By Nina Clark

Introduction

Capital injections by public and private investment to catalyze the revitalization of long neglected communities is often lauded as a process that saves struggling neighborhoods. Local politicians and development practitioners tout reductions in blight, improvement in infrastructure, high wage jobs, and increased amenities as clear indicators of a city’s success. Yet, for many low income communities, such changes bring about a type of reinvestment in their neighborhoods that often invoke worry instead of celebration. How might we understand this contradictory response?

Revitalization, which is defined as “giv(ing) new life, strength, and vitality to an area,” typically through improvements in physical infrastructure, lifestyle amenities, and social policies, does not necessarily equate to gentrification (Holland 2014). Gentrification is “the process by which central urban neighborhoods that have undergone disinvestments and economic decline experience a reversal, reinvestment,and the in-migration of a well-off middle- and upper-middle-class population” (Stein 2019). Revitalization becomes gentrification when an area’s former residents are pushed out of their neighborhoods by new residents with higher incomes who hope to gain access to the area’s new “vitality.”

Research illustrates that investment in high skilled jobs and urban revitalization can create large benefits for wealthy homeowners and higher income renters. Yet, alone, these initiatives can spur displacement pressures and cause significant harm to low income renters (Zuk 2017; Qian 2021). Without policy mechanisms in place to protect low income residents, investment in the economic vitality and lifestyle amenities of a city often results in an increase in homelessness, increase in evictions, and significant demographic change, which together destabilize the tenure of longstanding communities. Though revitalization tends to create benefits for some community members, it comes at the expense of others. Real estate actors have little incentive to ensure the wellbeing of a city’s most vulnerable residents, making the role of government in guiding development critical to protecting communities and maintaining healthy neighborhoods.  State and local policy mechanisms play a significant role in governing real estate investment and tenant protections, both of which  have an enormous impact on whether or not low income communities are helped or harmed by economic development. To ensure that everyone benefits from economic development and revitalization, it is essential for local governments to tie capital injections into previously disinvested areas to policies that aim to reduce displacement of low-income residents.

Literature Review – The Global Financial Context of Development

I will situate my analysis of revitalization and gentrification in Kansas City through the lens of what urban scholar Sam Stein deems “the real estate state.” This literature review aims to explore the existing research on the relationship between economic development and gentrification within the real estate state.

Financialization of Real Estate

The real estate state is defined as the inordinate power of real estate capital to influence the shape and use of urban space as a result of the financialization of housing and real estate. The financialization of real estate refers to the integration of financial markets with real estate markets. This trend shifts the idea of homes as an individual asset that serve as a shelter for families and individuals to that of an asset class that can be traded like any other financial instrument.

One example of real estate financialization  is evident  in the wake of the 2008 financial crisis with the proliferation of speculative real estate investing in single-family housing. Institutional investors purchased millions of foreclosed homes in 2007-2010 (Teresa, 2022). Investors made large profits off of purchasing foreclosed homes at far below market rate from the government, and holding these assets until prices rebounded, either selling them to other real estate institutions or holding them as rental single-family housing stock. Millions of families lost both their physical homes that had significant familial and sentimental worth as well as any personal equity held in these homes. Unfortunately, because sophisticated and highly professionalized real estate actors were able to acquire thousands of foreclosed housing units, a large portion of the US’s single-family units were transformed from family homes owned by individuals to financial instruments owned by multinational corporations (Axel-Lute 2022).  Real estate actors who now own a significant portion of the US housing stock view homes as a financial product, instead of a place of shelter, safety, and generational wealth building. This has led to an incentive structure that pays little mind to the impact of the real estate market actions on the families living inside homes they are no longer able to generate equity and stability from.

Since the financial crisis, institutional real estate investors have continued to grow dramatically in capital and in power. In 2021, institutional investors purchased almost 25% of the single-family homes on the market across the United States (Henderson 2022). Similarly, since the financial crisis and most dramatically in the years following the COVID-19 pandemic, institutional investors have begun focusing more heavily in multi-family housing as an asset class and are reaping high returns on purchasing and trading both single and multi-family rental housing. In tandem with this increase in financialization, the Financial, Insurance, and Real Estate sector (FIRE) has become one of  the most powerful lobbying sector in the United States and has poured millions of dollars into creating favorable conditions for real estate investment and development on a federal level on both sides of the aisle (Teresa 2022). Scholarship produced by Raquel Rolnik (2019) delineates how the financialization of housing has become a global phenomenon that has influenced the urban landscape of countries across the world.

Neoliberal Urbanism & Financialization Linked to Gentrification

So how does the shift in viewing housing, and real estate more broadly as a personal asset to a financial instrument lead to gentrification? Real estate investors often have greater power at the local level, where the majority of land use and development decisions are made. Stein (2019) outlines how local governments’ dual mandate of making cities more profitable while also making them more equitable creates perverse and contradictory incentives. In short, this means that local governments are caught in a difficult bind, where they must invest tax dollars in a way that will increase tax revenue in the future, while also considering how to increase the overall wellbeing of their residents.

As local governments are predominantly funded through property taxes, in order to increase government revenue that can be invested into services needed by residents, governments rely upon the growth of their tax base. In order to do so, cities strive to increase the value of land and property and increase the wealth of its population. Seeking to increase the land and property value of a city brings local governments’ incentives in line with real estate investors who hope to purchase undervalued land, redevelop it, and reap profits off of the increase in value (Stein 2019; Teresa 2022). The logic follows that then, attracting wealthy residents from other cities appears to be an easier and more lucrative political undertaking than lifting low-income families out of poverty through wealth redistribution and other means.

How Gentrification Occurs

Prominent urban scholar Neil Smith (1987) outlines the concept of land rent gaps, where the current price of land is not valued at its maximum potential. In the United States, land rent gaps in metropolitan areas have come about in large part as a result of segregation, white flight, and suburbanization following World War II (Boulay 2022). As white-middle-class people fled inner cities for the suburbs, low-income families of color (primarily black and latine) were financially trapped in underfunded neighborhoods with smaller and smaller tax bases. This white exodus from cities led to significant disinvestment in most central cities in the US (Rothstein 2017).

Increasingly, researchers have looked to understand contemporary investment and development patterns in cities, increasingly finding consensus in the characterization of these emergent patterns as gentrification. Scholars like Stein (2019) define gentrification as “the process by which central urban neighborhoods that have undergone disinvestments and economic decline experience a reversal, reinvestment, and the in-migration of a well-off middle- and upper-middle-class population.” This process of gentrification has begun to occur as central areas of cities have become culturally and financially more desirable for predominantly white professionals around the same time speculative real estate investment has become more sophisticated and professionalized.

Though gentrification can happen as a result of individual actions, such as entrepreneurial members of “the creative class” moving into neighborhoods with land rent gaps and flipping a small number of homes themselves, the process happens more quickly and on a much larger scale as real estate investors purchase large number of homes or multi-family buildings in neighborhoods that have historically experienced disinvestment (Florida 2002; Raymond et al. 2021). When investors purchase land in disinvested areas, they are willing to pay higher than the current market value because they believe the current value does not match the potential value (Raymond 2021). In order to bring land to its potential value, investors inject capital into buildings and/or neighborhoods that have experienced decades of disinvestment. This capital injection allows formerly low income areas to become more desirable to young professionals and the middle class who are able to outbid lower income families, spurring displacement. Due to historic patterns outlined above, these areas are disproportionately Black and Latine. Although this appears to target place-based benefits within these areas, without any protections in place, it concentrates risk. Research from the Center for American Progress found that more than 110,000 Black residents and 24,000 Latine residents were displaced from urban areas between 2000-2013 as a result of gentrification. This underscores the dramatic impact of gentrification on displacement in racialized communities.

Gentrification and Local Governments

Smith (1987) also describes how local government’s choice to invest or disinvest in certain areas can create land rent gaps as a function of state power. As demand for city living across the United States increases, cash strapped local governments that have neglected infrastructure and economic development in many of their lower income neighborhoods are now incentivized to create more favorable conditions for private developers to engage in redevelopment with private funds (Stein 2019). This incentive structure is defined by economic geographer David Harvey (1989) as “geobribe(ry)” and has been rebranded by Stein (2019)  as “geoextortion.” These terms describe a neo-liberal municipal governance structure where in order to attract enough capital and resources to provide basic amenities such as high wage jobs and a safe and liveable environment, cities must hand over significant power and tax revenue to private corporations to create local environments that are appealing to new residents and businesses. The insurgence of geoextortion across American cities contributes significantly to the real estate state, especially at the hyper-local level. Stein (2019) believes that this flow of capital and power leads to local governments that are more endowed to the needs of developers and large national corporations than to the wellbeing of longstanding and current residents.

Often, economic development carried out by local governments is conducted for the primary purpose of attracting private investment, with little thought to the impact on affordability for long-time residents. Without guardrails put in place to protect low income residents from displacement following influxes of both public and private investment, such residents are often priced out of their own communities. Almedia (2022) and Zuk (2018) found that local economic development and infrastructure investment drive up land values, as demand to live in an area increases as amenities and economic opportunities increase. However, Almedia also found that in the Global South, public policies aimed at reducing displacement and/or economic inequality, and other cultural factors can significantly mitigate the process of gentrification.

Gentrification and Displacement Indicators

There is much debate among scholars, practitioners, and activists about how to measure gentrification (Finio 2021). Yet, there is general consensus that several indicators are widely used by scholars to track gentrification in an area. Those indicators are listed below and will be used to inform the study of gentrification in Kansas City.

1. Increase in rents
2. Increase in the number of individuals who are rent burdened
3. Increases in evictions and homelessness
4. Demographic change such as racial makeup, income, and education. Typically areas that have higher percentages of Black or Latine residents and/or those with lower incomes transforming into areas with higher percentages of white residents with higher incomes.
5. Increases in the turnover of properties and renovation of properties
6. Increase in institutional and out of state property owners

(Finio 2021; Raymond 2021)

Citations

Almeida, Renan, Pedro Patrício, Marcelo Brandão, and Ramon Torres. 2022. “Can Economic

Development Policy Trigger Gentrification? Assessing and Anatomising the Mechanisms of State-Led Gentrification.” Environment and Planning A: Economy and Space 54 (1): 84–104. https://doi.org/10.1177/0308518X211050076.

Boulay, Guilhem. 2022. “Gentrification and the Real Estate Market: What Can We Learn from the Rent Gap Theory?” Hal Open Science.

Florida, Richard. 2002. The Rise of The Creative Class.

González-Pérez, Jesús M. 2021. “Racial/Ethnic Segregation and Urban Inequality in Kansas City, Missouri: A Divided City.” City & Community 20 (4): 346–70. https://doi.org/10.1177/1535684121990799.

Henderson, Tim. 2022. “Investors Bought a Quarter of Homes Sold Last Year, Driving Up Rents.” Stateline (blog). July 22, 2022. https://stateline.org/2022/07/22/investors-bought-a-quarter-of-homes-sold-last-year-driving-up-rents/.

Moore, Katie. 2021. “KC Housing Rights Group Announces Eight Demands, Calls for Meeting with City Manager.” The Kansas City Star. September 25, 2021. https://www.kansascity.com/news/local/article254502967.html.

Raymond, Elora Lee, Ben Miller, Michaela McKinney, and Jonathan Braun. 2021. “Gentrifying Atlanta: Investor Purchases of Rental Housing, Evictions, and the Displacement of Black Residents.” Housing Policy Debate 31 (3–5): 818–34. https://doi.org/10.1080/10511482.2021.1887318.

Rothstein, Richard. 2017. The Color of Law: A Forgotten History of How Our Government Segregated America.

Sassen, Saskia. 2003. “Global Cities and Survival Circuits.”

Smith, Neil. 1987. “Gentrification and the Rent Gap.” Annals of the Association of American Geographers 77 (3): 462–65.

Stein, Samuel. 2019. Capital City.

Teresa, Benjamin. 2022. “The Financialization of Housing and Its Implications for Community

Development.” Shelterforce. August 9, 2022. https://shelterforce.org/2022/08/09/the-financialization-of-housing-and-its-implications-for-community-development/.

Qian, Franklin and Tan, Rose, The Effects of High-skilled Firm Entry on Incumbent Residents (December 11, 2021). Stanford Institute for Economic Policy Research (SIEPR) Working Paper 21-039, Available at SSRN: https://ssrn.com/abstract=3982760 orhttp://dx.doi.org/10.2139/ssrn.3982760

Zuk, Miriam, Ariel H. Bierbaum, Karen Chapple, Karolina Gorska, and Anastasia Loukaitou-Sideris. 2018. “Gentrification, Displacement, and the Role of Public Investment.”Journal of Planning Literature 33 (1): 31–44. https://doi.org/10.1177/0885412217716439.

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Featured image courtesy of Nina Clark