Which industries contribute most to gentrification?

City and society

Martin Kronauer

Martin Kronauer, Dr. phil., habil., Prof. i. R. for social science at the Berlin School of Economics and Law. Main areas of work include exclusion and inclusion in an international comparison, city and social inequality. Selected publications: Polarized Cities. Social inequality as a challenge for city politics, Frankfurt a. M./New York 2013 (edited together with Walter Siebel); Exclusion. The endangerment of the social in highly developed capitalism, 2nd act. and exp. Ed., Frankfurt a. M./New York 2010.

“Pension gaps” occur when new profit opportunities open up in inner-city quarters. Martin Kronauer discusses the causes, phases and consequences of displacement.

(@ Meike Fischer)

Meaning of gentrification

“Gentrification” mostly describes the displacement of lower-income households by more affluent households in inner-city districts, thus an important aspect of the impact of social inequality on the housing markets. But it can also include the displacement of commercial users through more profitable forms of use, be it residential property or other business uses. The Englishwoman Ruth Glass introduced the original term "gentrification" back in 1964. At the time, she described the social change in a London working-class district due to the influx of members of the middle class. In doing so, she made use of an analogy to the 18th century, when members of the landed gentry, the landed gentry, moved to their properties in the city centers.

The term became popular in and through urban exploration in England and the USA in the 1980s. In the USA, the main focus was on the economic upgrading of land and real estate in poor neighborhoods that were close to prosperous business centers in large cities. While city administrations and official politicians welcomed this process as a "revitalization" of the city centers, critics complained about the displacement of the mostly African-American and Hispanic residents from the neighborhoods. Even then, urban researchers recognized that gentrification was only one element within a far more comprehensive structural change in cities, that this structural change essentially included the shift from industrial to service employment [1] and that this structural change in the USA had been one since the 1970s growing polarization of incomes and wealth was accompanied.

The German discussion about the causes and consequences of gentrification is also taking place against the background of a tertiarization in the employment structure of large cities and a polarization in the distribution of income and wealth that has been observed since the 1990s.

Forms of gentrification

Gentrification stems from increases in rents and property values ​​and, with a delay, land prices. Mainly central, inner-city locations with old buildings or small-scale industrial use in buildings from the early 20th century are affected.

The conversion of residential areas can be initiated from “inside”, through the modernization of apartments by the owners, or from “outside”, for example through the influx of residents with greater financial resources or initially only with the resource of higher education. This second starting point is usually what is meant when talking about gentrification. The process of gentrification, which is regarded as typical, therefore takes place in different phases in which different actors come into play [2]. A symbolic valorization of the quarter precedes the economic one.


Phases of gentrification

  • The so-called “pioneers” of the first phase have little money, but usually “cultural capital” and their own life plans that they want to realize. They look for and find their niche in the social and ethnic diversity of the district. Without intending to do so, they are preparing the infrastructure for the second phase, making the district interesting for outsiders with pubs, galleries, etc.
  • As a result, they are attracting more pioneers, but also the first generation of so-called gentrifiers, couples with higher education and higher incomes who are already aware of and want to use the trend towards better residential areas. In this phase, real estate agents and banks are already beginning to show an interest in the area. Individual modernizations are being carried out, rents are rising, but they are still cheap. The first long-established households are moving out, especially after rent increases as a result of modernization.
  • In the third phase, the influx of “gentrifiers” increases and conflicts arise with the “pioneers” who oppose the transformation of “their” neighborhood. The infrastructure of restaurants and shops is changing, commercial rents are rising and with them the prices of the services offered. Modernizations are increasing, as is the conversion to condominiums. Residents from the first phase, including pioneers, are increasingly leaving the district, be it because they can no longer afford the rent, or because they reject the changed character of the quarter. Others who have become homeowners themselves benefit from the increase in value.
  • In the fourth phase, the households with the highest income follow suit, "the area is considered a safe investment" (Friedrichs 2000, p. 61). During this phase, depending on the location, the district can become too expensive even for members of the middle class, especially when moving house. One can then speak of “hypergentrification”, which even the “gentry” cannot cope with financially.

An important relativization is appropriate to this empirically supported but nevertheless stylized model of a regular phase sequence of “invasion” and “succession” (displacement). It affects the temporal stretching and depth of the gentrification processes. According to the ideal-typical course pattern, gentrification only represents a transitional constellation within which an exchange takes place in the social composition of the residents. Poor and lower-income households are being replaced by more affluent and ultimately extremely affluent households. The class structure of the area changes completely. In fact, the process can extend over considerable periods of time and a social mix can be maintained for a long time, albeit in more or less strongly changed proportions. This is true even for gentrified neighborhoods in New York City, as Freeman [3] shows. How long this is the case depends not least on political interventions in the housing market.

It is also true for the economic upgrading of areas and real estate with commercial use and the displacement of businesses in central urban locations that it is often preceded by a symbolic upgrading and upgrading. This was shown as an example for “loft living” in Lower Manhattan [4]. There it was artists who had converted factory floors into studios who made the “postmodern” and “postindustrial” lifestyle interesting. In doing so, they prepared the conversion into galleries, residential property and expensive shops, which led to the further displacement of small industrial companies from Manhattan. The economic upgrading of residential areas in the gradual invasion-succession cycle of groups of residents of different income categories can be characterized as demand-driven gentrification. In addition (and predominantly in Germany), the increase in the value of housing stocks through the conversion of urban spaces is also taking place in other, more direct ways.

The municipalities themselves can set gentrification in motion by designating residential areas as redevelopment areas and giving tax benefits to investments. Politically initiated large-scale projects or the construction of office complexes or enclaves of luxury apartments by private investors in the vicinity also act as "external" initiators of gentrification. Experience shows that they have an even faster effect on land and rental prices in neighboring residential areas than gentrification through immigration [5]. In both cases one can speak of supply-driven gentrification. Cities (indebted especially) are in competition for investments and therefore tend to give preference to the most profitable uses over property protection (both in residential and commercial areas) in land use regulations.

(@ Meike Fischer)

The downside of “gentrification” in its various forms is the displacement of low-income households and, at the same time, the shortage of the affordable segment of the housing market. Displacement can take different forms. It can be a direct result of rent increases, for example after the apartment or building has been modernized by the owner. But it can also be sweetened by severance payments or forced through harassment. The shortage takes place within the quarter through the conversion of rental apartments into owner-occupied apartments or through rent increases in the case of new leases.

Causes of Gentrification

The economic incentive for gentrification results from the so-called “rent gap” [6]. This means the discrepancy between the currently realized and the potential income from the property or the property built on it (“value gap”). “Pension gaps” arise in inner-city residential areas where little investment was made prior to gentrification (or even, as in the US, investment was withdrawn).

In Germany, too, the policy of suburbanization pursued in the 1960s and 1970s made a decisive contribution by promoting home-building and the construction of large estates on the outskirts of the city. Living in the core cities became less attractive. Suburbanization coincided with a profound economic structural change. Industrial jobs were lost, and employment was increasingly concentrated in the service sectors. This also changed the social composition of the population in the centrally located working-class neighborhoods. Migrant workers and their families moved to the neighborhoods abandoned by “locals” who could afford it in search of affordable housing. And with the return of unemployment, which particularly affected workers, poverty also increased in the neighborhoods.


Pension gaps

“Pension gaps” occur when new profit opportunities open up in these inner-city districts. Again, different factors interlock: the increasing importance of knowledge production in the urban economy; changed place of residence preferences, connected with solvent demand; the strategies of institutional investors in the housing markets and political interventions.

After the phases of population decline or stagnation from the 1970s to the 1990s, the population is growing again in a number of major German cities. This applies in particular to cities in which the “knowledge economy” (research-intensive industries, knowledge-based services including the cultural economy) is expanding and has research, educational and cultural institutions to show for [7]. They are particularly attractive for younger population groups who work in the knowledge-intensive fields of employment, who are therefore dependent on face-to-face contacts (not least to cope with frequently unstable employment relationships) and who value urban diversity. There is also the renewed attraction of core cities for young families when both parents are gainfully employed, due to the proximity of home, work and social services such as daycare centers.

This increases the competition for attractive and affordable inner-city living space [8]. The withdrawal of the federal government from public housing construction in the 1980s, the privatization of public housing stocks by the municipalities and the municipal funding of renovation projects contributed to its shortage. In addition, there is the increasing polarization of income and wealth, which has been observed in Germany since the second half of the 1990s and which is particularly pronounced in urban regions [9]. Real estate has become a lucrative investment opportunity for private owners and institutional administrators of the increasingly unevenly distributed social wealth both nationally and internationally.

Why is gentrification a problem?

To be able to choose one's living environment is a privilege under the conditions of the housing market for those who can afford it financially. Conversely, the compulsion to leave an apartment against one's will because others have made their choice is always a problematic consequence of inequality. Against this, broad protests are directed under the slogan “right to the city”. When displacement coincides with a shortage of affordable housing, another problem arises. The concentration of poverty in the housing stocks and neighborhoods that are then still available is increasing.

In general, the topic of “gentrification” is only addressed as a problem in the media public when it reaches the middle classes in the form of “hypergentrification”. Much more serious, however, are the (usually not scandalized by the public) consequences of the shortage of living space for low-income households. Spatially concentrated poverty produces problematic “context effects”. Because it adds more to the disadvantages that already arise from the social situation: a “bad address” that stands in the way of applications; poorer equipment and quality of services and infrastructure; a narrowing of the social contacts in the immediate area to people in a similar situation, who can therefore also provide few resources [10]. This in turn promotes social exclusion and the social division of cities.

If the spatial concentration of poverty is a problem, might not gentrification also be part of the solution? After all, with the arrival of wealthy groups of residents in an inner-city residential area with previously above-average or even predominant proportions of low-income households, the social mix is ​​initially changing. There, at least, the concentration of poverty is declining. Couldn't this also have positive effects for the long-established residents?

This would initially require that the expanded social mix be maintained. Political will would therefore be required to deliberately slow down the invasion-succession cycle and to stabilize a new balance of social mix by intervening in the housing market (rent policy, measures against speculation, conservation statutes and public housing).

However, social mix alone is not enough to generate positive effects. This applies even if it is possible to guarantee it over a long period of time. In the course of gentrification, the public infrastructure in the district usually improves. In terms of the social situation of low-income households, the proximity to better-off households does not change much at first. Spatial proximity does not by itself ensure that the social distance that separates people from one another is bridged. Nor does it simply form the basis for developing and representing common interests related to the quarter and its residents. In order for this to happen, special occasions and targeted, organized and institutionalized efforts are required.

Schools are of central importance. Because the principle of the neighborhood bond of the pupils in the first school year directly forces them to use the advantages of social mix (especially shown in an international comparison) for joint learning and to involve the parents in the process. However, this presupposed two things: the political guarantee of a high quality in these schools so that the parents from the middle classes do not circumvent the principle of neighborhood ties; and the political guarantee of affordable housing for low-income households so that they too can benefit from the quality of schools for their children.