Third Wave Gentrification: The Business Rents Are Too Damn High

One of the problems discussing gentrification is that the term is used to encompass very different phenomena. I define gentrification as the period following abandonment, in which prices of existing housing begin to rise as they are renovated, and new properties are built on empty lots, both of which lead to higher housing prices. Once that happens, there is a ‘bidding up’ process, in which ‘full neighborhoods’ without a lot of cheap opportunities for new (or newly renovated housing) then see their prices shoot up.

But now there’s a third wave of gentrification, in which the local businesses leave because they can’t afford the rent–and they’re not being replaced. Charles Mudede describes the Seattle version of this phenomenon (boldface mine):

What happened in each of these very expensive cities is now happening in Seattle. This is what second-wave gentrification looks like: small businesses struggling to survive in neighborhoods transformed by the first wave of gentrification. And this brings me to a subject that’s almost never mentioned in mainstream economics—namely, the economics of gentrification….

But there is more to the story of gentrification, and it’s only now becoming more apparent… It is the other side of the sinister mirror that reflects what the Specials described in 1980 as a “Ghost Town.” It is a city that is no longer for people or even for businesses, but just for money, which is mostly invisible. Those empty stores in Vancouver BC and San Francisco are not alone. They are accompanied by an increase of empty homes and luxury condos. The work of urban planner and professor Andrew Yan has revealed the large number of empty residences in Vancouver’s value-heated housing market. Yan’s findings match those mentioned in the Guardian article, when Daub, during a digression, offers another reason why the stores are empty in San Francisco: “no one is living in the condos at all.” He writes: “[A] recent report found there are roughly 38,000 empty homes in San Francisco – three to five times the city’s number of homeless people.”

Ruth Glass described the processes that lead to gentrification (a dramatic reduction of the government regulations in the housing market, little to no public or social housing, and the removal of all meaningful capital and price controls). But she did not describe the moment when gentrification transitions from its entrepreneurial stage (a rise in business investments, fancy restaurants, expensive supermarkets, and what have you) to the stage when the housing and commercial real estate values are thoroughly captured by speculators. This class of capitalists leads a city directly to second-wave gentrification [I would call this the third wave], which is when the economic realities of the spatial city are completely separated from the global schemes and capital flows of speculators. Small businesses become ghosts, and not even souls occupy the luxury apartments.

Speculators will use their political power to press for the next step, which I call billionaire urbanism. This is when a city has no middle, no professionals, no culture, no public spaces, nor even the standard amenities of first-wave gentrification.

I don’t think D.C. is that far along yet, in part because D.C. real estate hasn’t gone full froth*. But in D.C., there has been a rash of restaurant closings, many of which, if not icons, were long-time local favorites. The irony of Congresswoman Ocasio-Cortez lamenting the inability to find good, cheap eats in D.C. a few weeks ago is that there were a lot of good low to mid- price range restaurants in D.C.: good food, good portions, decent prices. These are getting driven out of business, not because their business models are bad (i.e., incompetency, crappy food), but because their business model collapses when they get hit with a forty percent rent increase. That leads to a ‘gentrification of food’, for which the polite term is fast-casual–which is more expensive. This should be right up her alley…

It’s not clear how this ends well, but one thing we can do is not just build public mixed income housing, but also place in that housing subsidized business spaces.

*One thing that slows this trend is that D.C. still has a lot of government employees, so there is an upper-middle and gentry class that does push out the middle class (and low-income people), but it’s not (as) wealthy or rich, so the run up has been lessened.

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