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Endogenous gentrification and housing price dynamics

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Author Info

  • Guerrieri, Veronica
  • Hartley, Daniel
  • Hurst, Erik

Abstract

In this paper, we begin by documenting substantial variation in house price growth across neighborhoods within a city during city-wide housing price booms. We then present a model which links house price movements across neighborhoods within a city and the gentrification of those neighborhoods in response to a city wide housing demand shock. A key ingredient in our model is a positive neighborhood externality: individuals like to live next to richer neighbors. This generates an equilibrium where households segregate based upon their income. In response to a city-wide demand shock, higher income residents will choose to expand their housing by migrating into the poorer neighborhoods that directly abut the initial richer neighborhoods. The in-migration of the richer residents into these border neighborhoods will bid up prices in those neighborhoods causing the original poorer residents to migrate out. We refer to this process as “endogenous gentrification”. Using a variety of data sets and using Bartik variation across cities to identify city level housing demand shocks, we find strong empirical support for the model's predictions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 100 (2013)
Issue (Month): C ()
Pages: 45-60

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Handle: RePEc:eee:pubeco:v:100:y:2013:i:c:p:45-60

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Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Housing markets; Spatial equilibrium; Gentrification;

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References

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  1. Erik Hurst & Daniel Hartley & Veronica Guerrieri, 2011. "Endogenous Gentrification and Housing Price Dynamics," 2011 Meeting Papers 1418, Society for Economic Dynamics.
  2. Patrick Bayer & Fernando Ferreira & Robert McMillan, 2007. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 588-638, 08.
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  4. Busso, Matias & Kline, Patrick, 2008. "Do Local Economic Development Programs Work? Evidence from the Federal Empowerment Zone Program," Working Papers 36, Yale University, Department of Economics.
  5. Siqi Zheng & Matthew E. Kahn, 2013. "Does Government Investment in Local Public Goods Spur Gentrification? Evidence from Beijing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 41(1), pages 1-28, 03.
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  8. Joseph Gyourko & Eduardo Morales & Charles Nathanson & Edward Glaeser, 2011. "Housing Dynamics," 2011 Meeting Papers 307, Society for Economic Dynamics.
  9. Veronica Guerrieri & Daniel Hartley & Erik Hurst, 2012. "Within-city variation in urban decline: the case of Detroit," Working Paper 1205, Federal Reserve Bank of Cleveland.
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Citations

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Cited by:
  1. Veronica Guerrieri & Daniel Hartley & Erik Hurst, 2012. "Within-City Variation in Urban Decline: The Case of Detroit," American Economic Review, American Economic Association, vol. 102(3), pages 120-26, May.
  2. Monkkonen, Paavo & Wong, Kelvin & Begley, Jaclene, 2012. "Economic restructuring, urban growth, and short-term trading: The spatial dynamics of the Hong Kong housing market, 1992–2008," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 396-406.
  3. Roberto Pinheiro & Kurt Schmidheiny & Jan Eeckhout, 2011. "Spatial Sorting," 2011 Meeting Papers 488, Society for Economic Dynamics.
  4. David Genesove & Lu Han, 2012. "A Spatial Look at Housing Boom and Bust Cycles," NBER Chapters, in: Housing and the Financial Crisis, pages 105-141 National Bureau of Economic Research, Inc.
  5. Erik Hurst & Daniel Hartley & Veronica Guerrieri, 2011. "Endogenous Gentrification and Housing Price Dynamics," 2011 Meeting Papers 1418, Society for Economic Dynamics.
  6. Atif Mian & Amir Sufi & Francesco Trebbi, 2011. "Foreclosures, House Prices, and the Real Economy," IMES Discussion Paper Series 11-E-27, Institute for Monetary and Economic Studies, Bank of Japan.
  7. Somekh, Babak, 2012. "Commuting And Shopping: Determinants Of City Income Structure," Working Papers WP2012/3, University of Haifa, Department of Economics, revised 19 Feb 2012.
  8. Larson, William & Liu, Feng & Yezer, Anthony, 2012. "Energy footprint of the city: Effects of urban land use and transportation policies," Journal of Urban Economics, Elsevier, vol. 72(2), pages 147-159.
  9. Matthias Kehrig & Nicolas Vincent, 2013. "Disentangling Labor Supply and Demand Shifts Using Spatial Wage Dispersion: The Case of Oil Price Shocks," Working Papers 13-57, Center for Economic Studies, U.S. Census Bureau.
  10. Kahn, Matthew E. & Vaughn, Ryan & Zasloff, Jonathan, 2010. "The housing market effects of discrete land use regulations: Evidence from the California coastal boundary zone," Journal of Housing Economics, Elsevier, vol. 19(4), pages 269-279, December.
  11. Kyle Fee & Daniel Hartley, 2012. "The relationship between city center density and urban growth or decline," Working Paper 1213, Federal Reserve Bank of Cleveland.
  12. Siqi Zheng & Matthew E. Kahn, 2011. "Does Government Investment in Local Public Goods Spur Gentrification? Evidence from Beijing," NBER Working Papers 17002, National Bureau of Economic Research, Inc.
  13. Philippe Bracke, 2013. "House Prices and Rents: Micro Evidence from a Matched Dataset in Central London," SERC Discussion Papers 0127, Spatial Economics Research Centre, LSE.
  14. Daniel Hartley & T. William Lester, 2013. "The long-term employment impacts of gentrification in the 1990s," Working Paper 1307, Federal Reserve Bank of Cleveland.
  15. Dionissi Aliprantis & Daniel Carroll, 2012. "Neighborhood dynamics and the distribution of opportunity," Working Paper 1212, Federal Reserve Bank of Cleveland.

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