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Explaining Gentrification: The Role of Dwelling Age, Historic Districts, and the Redevelopment Option Open Access

Studies of gentrification in urban economics have concluded that age of housing is the main economic variable of interest. Is this truly the case? Gentrification, the process by which relatively higher income households move into a neighborhood and upgrade the housing stock has three main elements: dwelling age, housing income, and housing price. There are instances where neighborhoods with the oldest housing units experience significant change in terms of in-migration of higher income households and housing stock renovation. However, in other cases, older units remain unchanged. Brueckner and Rosenthal, in a series of papers have tested a theoretic model where dwelling age is instrumental to gentrification because housing units become physically obsolete over time. This model predicts that inner-city neighborhoods will once again proper at the expense of suburban neighborhoods with high commuting costs. This contrasts with the Standard Urban Model (SUM). Using metropolitan level census data, a modified CBD, and urbanized area based on economic activity, the analysis reveals that dwelling age is not necessarily the most important factor in determining changes in neighborhood income. In contrast to the Brueckner and Rosenthal results, the positive association between changes in relative tract income and distance holds as predicted by the SUM and is not changed by dwelling age. One key to understanding gentrification and housing markets in general is the hedonic equation. Clapp and Salavei have demonstrated that, in areas undergoing gentrification, the hedonic estimates are biased due to the redevelopment option. In particular, the effect of dwelling age on house value is biased. They propose the Clapp-Salavei Options Model (CSOM) to correct for this. Empirical support for the CSOM has been demonstrated for several towns in Connecticut. This dissertation first extends the analysis to Washington, D.C. The CSOM results for Washington, D.C., support the arguments that the estimated coefficients of intensity, or the redevelopment option, are negative and significant and the estimated age coefficient is smaller in the model with intensity. Then a falsification test of the CSOM is performed since Clapp and Salvei did not analyze the effects of historic designation in their empirical work. In Washington, D.C. historic designation often occurs in the form of historic districts. Given limitations on redevelopment associated with historic districts, the CSOM places even further restrictions on the hedonic estimates in areas that would be redeveloped in the absence of historic designation. The falsification test results indicate that the value of the redevelopment option is negligible in historic districts but is significant in non-historic neighborhoods. Hence the CSOM critique of hedonic models is valid and age effects are biased by the redevelopment option. They also show that historic designation introduces further bias in a manner consistent with CSOM theory. Overall, the results from this research show that dwelling age is one of several drivers of gentrification but empirical determination of the effects of dwelling age on the incentive to gentrify is far more complex that the current literature suggests.

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