There’s a wonderful article at Strong Towns by Daniel Herriges that folks interested in Twin Cities housing will likely enjoy. The piece contains this chart, which attempts to explain some of the real estate forces behind gentrification and disinvestment. Folks who spent much time learning about old-school urban geography eventually come across this concept — the “rent gap” — as a way to analyze urban development patterns over time.
Here it is:
There’s even a Wikipedia page (and German translation: Mietlückentheorie) which explains what’s going on here:
Rent-gap theory … developed in 1979 by the geographer Neil Smith as an economic explanation for the process of gentrification. It describes the disparity between the current rental income of a property and the potentially achievable rental income. Only from this difference arises the interest of investors, a particular object (to entire neighborhoods) to renovate, resulting in an increase in rents and also the value of the property.
Investment in the property market will therefore only be made if a rent gap exists. Thus, it is contrary to other explanations for gentrification related to cultural and consumption preferences and housing preferences. The rent-gap theory is a purely economic approach.
Herriges uses the graph to explain why cycles of investment and disinvestment can be so disruptive to urban neighborhoods. Best of all, the article includes some wonderful maps of Twin Cities multi-family housing construction over the last few years. They show our development and construction pattern pretty clearly.
Here they are:
All Twin Cities residential building permits, 2009-16 (mostly single-family homes):
All permits for 2 or more units:
All permits for 3 to 19 units (what’s often called “Missing Middle” housing):
All permits for 20 to 99 units. You can see these clustered along rail corridors and near downtown Minneapolis:
Herriges is arguing that small-scale investments are less disruptive, and less of a force for change and classic gentrification, than large-scale big projects.
The punchline about the Twin Cities metro:
In the Twin Cities, as in most metro areas, Missing Middle development is comparatively scarce in favor of single-family homes and very large projects. And those large projects concentrate in only a few neighborhoods. Big developers pick winners, swarming to the neighborhoods where the profit is. And nobody else can afford to be in the game. The cost and complexity of permitting and regulatory compliance favor the big guys.