What is Gentrification
Gentrification is the process of urban development wherein a neighborhood or portion of a city develop in a short period of time. This is often marked by inflated home prices and the displacement of the original residents.
Introduction To Investment Real Estate
BREAKING DOWN Gentrification
Gentrification is often defined by the steady increase of residents and retail establishments that take advantage of lower property prices due to being in a less desirable location. These new residents improve upon the area so that the values steadily increase over a shorter than normal period. The resulting impact often displaces the original occupants who can no longer afford to reside where they once did due to their lower income levels.
Improvements to other parts of the neighborhood may soon follow, including community resource centers and the surrounding infrastructure. This is a result of the local government being able to collect higher taxes on the increased property values and from local transactional fees, such as transfer taxes and title fees.
The two sides of 'Gentrification'
Gentrification has become a controversial term in the recent years. It was once thought to have a positive effect on areas where economic growth had stagnated or decreased. However, these days it is seen by some as part of a larger racial issue. Although gentrification of urban areas generally brings increased economic growth to the area, it displaces the original lower income residents, many of whom have lived there for generations. Once the areas have been improved upon to attract more affluent residents, the original population must relocate to a less desirable low income or high crime area. The effect isn’t just felt on residential residents, as smaller retail shops and industrial complexes can be displaced in the process as well.
Recent examples of gentrification can be found all over the country. In Pennsylvania, the Fishtown section of Philadelphia has recently experienced a large rate of development and growth. Just a decade ago, most of the row homes in the area were selling for under $100,000. These days some of the same houses are being sold for upwards of $300,000. This is in large part due to investors and young business professionals taking advantage of the lower real estate costs, purchasing businesses and homes, and then making improvements that allow them to resell them for a profit. This is commonly known as flipping, and it can create a rapid increase in real estate values. This can create a property value bubble, which when it bursts, could leave homeowners with properties whose values have decreased over time. This puts homeowners in a position where they may owe more on a property than it is worth and may be unable to sell the property now that the demand in the neighborhood has leveled out. It can also cause potential new residents to be priced out of a now-desirable area.