How Urban Core Amenities Drive Gentrification and Increase Inequality

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The Metropolitan Opera House in New York
The Metropolitan Opera House in New York City. Higher-income residents might be moving back to big cities to be closer to amenities like restaurants and cultural institutions.

The gentrification of cities like New York, San Francisco, Boston, Seattle, and Washington, D.C. has soared in recent years, as the affluent and educated have poured back into them. These superstar cities and tech hubs are epicenters of the “new urban crisis” with high and worsening levels of income inequality, economic segregation, and increasingly unaffordable housing, all of which have disproportionate negative effects on the less advantaged.

But what is actually behind these shifts? One popular explanation is that it is tied to the concentration of high-paying professional jobs in the urban center. Knowledge workers need to be close to these jobs and networks to advance their careers. Others suggest it is driven by the desire of these groups to avoid lengthy car commutes and keep more time for working, leisure, or family. But a growing body of research by leading urban economists provides evidence that behind both the wealthy’s back-to-the-city movement and the spatial inequality it brings are the cluster of high-end amenities—like restaurants, theaters, concert halls, and other institutions that are uniquely available at the urban core of superstar cities.

That’s the big takeaway of a new working paper that examines the factors at work in the increasing spatial sorting of income groups and the growing divide that comes with it. Victor Couture and Cecile Gaubert of the University of California Berkeley, Jessie Handbury of the University of Chicago, and Erik Hurst of the University of Pennsylvania, look closely at the factors that have attracted the affluent and advantaged back to urban centers and the subsequent effects on economic inequality.

The study looks specifically at the role urban amenities play in this process, by using GPS-based location data from cell phones to identify trips to amenity establishments. The study defines the urban center as the census tracts closest to the city center that host ten percent of the total metro population. It examines the distribution and migration of households of different income levels into the urban center of the nation’s 100 largest metro areas from 1970 to 2013.

Gentrifying Tracts in Select Census Bureau Statistical Areas (CBSAs)

Source: University of Chicago

First off, take a look at the pattern of gentrification in the maps above which show the gentrifying neighborhoods of six cities: New York, Chicago, San Francisco, Boston, Philadelphia, and Las Vegas. The maps show the clustering of gentrification in and around the urban center of superstar cities and tech hubs like San Francisco; it’s far less concentrated in a less-educated, service-dominated city like Las Vegas.

Downtown Residential Propensity by Income

Source: University of Chicago

Next, look at who lives downtown. The chart above depicts a powerful “U-shaped” pattern of downtown residents—a bifurcation of rich and poor. Despite gentrification, the poor remain clustered in the urban core. Low-income families (defined as those earning less than $25,000) were about one and a half to two times more likely to live in the urban core. As incomes rise, families are more likely to live out in the suburbs. But once median family income crosses the $100,000 threshold, families start to locate back downtown, a pattern which grows as incomes rise past $200,000. This U-shaped pattern is not necessarily a new phenomenon, the study notes: It can be seen in 1970, 1990, and 2013, but has become more pronounced over time.

Researchers found that overall, a 10 percent increase in metro income was associated with a 13 percent increase in the share of affluent households living downtown. “While stable in prior years, the relationship between income and the share of households living downtown has become steeper for the richest households by 2013,” the study notes. The urbanization of the affluent is even more pronounced in economically successful metros that have experienced higher-than-average income growth.

The movement of the affluent back downtown has played a significant role in growing urban inequality, according to the study. This migration over the past several decades has compounded the widening gap between the rich and poor in urban areas. Between 1990 to 2013, the gap in incomes between families in the bottom and top 10 percent of the income distribution in large cities grew by 18 percentage points: the incomes of the bottom 10 percent fell by one percent, while those of the top 10 percent grew by 17 percent. Spatial sorting—the affluent moving downtown and low-income residents moving out of increasingly unaffordable areas—increased this gap by an additional 2.3 percentage points.

But what is driving the shift of the affluent back to the urban center and the growing inequality that comes with it? The study finds the answer in the unique cluster of high-end luxury amenities that are only available in the downtowns of large cities. Researchers found that as individuals get richer, they are more likely to move closer to such amenities. Residents who lived in more-expensive tracts with more college-educated cohorts were also more likely to visit high-quality amenities, compared to residents who lived in less-expensive tracts. Furthermore, those higher-income residents spent more money on those amenities, like paying for tickets to the theater, sporting events, and other entertainment.

It is access to these amenities—more so than the availability of good high-paying jobs or even reduced commute times—that may be driving the rich back to the urban center. As the affluent and educated move back downtown to take advantage of this unique bundle of amenities, they drive housing prices up, which hits hardest on the least advantaged. As a consequence, these low-income residents are driven out of these increasingly expensive areas.

This conclusion is in line with research by Stanford economist Rebecca Diamond and my own research which show how rising demand for limited urban space at the heart of superstar cities drives up land and housing prices, causing a sorting process that has the most negative effect on the least well-off. The study by Couture et al., notes that its findings “suggest that increases in the incomes of high-income individuals was a substantive contributor to increased urban neighborhood change during the last 25 years within the U.S. and that the neighborhood change resulting from the increased incomes of the rich did, in fact, make poorer residents worse off.”

The study considers the effectiveness of “anti-gentrification” policies that might seek to counter such mounting divides by raising taxes on upscale urban neighborhoods to subsidize more affordable housing for the less advantaged. It finds that while this policy mitigates urban gentrification to a degree, the ultimate effect of such policies may shift more affluent households back to the suburbs, worsening the economic and fiscal conditions of cities, while doing little to improve the economic conditions of poor urban residents.

Something clearly needs to be done. Superstar cities are already seeing a mounting backlash to increased gentrification and burgeoning class divides. People have a deep attachment to their neighborhoods and communities, and I have long argued that place is replacing the factory floor as the arena of class struggle. A growing number of cities have imposed inclusionary zoning initiatives, which essentially force developers to include a share of affordable units, for example around 20 percent, in their new projects. San Francisco has seen several unsuccessful efforts to ban tech companies from downtown neighborhoods, and the tax incentives offered to Amazon’s HQ2 have met with opposition from local activist groups.

If left unaddressed, the economic divides within cities will only grow, leading to an even greater backlash against developers, tech companies, politicians, and the “urban elite,” which threatens not only urban revitalization, but is also likely to stall the very engine of innovation and economic progress.