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I posted this in another thread on the D.C. home board about re-investment starting to come over to ward 7 and ward 8 in D.C. now. People in distressed communities complain about a lack of amenities like grocery stores or retail, but there is a reason for their absence. What do you think about re-investment vs. gentrification?
Quote:
Originally Posted by MDAllstar
The development slated for completion by 2020 in Washington D.C.'s core neighborhoods such as NOMA, Capital Riverfront, Buzzard Point, The Wharf, Waterfront Station, Union Market, SW Eco District, H Street/Atlas District, Hilleast, Northwest One, Ivy City, McMillian Development, and Mt. Vernon Triangle is really unprecedented across the nation.
Other major developments such as the Old Soldiers Home Redevelopment and Walter Reed Redevelopment will finish in the next decade also. The core of the city will approach full build-out within the next 10-15 years. Capital (money) is beginning to cross into ward 7 and ward 8 by necessity. Below, I have explained how it works:
The real estate market and financing works like this:
Net Operating Income (NOI)
- income generated (rent) from commercial property minus all operating expenses (not including mortgage)
Capitalization Rate (Cap Rate)
- the net operating income (NOI) / price of the property (not mortgage, but actual final sale price)
Property Value
- NOI / Cap Rate
The first step in redevelopment is the increase of the price for housing on residential properties in that sub-market.
The following steps will take place in order over the next 10 years in ward 7 and 8:
1. Increase in price and demand for housing in that sub-market (happening now)
2. Median income and spending power increases in that sub-market (happening now)
3. Investors take notice and begin to acquire property through cash transactions in that sub-market (happening now)
4. Land becomes more expensive because of increased demand from cash transactions from investors, however, banks still won't lend because of high risk.
5. Feasible commercial rent price points begin to rise on commercial properties raising the NOI for properties in that sub-market
6. The risk to banks and investors on lending/investing lowers eventually because of steps 4 and 5
7. Banks begin to finance developers without tax credits for projects in that sub-market because the Cape Rate is higher and the risk is lower.
We are currently on step number 2 and starting to see step 3 of this process.
So the existing longtime residents are just inert ciphers who exist solely for the profit of owners and investors - until they are priced out, that is.
In general, reinvestment and gentrification are one in the same. In fact gentrification can never really be stopped, because it is just a side effect of an increase in demand and investment into a local economy. Basically it is a symptom, not a disease. As long as there is demand, you get gentrification, when there is no more demand, you get flight. You get one or the other in geographically constrained places.
I disagree that gentrification and reinvestment are one of the same. We made some conscious decisions to divest in certain parts of our cities. When it is time to "rebalance" resource distribution, forcing out those who held on isn't the right course of action. It leads to the same symptoms that caused the initial divestment.
Inclusive redevelopment is the best move, otherwise you are pushing the "problems" off to someone else.
That is what has happened in the Bay Area, and now we have traffic all day and your average middle class person needs to commute over an hour to their jobs. 15% of the people in our region commute over 60 miles each way.
Is that the sort of society we want to create? Where teachers, firefighters, store owners and other average joes leave the communities they support?
I disagree that gentrification and reinvestment are one of the same. We made some conscious decisions to divest in certain parts of our cities. When it is time to "rebalance" resource distribution, forcing out those who held on isn't the right course of action. It leads to the same symptoms that caused the initial divestment.
Inclusive redevelopment is the best move, otherwise you are pushing the "problems" off to someone else.
That is what has happened in the Bay Area, and now we have traffic all day and your average middle class person needs to commute over an hour to their jobs. 15% of the people in our region commute over 60 miles each way.
Is that the sort of society we want to create? Where teachers, firefighters, store owners and other average joes leave the communities they support?
That's only the fault of gentrification insofar as we also maintain policies which artificially restrict housing unit availability based upon zoning. If the Bay Area had no zoning, you'd see more high-density apartment buildings coming on line, both at the upscale and the middle-income level. Everyone's commute time would shrink, and things would settle back into equilibrium.
If you look at housing costs in the United States, there's very wide variations. Housing in the most expensive neighbourhoods of New York and SF might be over $1000/sf, while in the worst ghettos, even a house in relatively good condition might be around $20/sf. You certainly don't need housing to be anywhere close to $1000/sf for new construction and maintenance of existing building stock to be worthwhile, although it will have to be worth more than $20/sf.
So I think within that very wide range, there should be a price where housing would still be reasonably affordable to most of the population, but where it's valuable enough to maintain it in decent condition and even build more if needed.
If you look at housing costs in the United States, there's very wide variations. Housing in the most expensive neighbourhoods of New York and SF might be over $1000/sf, while in the worst ghettos, even a house in relatively good condition might be around $20/sf. You certainly don't need housing to be anywhere close to $1000/sf for new construction and maintenance of existing building stock to be worthwhile, although it will have to be worth more than $20/sf.
So I think within that very wide range, there should be a price where housing would still be reasonably affordable to most of the population, but where it's valuable enough to maintain it in decent condition and even build more if needed.
Sorry to get off-topic, (just FYI) I don't live in one of the worst ghettos, and I'd be lucky to get even $15/s.f. for my house, if I were to sell it. Without doing any kind of analysis, I'd guess that a livable house in the worst areas in Youngstown would go for between $5-10/s.f.
If you look at housing costs in the United States, there's very wide variations. Housing in the most expensive neighbourhoods of New York and SF might be over $1000/sf, while in the worst ghettos, even a house in relatively good condition might be around $20/sf. You certainly don't need housing to be anywhere close to $1000/sf for new construction and maintenance of existing building stock to be worthwhile, although it will have to be worth more than $20/sf.
So I think within that very wide range, there should be a price where housing would still be reasonably affordable to most of the population, but where it's valuable enough to maintain it in decent condition and even build more if needed.
Well in the Bay Area, the worst ghettos are still $200/sqft.
Well in the Bay Area, the worst ghettos are still $200/sqft.
Yeah, I meant worst in the country, I don't think there's that big variations within a single metro area, although I'm sure there are metros with 10 fold variations between most and least expensive neighbourhood.
1 - Gentrification and displacement are not the same thing. Some people will claim that a former warehouse district that gets upzoned to include residential units has been "gentrified" even though no one lived there before developers started putting in lofts.
2 - Displacement can only really be documented in NYC and SF. As it is renters move on average every two years and the most vulnerable renters move more often than the average. Technology changes and employment sectors change with it. No one is going to knock down two square miles of North Philly for a new Amazon distribution center and then knock down even more houses for the access roads. It would be insanely disruptive and prohibitively expensive. So instead it gets built on a greenfield in NJ right next to I-95. That's how it goes. Factories, modes of transportation, even entire industries become obsolete and new ones spring up in different places. This is what drives rural/suburban/urban migrations but even then these things happen over the course of 20-30 years. They don't happen overnight.
3 - The reason that displacement can be documented in NYC and the Bay Area is because housing production isn't keeping pace with demand and/or housing production is happening in the wrong parts of the region and/or infrastructure has lagged far behind population growth so that it takes longer and longer for people to get work which then encourages those who are best able to afford it to move closer to work and/or closer to transit stations which then drives up the cost of housing closer to where the jobs are. The Bay Area is easily the worst when it comes to this. Over the past decade ~650,000 people have moved here but only 120,000 units of housing have been built (The Bay Area "average people per household" is 3.1 which is up from 2.9 because of the crowding). At the same time it has added zero new transportation infrastructure aside from a few new ferries. Greater NYC is better at bringing new units online but not much better on the transport front. Over the last 20 years the NYC metro has grown by +4 million people and I can count on one hand the number of projects that have increased transit capacity.
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