Understanding gentrification

Gentrification occurs when a neighbourhood becomes (more) desirable and attracts new residents, who then work in aggregate to place upward pressure on housing prices.

These higher prices then lead to (more) interest from developers, who propose new housing to sell and rent to the new residents.

Because this new housing is more expensive than the old housing found in the neighbourhood, there’s a tendency to think that the new housing causes the high prices. Not that it’s built in response to them.

This often leads to opposition to new housing, or nimbyism, which of course constrains the supply of new housing, placing even greater upward pressure on prices. It’s a vicious cycle that’s hard to break out of, as first order effects are more immediately obvious than what comes next.

The only way to maintain affordability in a gentrifying neighbourhood (other than implementing absurdly rigid and harmful controls that we’ll save for another post) is to build enough new housing to accommodate the new demand.