Just be glad it's not a multistory apartment building. Photographer: Craig Warga/Bloomberg

Please Don't Hate Me for Gentrifying

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of “The Up Side of Down: Why Failing Well Is the Key to Success.”
Read More.
a | A

Recently, I found myself engaged in a conversation that's pretty common among certain segments of Washington society. Someone had moved into a neighborhood. A developer wanted to put up a tall building in that neighborhood. Longtime residents were vehemently opposed on the grounds that this would cause gentrification.

Cue the frustrated cries. "Don't they understand that keeping buildings low causes more gentrification?!?!?!?!" We all solemnly agreed that this was very aggravating.

But later, riding the bus home, I got to thinking that maybe it isn't so crazy. The gentrifiers who want to build up are right that forcing developers to chop floors off their buildings will restrict the available supply of housing, driving up prices and causing more gentrification in the long run. But in the short run, the longtime residents who are resisting -- call them "the gentrified" -- may be right that allowing a big building will accelerate gentrification in their immediate environs. The housing market, after all, is city-wide. But the building is going to be right there next to them.

To see what I mean, consider my neighborhood, which was slowly gentrifying when we moved in. Shortly after we moved in, however, developers broke ground on a 600-unit rental complex. It still isn't fully leased, but it has very obviously changed the neighborhood -- which isn't surprising, since it roughly doubled the population in our little corner of the city. And the new population is pretty much 100 percent affluent young people.

Those affluent young people are going to demand services -- bars, restaurants, etc. As the bars and restaurants materialize, real estate prices will rise to reflect the newly available services. So even though those apartments are doing their part to relieve Washington's severe housing shortage, the people living right next to them will see their rent rise. They probably won't take much comfort in knowing that prices in Logan Circle are now slightly lower than they otherwise would be.

Why should this be so? After all, the influx of people means there is already demand for houses in the area; why should adding supply raise the price?

One answer is that these buildings are often bringing amenities that the existing apartments don't have: The one near us has a dog park, fitness center, and, I believe, a pool, as well as better views than you get from a typical row house. So they bring people into the neighborhood who wouldn't previously have wanted to live there; essentially, we're importing extra demand for the services that affluent young people want to consume.

The other answer is that the rental market isn't necessarily super-efficient -- by which I mean that increases in demand do not necessarily translate instantly and seamlessly into higher prices. Leases may turn over infrequently, absentee landlords may not realize that the value of their property has gone up, and apartments may be "traded" through informal networks of friends and family rather than a public listing service. People who have access to those informal networks might rather not have a big shiny building and several new restaurants to signal to the landlord that he should raise the rent.

In the long run, obviously, prices will rise to match demand; and if everyone prevents tall buildings from being built, those prices will be very high indeed. But many of the people who are protesting the new building might rather have rent they can afford right now, rather than a theoretically lower rent five or 10 years hence.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

Megan McArdle writes about economics, business and public policy for Bloomberg View. Follow her on Twitter at @asymmetricinfo.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
James Gibney at jgibney5@bloomberg.net