentrifying neighborhoods is attributed to black high school graduates and white college graduates. The disproportionate retention and income gains of the former and the disproportionate in-migration of the latter are distinguishing characteristics of gentrifying U.S. urban neighborhoods in the 1990's.

This paper will prove problematic for the relative happiness literature (aka positional externalities), where the agents are constantly trying to outperform their neighbors by being in the richest neighborhoods and being the richest of the neighbors (often, it is supposedly signaled with house size, which I will weigh in soon on). If households care so much about relative status, then: 1) Why does gentrification occur? Why would the well-off move to poor neighborhoods? and 2) once the gentrification process begins, why are those who are being gentrified out of their neighborhood so slow to leave?

In short, these problems with that line of literature arise because they usually aren't able to answer "relative to who?" If your answer to #1 is "because they'll be the richest person there", then you must concede that the behavior in #2 contradicts #1. The original residents who were "relatively rich" are not leaving after becoming "relatively poor" to their new neighbors.

If absolute status dominates, there is a simple explanation here: People move to poor neighborhoods because they find great bargains there for housing, and those being gentrified out aren't eager to leave because they are reaping the gains of increased property values because of their new neighbors.

1 comment:

Michael said...

I suppose no one wants to take on anything in general unless they get some profit out of the deal in general return, and that is acceptable in general terms. Sometimes breaking ground in general means dropping bombs on your moms. A figurative way of saying hard nosed programs aren't always interpreted the same by everyone who has a right to interpret them. I think hard hitters make for the best turn around when hard hitters are the one we're talking about trying to turn around. Then there's always the alternative.