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Gentrification and Financial Health

Gentrification is a form of neighborhood change. While it does not have a precise definition, it is commonly associated with an increase in income, rising home prices or rents, and sometimes with changes in the occupational mix and educational level of neighborhood residents.

Gentrification is sometimes viewed as a bad thing. People claim that it is detrimental to the original residents of the gentrifying neighborhood. However, a look at the data suggests that gentrification is actually beneficial to the financial health of the original residents. From a financial perspective, it is better to be a resident of a low-price neighborhood that is gentrifying than one that is not. This is true whether residents of the gentrifying neighborhood own homes or do not and whether or not they move out of the neighborhood. This is interesting because one might expect renters to be hurt more by gentrification, and one might also be concerned that people who moved out of the neighborhood did so because they were financially strained.

In this article I consider a measure of gentrification based on neighborhood home values, and examine how this measure correlates with changes in credit scores and debt delinquency measures in gentrifying neighborhoods.

Variation in Gentrification across Large Cities

For the purpose of this analysis, I will say a neighborhood is gentrifying if it is located in the central city of a metropolitan area and it goes from being in the bottom half of the distribution of home prices in the metropolitan area to the top half between 2000 and 2007. Housing prices are a good measure of gentrification since they provide a summary of the various amenities in the neighborhood. Changes in neighborhood amenities such as increases in school quality or decreases in crime should be reflected in changes in neighborhood home prices.

The number of neighborhoods that could have potentially undergone gentrification within this timeframe is large and varies greatly across US cities. Looking at the 55 largest US cities in 2000 shows that the share of neighborhoods that fit my definition ranges from 17 percent in Seattle to 95 percent in Baltimore. The number of neighborhoods that did actually gentrify by 2007 is smaller. Though all cities experienced some gentrification, most saw less than a third of neighborhoods with the potential to gentrify do so. Four cities saw significant shares of the neighborhoods that could gentrify, do so: Boston (61 percent), Seattle (55 percent), New York (46 percent), and San Francisco (42 percent). In Boston, the gentrifying neighborhoods represented about a fourth of the entire city's population. In other cities, the proportion was much smaller.

Gentrifying Cities

Metropolitan Statistical Area (MSA) Proportion of low-price census tracts in the city (those with below-median MSA home value), percent Proportion of the city's low-price tracts that gentrified, percent Proportion of the city's total number of tracts that gentrified, percent
Boston 43 61 26
Seattle 17 55 9
New York City 40 46 18
San Francisco 31 42 13
Washington, DC 55 35 19
Atlanta 59 31 18
Chicago 57 28 16
Portland 48 28 13
Tampa 73 24 18
Los Angeles 51 23 12
Denver 52 23 12
Virginia Beach 31 23 7
Minneapolis 71 22 16
New Orleans 59 20 12
Austin 51 19 10
Jacksonville 61 17 10
Nashville 58 16 9
St. Louis 84 16 13
Anchorage 50 15 7
Honolulu 28 15 4
Las Vegas 53 15 8
Colorado Springs 48 14 7
Philadelphia 81 14 11
Albuquerque 47 13 6
Houston 55 13 7
Miami 62 12 8
Cincinnati 72 12 9
Fresno 57 11 6
Tucson 67 11 7
Charlotte 40 11 4
Phoenix 64 10 7
San Diego 46 10 5
Columbus 65 9 6
Indianapolis 60 8 5
Kansas City 68 8 6
Corpus Christi 45 8 4
Sacramento 64 8 5
Milwaukee 83 7 6
Pittsburgh 73 7 5
Dallas 52 7 4
Memphis 62 7 4
San Antonio 58 7 4
Lexington 52 7 3
Cleveland 93 7 6
Oklahoma City 55 7 4
Buffalo 78 6 5
El Paso 46 6 3
Omaha 54 6 3
Raleigh 35 4 2
Toledo 72 4 3
Wichita 57 4 2
Oakland 83 3 3
Baltimore 95 3 3
Tulsa 53 3 2
Detroit 94 3 2
Total 57 17 10
Source: Neighborhoods are defined using Census 2000 tract boundaries. Median home value tabulations for Census tracts come from the 2000 Census and the 2005-2009 American Community Survey. I use 2007 as a shorthand for the 5-year tract level estimates from the 2005-2009 American Community Surveys.
Gentrifying tracts saw bigger increases in home values, rents, incomes, education levels, and owner occupancy rates than low-price tracts that did not gentrify.

Changes in Gentrifying and Nongentrifying Neighborhoods, 2000-2007

Change (percentage points)
Change in Gentrified Not gentrified
Home prices 157.7 49.8
Rents 21.0 16.5
Incomes 10.5 -5.6
Proportion with bachelor's degree 7.3 2.3
Proportion of owner-occupied housing units 3.3 -0.3
Source: Neighborhoods are defined using Census 2000 tract boundaries. Median home value tabulations for Census tracts come from the 2000 Census and the 2005-2009 American Community Survey. I use 2007 as a shorthand for the 5-year tract level estimates from the 2005-2009 American Community Surveys.

Neighborhood Gentrification and Credit Scores

Rising home values, educational levels, and incomes are all positive developments. But some people have voiced concerns about the side effects of gentrification. The most common is that gentrification displaces existing residents from the neighborhood. Renters face higher rents, and homeowners may face higher property taxes, possibly causing liquidity problems even though their home values have increased. To assess how the existing residents fare in neighborhoods that gentrify, I examine how gentrification is associated with changes in their credit scores. The credit score used is the Equifax Risk Score, which provides a summary measure of a person's creditworthiness and is one of the scores used by lenders to decide whether or not to make a loan to someone.

How does gentrification correlate with changes in individuals' Equifax Risk Scores? I looked at a number of regressions which aimed to assess the differences in changes in Equifax Risk Score from 2001 to 2007 between residents of gentrifying and nongentrifying neighborhoods, controlling for the individuals' ages and credit scores in 2001. In other words, how much did the creditworthiness of people in gentrifying neighborhoods increase compared to people with similar ages and initial credit scores in nongentrifying neighborhoods?

Living in a neighborhood that gentrified between 2000 and 2007 is associated with about an 8 point higher increase in credit score compared to living in a low-price neighborhood that did not gentrify. Improving credit outcomes in gentrifying neighborhoods are also reflected in delinquency rates. The share of people with an account 90 or more days past due fell by 2 percentage points in gentrifying neighborhoods relative to other low-price neighborhoods during this period (again controlling for age and initial credit score).

Furthermore, interesting patterns emerge when I compare changes in the credit scores of the residents of neighborhoods that gentrified to those that did not gentrify, based upon whether the residents had a mortgage in 2001. Mortgage-holding residents are associated with about the same increase in credit scores in gentrifying neighborhoods as non-mortgage-holding residents. Even though some homeowners do not have mortgages, so having a mortgage is not a perfect proxy for homeownership, this result suggests that renters in gentrifying neighborhoods benefit by about the same degree as homeowners.

Another way to cut the data is to compare movers and nonmovers across gentrifying and nongentrifying neighborhoods. Interestingly, there is a slightly larger increase in credit score (1.5 points more) associated with residents of the gentrifying neighborhoods who moved to a different neighborhood relative to those who lived in a gentrifying neighborhood but did not move. So it appears that, on average, movers are even slightly more positively affected by gentrification than nonmovers.

The data seem to show that there is a positive change in the financial health of the existing residents of gentrifying neighborhoods as measured by their Equifax Risk Score ™ and delinquency rates. This positive change is present for mortgage holders, for nonmortgage holders, for those that stay in the neighborhood, as well as for those that move out. The one caveat is that because the data only go back to 1999, I am unable to distinguish between residents who arrived in the neighborhood just two years prior to 2001 and those who are long-time residents.


  • Equifax, Federal Reserve Bank of New York, Consumer Credit Panel.

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