Spike Lee vs. the Fed: Who's Really Right About Gentrification?

After Spike Lee went on an abrasive rant in late February detailing the negative effects of gentrification in his native New York City, it spawned a national debate on the subject. Lee's detractors overwhelmingly cite a 2013 article by Daniel Hartley, a research economist with the Cleveland Federal Reserve, which uses U.S. Census data to assert that gentrification is immensely beneficial to all residents of a low-income neighborhood.

This is a complicated issue simply because there is so much truth to both sides, but digging deeper into this trend sheds more light on both the economic and human reality of gentrification, as well as two housing policies that specifically need to be addressed.

In a purely economic sense, what Mr. Hartley is saying is true. Rising property values, incomes and education levels are all correlated with gentrifying neighborhoods. Home values in gentrified communities increased by 157.7% between 2000 and 2007, compared to only 49.8% in non-gentrified neighborhoods. Incomes went up 10.5% in the former while falling by 5.6% in the latter. So technically gentrification does lead to substantial increases in the economic health of a neighborhood.

However, too many studies of gentrification end there. For low-income tenants who are forced to shell out hundreds more in rent due to rising home prices, gentrification can be a devastating force. Families can be driven out of the neighborhood that they have called home for generations as wealthier residents move in. These trends are especially punitive in cities without rent control, where property owners can inflate tenant fees infinitely and price out longtime occupants in the name of making money … er, "satisfying demand."

At the same time, homeowners in low-income neighborhoods can benefit greatly from the home values associated with gentrification, as long as they can afford to pay more for groceries, property taxes and general cost of living.

Most pro-gentrification studies do not take into account "black flight" and similar trends among other low-income minorities. Accordingly, the poor African-American population is hit especially hard by gentrifying forces, and this is the point that Spike Lee is trying to make (in between the expletives). Washington lost 80,000 African-American residents between 1990 and 2006, and has only recently slowed this decline. San Francisco has lost more than one-third of its black population since 1990, and black businesses are being supplanted in droves. Black residents in Berkeley, Calif., declined by 20% between 2000 and 2010, despite a 10% increase in overall population due to gentrification. The same thing is happening across the nation, as blacks escape the inner cities they have called home for decades. For those who cannot afford the rising costs associated with gentrification, out-migration is their only solution.

Black flight can come in two forms: the relocation of relatively affluent blacks seeking bigger houses and better schools than in blighted inner cities, or poorer blacks fleeing skyrocketing costs of living in gentrifying communities. The latter group is the loser in the clash over gentrification, although they have little political capital to make their plight known.

Hartley ignores all of this, and in a mistake common among well-meaning economists, looks solely at "economic’ factors" for these trends and ignores the human element. For example, Hartley's data shows that incomes are rising in gentrifying communities, but it's not because the poor are getting better jobs, it's because of the new arrivals. In Seattle's historically black Central District, the number of households reporting annual incomes above $50,000 is growing, despite data from 2007 saying most black families in that neighborhood report incomes less than $15,000. Hartley goes on to cite the increase in proportion of bachelor's degree holders (7.3% growth compared to a 2.3% increase) as a result of gentrification. However, this further makes the point that poorer, less educated people are getting priced out and leaving.

Hartley cites credit scores as the single area where both renters and homeowners in gentrifying neighborhoods benefit. Of course, he does not mention that many of America's poorest citizens don't have a credit card or mortgage, so credit score data regarding the truly destitute is unavailable. Thus Hartley is not looking at the full population when he alleges that gentrification is beneficial to the credit scores of poor folks. He is skimming data from the top without mentioning it, a sin among economists. I should add that Hartley’s credit score data only goes back to 1999, so any person could have moved in by 1998 (when gentrifying forces were well established in most major cities) and been considered a "long-term resident."

When additional factors are at play, gentrification's adverse consequences can be much deeper. In Oakland, real estate giants like Colony Capital and Waypoint Homes have been aggressively buying up properties in blighted communities and pricing working-class people out. As middle-class families flee to Oakland to escape San Francisco's tech boom, they are displacing the resident working class and playing right into Colony Capital's scheme. This problem was instigated largely by deregulation of the mortgage industry, which allowed loans to contain "adjustable rate riders" with frequent rate resets and interest rate hikes up to 15.99% for some Oakland residents. Combined with gentrification and targeted investment by limited liability firms, the losers are residents who are overwhelmingly poor and financially inflexible.

As more and more cities gentrify, where are low-income residents supposed to go? I find it interesting that gentrification enthusiasts don't take into account the adverse effects of poor urban refugees flocking to outer suburbs. The already low social mobility of poor minorities can only decrease when they are a 60-minute commute from their previous job, or are forced to find new employment in a suburb with a fraction the opportunities of a major urban center. In booming metropolises like San Francisco, Austin, Texas, Seattle, Salt Lake City, Boston, Dallas and New York, flashy high-rises keep city councils salivating while public housing developments have their funding cut and cut again.

My request is this: As America's cities move toward gentrification, can we admit that we are simply putting off the issue of poverty in this country? Every action has an equal and opposite reaction, and by driving out the poor from their longtime communities, we are shifting urban decay and lack of opportunity to other neighborhoods and cities. We are building an urban economic fortress which will be that much harder for the poor to re-enter. Spike Lee is correct in his assessment of black flight, and Daniel Hartley is correct in detailing the strong economic growth that gentrification brings to neighborhoods that need it most.

I think with strong rent control and increased funding for public housing, we can do more to ensure that the obvious economic benefits of neighborhood gentrification are shared with the previous residents. The urban poor have waited generations for their shot at the American Dream, and by taking action we can utilize this powerful force for the good of those who have been passed over so many times before.

Author's Note: Being a resident of Oakland, California has given me a window into the systemic discrimination that poor minorities face, but the degree of this suppression of opportunity is something I will never experience. There is a long history of institutional racism that affects housing and gentrification which cannot be ignored.