Negative impacts of gentrification on minorities

Outline

· Introduction

· Why gentrification is an important issue for low income communities

· Issues both economic and health that apply to low income communities as it relates to gentrification

· Economic Impacts of Gentrification

· How rates of return impact investment and housing prices

· How low interest rates further exacerbate the gentrification process

· Summary of economic impacts of gentrification on low-income families

· Health Impact of Gentrification

· Anxiety and Depression

· Conclusion

Of late, the topic of gentrification has become a polarizing and contentious issue with the urban development community. Here, professional recognize the need to further help foster wealth and higher incomes with low-income communities, but on conflicted in the manner in which to do so. Recent evidence from Green Gentrification and 21st Century Civic Infrastructure suggest that gentrification can actually harm low income communities due to rising home valuations and displacement of low-income communities. Those individuals who are displaced due to gentrification, studies have shown, can develop psychological trauma as the support network for many people of color diminishes over time (Rigolon, 2019). Likewise, as indicated by Green Gentrification locations of parks and the recent adoption of higher environment standards also posses a risk to low-income families. Here again, parks, amenities and other environmental conscious investments tend to increase housing prices and lower affordability. This is compounded by low housing availability in certain high demand locations such as Atlanta or New York City. Urban planners, community organizations and policymakers are all confronted with a difficult challenge. As the evidence mounts that environmental amenities can foster environmental gentrification, how can we continue to provide them without displacing the very people they are intended to benefit? This essay focuses particularly on the New York Highlines and Chicago’s 606. The studies related to green gentrification and its impact on neighboring communities is particularly pertinent these two projects namely due to their heavy emphasis on parks. Both infrastructures provide a strong case student for the impact of gentrification on low income families due primarily to overall variety and magnitude of the gentrification efforts relative to other much smaller projects in the United States. To properly ascertain the impact of these two infrastructure projects, we will be evaluating both on the basis of both economic well-being and health. The object is to better pinpoint the causes of displacement while also offering potential remedies that can benefit all stakeholder in a manner suitable to urban planners (Banks, 1958)

To begin, from economic perspective gentrification has been found to displace those with lower incomes in many prominent communities around the world (Ellen, 2016). The effects of gentrification are not unique to the United States are often bound by economic rules and laws. For one, investments, particularly those in infrastructure, require an adequate return in order to justify initiating the project. For example, with The High Line, is a 1.45-mile-long park and rail trail on the west of Manhattan in New York City. Prior to its construction, the high line was primarily a large array of abandoned rail road tracks. In order to generate the capital needed to create The High Line, a $152 million dollar investment was required. This investment was funded by $112 million from the city , $20 million from the federal government, and $400,000 from the state. These funds were ultimately generated through bond issuances in which entity borrowed money from investors with a promised to pay the funds back at a latter date. The weight average duration of the bonds were 10 years and the average interest rate was 4%. In order to justify this investment, the city, state and local governments must obtain a return comparable or higher than the 4% used to issue the bonds. This is primarily generated through a combination of property tax, business tax, and income taxes which are generated through the increase in business activity near The High Line. This concept is the primary cause of the increase prices we see around the world with gentrification occurs. Here, investors both public and private invest capital into an improvised area. These investments, in particular, green investments, require an adequate return on the capital deployed to justify the expenditure. Once completed, perspective purchasers are willing to pay more for their respective properties due to the new investments made that increased the value of the surrounding property. Once completed, investors will increase prices to align with the overall demand for housing within the area. This increase in price reflects the value created from the investment, which in turn increases the return earned by the investors. The increase in housing prices, rental rates, and overall affordable attracts still further investment as market participants look to earn outsized returns. As a result, a self-fulfilling prophecy emerges as it relates to housing in which rise values, attract more investment which in turn produces still higher prices. Chart 1 below depicts the method described above. Attracts

Chart 1

From the perspective of the High Line, this concept is exactly what has occurred in the area immediately surrounding it. Luxury condominiums such as 76 11th, 625 Madison, 15 Hudson Yards and 35 Hudson yards have all recently been constructed. Each property caters only to high end, luxury purchases, with affordable units be offered only be state mandate. As it relates to 76 11th, the project actually uses The High Line as selling point for its over $5 million condo offerings. A google search of Hudson Yards also shows a similar technique employed by the property manager, using the highline as a means to attract high net worth buyers. Ultimately low-income families will be displaced as their income growth can not keep pace with the housing prices increases that are taking place during the gentrification process. In fact, recent articles have shown that homes specifically on The High Line is nearly 100% higher than similar housing just one block away. This dramatic and often rising increase in pricing impacts low income families and communities disproportionately. Steadily, more and more low-income individuals are displacing due to housing affordability, rising living costs and ultimately higher taxes (Richardson, 2019). In addition, communities are often alienated as their support network steadily dwindle. Studies have shown that this actually can cause psychological damage to certain individuals who rely heavily on a community support network to foster individual growth (Hyra, 2015). Chicago’s 606 experience many of the same elements of New York with dramatically higher rental rates in areas near the gentrified areas, but dramatically lower rates on the outskirts. Much like New York, this too impacted the neighboring communities within Chicago as lower income families were first to relocate on the part of higher housing prices.

Further complicating the economic issue related to gentrification is macroeconomic concerns. Currently, due to COVID-19, interest rates have remained near all-time lows. Interest rates have been a boon for gentrification for a number of reasons, all of which also harm lower income communities. Gentrification is often predicated on revitalizing tangible assets such as homes or apartment buildings. The low interest rate environment increases the value of these assets because investors are discounting the future cash flows generate from the asset at a much lower rate. As a result, investments in real assets during the gentrification process become even more attractive as interest rates are lower. We have seen this occur over the past decade as housing prices have risen as interest rates have declined. As noted in Chart 1 above, this ultimately attracts more investors as they are looking to generated high risk adjusted returns relative the risk-free rate, which is currently at historic lows. Due to high investor demand, housing prices continue to increase causing still further demand for homes, particularly in areas with gentrification. Chart 2 below shows housing prices since 1970. Notice the nearly $100,000 increase over the last decade. This directly coincides with the low interest rate environment, which has heavily increase housing prices which ultimately has lowered affordability for low-income families

Chart 2 – Housing Price Increases

In addition to the low interest rate environment, investor have very little alternatives in the open market to invest. Interest rates are near 0%, the 10-year bond is roughly 1.7%, investment grade, corporate bonds are yield 3%, and equities are currently overpriced. As such, investors are looking for yield in a lower interest rate environment, with the most attractive source being housing, infrastructure and other stable assets with strong contractual cash flows.

How does this all impact lower income communities? First, as it relates to gentrification, it essentially prices lower income families out of the market. As we saw with The High Line case study above, prices have risen in areas immediately surrounding the are the was gentrified. However, the same increase was not realized in the areas immediately on the outskirts of this area. As, a result, lower income families will be forced to move. In addition, gentrification, in a low interest rate environment exacerbates all of the issues presented above. As indicated in Chart 1, lower interest rates increase real asset values. The increase in real asset values makes it hard to afford a home. If renting, rents typically increase to justify the added value for the improved community due to gentrification. This too prices out low-income communities. Those communities that are fortunate enough to own a home, will ultimately see their net worth and asset values increase due to the low interest rate environment. However, as we have seen in cases around the world, their overall community will diminish steady as many individuals can not afford the housing. As a result, the homeowner is faced with a smaller community in which to support them within their individual endeavors. Admittedly, this may not matter or be a consideration for some low-income families. For other, particularly Hispanic communities which rely heavily on the family, this could be troublesome (Chapple, 2016).

As we discussed the economic impacts of gentrification, we now transition into the health impacts. Gentrification is proposed as a means to help lower anxiety by providing increase access to opportunity and a diverse community. Here, elements such as parks, forests, trails, and other amenities are designed to lower stress induced within a community. It was also designed to encourages diversity by attracting consumers with a variety of incomes and backgrounds. Finally, particularly with green gentrification, communities were believed to have cleaner air and resourced that would ultimately aid the environment. Although well intentioned, the research indicates that the exact opposite is occurring Studies have recently an increase in anxiety and depression caused by gentrification. A study conducted that researched the incidence of obesity, asthma, attention hyperactivity disorder, anxiety or depression, and rates of ER visits or hospitalizations and proportions of children who went to at least one well visit. Children starting out in areas that gentrified had a 22 percent higher prevalence rate than did children who started off in low-SES areas that did not gentrify according to the study (Lim, 2017). The primary catalyst according to the research is related to culture. As gentrification forces minority and lower-incomes communities out, much of the culture leaves with it. Aspects such customs, rituals, observance of holidays, community gatherings, and more are often lost during the gentrification process. As a result, children often lose a sense of culture and belonging. This becomes particularly acute given the racial tensions prevailing in the United States today. Many minorities including African-Americans, Asian-Americans, and Latin-Americans have all recently be subject to had crimes on behalf of the white community. Historically, the white community typically purchases land and homes during the gentrification process. These racial tensions could ultimately exacerbate stress and anxiety levels as indicated in the study. For one, the protection of the community is diminished. Second, culture understanding related to customers, behaviors and beliefs appear to be low. As a result, many low-income families and communities may be fearful living in gentrified community where a large percentage of their community has left due to higher prices.