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Gentrification in the Wake of the Subprime Mortgage Crisis
Abstract
From the late 1990s until the mid-2000s, real residential property prices increased
by more than 80 percent in the U.S. housing market. After U.S. home prices peaked
in 2006, the demand for home purchases and construction fell sharply. During the Subprime
Mortgage Crisis, more than 60 million Americans experienced foreclosure while overall
home prices declined nearly 31 percent since 2006. This paper explores the short-term
effects of the subprime crisis on the urban housing market. More specifically, my
thesis seeks to answer the policy question: In the wake of the subprime mortgage crisis,
what happened to gentrification in American cities? To better understand the relationship
between the housing crisis and urban development, I will examine how the landscape
of gentrification changed as a result of the collapsing U.S. housing market.
From 2000 to 2006, gentrification became a mainstay of the American housing landscape.
Researchers define gentrification as the process of rehabilitating depressed commercial
and residential spaces in geographically urban areas. Many young, white, and college-educated
homeowners purchased housing stock in urban neighborhoods for economic and aesthetic
purposes. Although gentrification emerged in the 1960s, this phenomenon continued
to grow during periods of economic decline.
Many real estate experts believed that the subprime mortgage crisis would slow gentrification
rather than stop the current trend indefinitely. Economists argue that an economic
downturn forces capital to withdraw and retreat from land use possibilities in gentrifying
urban areas. On the other hand, analysts argue that value-priced homes in center cities
encourage investment from young urban-pioneers looking to purchase when the market
has bottomed out. If “bargain hunters” are willing to invest now, they will benefit
from lower home prices in neighborhoods driven by increases in the supply of single-family
homes.
In light of the Subprime Mortgage Crisis, this paper examines:
• The effect of the subprime mortgage crisis on gentrification trends in 14 major
metropolitan cities; and
• Whether gentrification is driven by preferences for affordable housing stock, or
preferences for historic and/or luxury builds in periods of economic decline.
The key findings of the paper are:
Gentrification Increased in Most Cities -- Overall, gentrification did not slow down
in the U.S. in the wake of the recession. In most cities gentrification increased
despite economic pressures in the housing and financial markets. Only a small number
of cities experienced little or no changes in gentrification levels. Detroit was the
only city with declining levels of gentrification.
In Williamsburg and Greenpoint, strong preferences for certain neighborhood amenities
helped maintain demand for housing after 2008. Increased median rents and home values
show that the Subprime Mortgage Crisis did not deter interest in these up and coming
neighborhoods. Gentrification is thriving and quickly expanding to other parts of
the borough, mostly because these neighborhoods are well served by public transport
to Manhattan.
Despite the economic downturn, Washington, DC’s Columbia Heights neighborhood experienced
an increase in home and rental prices. From 2000 to 2006, income-driven preferences
fueled gentrification patterns in Columbia Heights. Additionally, the share of the
white college educated population continued to grow between 2006 and 2009. Low unemployment
in the District helped to maintain and expand gentrification patterns in the area.
While de-industrialization is the main contributor to Detroit’s collapse, the Subprime
Mortgage Crisis has only worsened city conditions. The city’s core gentrifying demographic
of college educated professionals left the city in search of better employment opportunities.
Detroit’s downtown areas are still plagued by high vacancy rates, poverty, and chronic
unemployment. However, early-stage re-gentrifiers are looking to create a Williamsburg
effect. Detroit’s ability to successfully re-gentrify in the future is very much dependent
on a healthy job economy.
Type
Master's projectDepartment
The Sanford School of Public PolicyPermalink
https://hdl.handle.net/10161/5368Citation
Coleman, Candace (2012). Gentrification in the Wake of the Subprime Mortgage Crisis. Master's project, Duke University. Retrieved from https://hdl.handle.net/10161/5368.More Info
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