This is a somewhat obscure topic that is of exclusive concern to the left, since the right dismisses it entirely, that despite being controversial is shrouded in superstition and just so stories. Merriam Webster defines gentrification as ‘the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces poorer residents.’ It is most often discussed through the lens of identity politics as wealthy young whites displacing minorities from traditionally minority neighborhoods because they can no longer afford the rent or property taxes there after the former move in. The solutions prescribed range from rent control to housing vouchers all of which merely address the symptoms and create new problems of their own without actually addressing the root of the problem which not only stems from the inelastic supply of land and it's monopoly price (especially in coastal cities) but also real estate speculation that makes it even scarcer for those of lesser means.
The difficulty arises when property values and rent are spoken of as a single unit of measure instead of a composite. Rent in its common usage refers to both interest payments for the use of a building and rent for the use of a specific site. The latter is economic rent or land rent. Property values are a combination of the value of the building or any improvements to the land (e.g. drainage, pavement, grid connection, water supply, sewage etc.) and the rental value of the land itself that arises from its inelastic supply. The law of rent stipulates that increases in population density, commerce, and improvements in public services like policing, public school performance, and road maintenance are captured in the monopoly price of land. Normally, this could be diffused either by pushing the margin of production further out (i.e. developing marginal land on the edge of cities) or land value capture (as done in places like Hong Kong and Singapore). Historically, we have chosen the former (i.e. suburbanization) since we have vast amounts of undeveloped land. However, when you live in a water locked city like New Orleans or Seattle you quickly run out of land to sprawl over and diminish the burden of higher land rents. Add to this municipal “revitalization” efforts (I.e. urban renewal 2.0), which is little more than municipal land speculation, sometimes carried out through condemnation proceedings against low income residents but more often zoning and building restrictions that make affordable housing both scarcer and less feasible to build and you have a recipe for gentrification.
The unintended consequence of urban renewal 2.0 or “revitalization” as it is called by its proponents is that it lowers the margin of production: rent increases consume a higher proportion of lower income wages and inevitably many residents in the lower quartile are “priced out”, so to speak, of the community. The problem is compounded by zoning and building ordinances that make scarce urban real estate even scarcer by introducing restrictions on quantity, quality and size of units available. In a white paper on housing development, the Obama admin noted that gentrification and other problems associated with surging housing costs are, for the most part, caused by local land use restrictions.
When new housing development is limited region-wide, and particularly precluded in neighborhoods with political capital to implement even stricter local barriers, the new housing that does get built tends to be disproportionately concentrated in low-income communities of color, causing displacement and concerns of gentrification in those neighborhoods. Rising rents region-wide can exacerbate that displacement.
Zoning ordinances, such as those which restrict new development to single family housing, excluding group homes and multifamily complexes, require a minimum number of off street parking spaces, reducing space for potential residential units, restrict residential conversion, prohibiting the conversion of former office and warehouse spaces into residential property, combined with lengthy permitting processes for new construction artificially raise property values and rents in dense urban areas. Ordinances that dictate the minimum size of units, such as those in Oakland also drive up the cost of housing. As noted in Gentrification is a Land Use Problem the cost of building new housing is further compounded in the lengthy appraisal, review and inspection process.
Metropolitan areas don't have low wage problems or overpopulation problems; they have zoning problems. In housing markets where prices far exceed construction costs, developers have to comply with multiple, and often conflicting, housing standards and regulations and are sometimes required to conduct separate appraisals, reviews and inspections for each source of funding (Jakabovics, Ross, Simpson, & Spotts, 2014). Developments that exceed zoning restrictions on the type and size of development must receive approved variances and entitlements, which delays construction and adds to the overall costs (Jakabovics et al., 2014). Jurisdictions can also add density requirements, height maximums, size minimums and parking space minimums, which in aggregate reduce the supply of affordable housing units (Jakabovics et al., 2014)
Today real estate speculation is most often done at the municipal level sometimes through eminent domain transfers from lower income working class residents to private developers looking to build accommodations for wealthier residents but more often through the aforementioned restrictions both of which raise property values above what they would be in a freer real estate market. This has not only guaranteed higher rents to landlords and higher capital gains to homeowners but it has also taken away much of the risk of speculation at the expense of those with lower incomes who cannot afford the new rent or property tax hikes or potentially new residents who cannot afford any house or apartments in the area.