Photos by Peter Samulis and courtesy of the Federal Reserve Bank of Philadelphia

In urban areas across the United States, demand for housing in centrally located, amenity-rich neighborhoods is increasing, driven by young, college-educated, predominantly white residents. Those with higher incomes are able to outbid low-income residents, which may lead to voluntary and involuntary displacement of these households. In low-income, center-city neighborhoods this is particularly troubling, as these neighborhoods offer greater access to public transportation, social services, employment centers, and social networks. Displacement could force vulnerable households into less desirable and more impoverished neighborhoods. This article shares some of the most recent research on the topic as well as policy, investment, and program solutions that communities can explore to address their unique local challenges.

To examine these trends in cities, the Research Symposium on Gentrification and Neighborhood Change was held May 25, 2016, at the Philadelphia Fed, cohosted by the Federal Reserve Banks of Philadelphia and Minneapolis, the New York University Furman Center for Real Estate and Urban Policy, and the U.S. Department of Housing and Urban Development (HUD). The program was organized into four discrete panels on the causes and patterns of gentrification, its consequences, policy responses, and equitable development approaches from practitioners. Selected papers are available on the event website and more papers will be published in a special November issue of HUD's Cityscape.

Root causes and trends
Gentrification is commonly seen as moderate- and high-income, college-educated, white households moving to formerly low-income inner-city neighborhoods. A panel on the causes and extent of gentrification highlighted the economic conditions and the shifting preferences of these households. Researcher Nathaniel Baum-Snow from the University of Toronto noted that shifts in labor markets toward the service sector and increasing preference for amenity-rich neighborhoods have driven an uptick in demand for in-town living. Lena Edlund of Columbia University added that high-income households work more, with longer hours, and therefore would rather reduce their commute time and maximize their time at home by living in central cities. Jessie Handbury of the University of Pennsylvania provided further evidence of the importance of amenities and showed that younger cohorts have driven much of the movement. Finally, Ingrid Gould Ellen from the Furman Center demonstrated how reductions in crime from 1990–2010 preceded increases in high-income households in central city neighborhoods.

Does gentrification matter?
While neighborhood change may be a certainty, thought leaders are increasingly asking whether its effects on the existing population are necessarily negative. Accordingly, a second panel of experts focused on the consequences of gentrification on low- and moderate-income households and small businesses. Lance Freeman of Columbia University showed that gentrification had no statistically significant effect on the probability that households move out of their neighborhood in the United Kingdom, although low-income households were more likely to move than higher-income households. The Philadelphia Fed's Lei Ding examined the financial health of residents in gentrifying neighborhoods and showed that improvements could be made if they are able to stay, but those who move out are more likely to end up in lower-income neighborhoods and experience ill effects on their financial health. In speaking with business owners from Chicago's Whicker Park, Jeffrey Parker of the University of Chicago found that most accepted gentrification for financial survival but believed it caused instability in their neighborhood. Rachel Meltzer of the New School added that existing businesses are no more likely to be displaced in gentrifying neighborhoods than non-gentrifying neighborhoods, although shifting consumer demand may attract outside investment, such as retail chains. This panel brought to light the need for strategies that allow residents to stay in place and businesses to acclimate to changing consumer preferences.

National and local responses
National and local policy and practice responses to gentrification generally focus on equitable development, such as providing greater access to subsidized housing and facilitating mixed-income development. Two additional panel discussions examined these responses. In a policy-focused panel, Samuel Dastrup of Abt Associates demonstrated that public housing in gentrifying neighborhoods in New York City provides access to higher levels of employment and larger earnings for residents when compared with non-gentrifying neighborhoods. Gerard Torrats-Espinosa of New York University showed that as rents in a metropolitan area increase, housing choice vouchers recipients are likely to live in neighborhoods with lower poverty rates, although they may move more frequently, have higher rent burdens, and be more spatially concentrated. Karen Chapple of the University of California, Berkeley presented on early warning systems for gentrification as well as the Urban Displacement Project policy mapping tool for communities experiencing gentrification pressures in the Bay Area. Jeffrey Lubell of Abt Associates provided a host of effective policy tools for increasing access to affordable housing in gentrifying areas, including property tax circuit breakers, expedited permitting for developers, and the use of publicly owned land for affordable housing development.

In a practitioner panel, Beth McConnell of the Philadelphia Association of Community Development Corporations examined land banking and other strategies for equitable development, which are featured in her organization's equitable development policy platform "Beyond Gentrification: Toward Equitable Neighborhoods." Oramenta Newsome of the Local Initiatives Support Corporation in Washington, DC, recommended reinvestment in the existing housing stock through initiatives such as DC's Tenant Opportunity to Purchase Assistance program. Jonathan Sage-Martinson of St. Paul's Planning and Economic Development department highlighted his organization's strategy to invest in housing, small businesses, and job training to prevent displacement on a new light rail line. Kathy Pettit of the Urban Institute spoke about the new Turning the Corner initiative, which incorporates data collection and tracking with collective action in communities facing neighborhood change.

A story of neighborhood change
Throughout the day several themes emerged. In her welcome, Theresa Y. Singleton, vice president and community affairs officer of the Federal Reserve Bank of Philadelphia, asked the audience to ponder "is gentrification good or bad?"—a question her teenage daughter astutely posed, but which all attendees have struggled with. Eric Belsky, director of the Division of Consumer and Community Affairs at the Fed Board of Governors, set the tone during his introductory remarks by noting that the main consequence of gentrification is the erosion of housing affordability, which has effects on those who stay and those who leave communities. In her keynote address, Assistant Secretary of Policy Development and Research for HUD Katherine M. O'Regan provided a national perspective on equitable development, including the importance of current policies to reduce Federal Housing Administration (FHA) insurance premiums on (and therefore spur development of) green, mixed-income housing; the Rental Assistance Demonstration program for preserving affordable housing; and the opportunity to encourage local partners and community members through the Affirmatively Furthering Fair Housing rule. Michael Grover of the Minneapolis Fed wrapped up the day by reminding the audience that gentrification is complicated and the data can be contradictory, but our responses should seek to expand affordable housing and limit resegregation at the neighborhood scale.

In the wake of the housing boom and bust, the recovery has been uneven among neighborhoods. During this same period, homeownership has dropped and the supply of rental housing has tightened, forcing rents to surge and driving up the number of cost-burdened households (those that pay more than 30 percent of their income on rent). Neighborhood change is inevitable—however, gentrification that furthers inequality by eliminating affordable housing options for low- and moderate-income households or spatially concentrating poverty in distressed neighborhoods must be acknowledged and addressed.

By Ann Carpenter, Atlanta Fed CED adviser, and Sydney Diavua, Philadelphia Fed community engagement associate