Rent-Gap

One of the more popular explanations for gentrification, the rent-gap hypothesis, first advocated by Neil Smith, approaches this issue in terms of the profitability of land in the urban core. In centrally located sites, actualized ground rents generally decline over time as the buildings and infrastructure age. During the post–World War II boom, low rents on the urban periphery were a major attraction to capital. Deindustrialization and the flight of people and capital to suburbia throughout the late 20th century played a major role in lowering the profitability of land, or devalorizing it, in the central business district (CBD). Low-income residents were incapable of generating rents that guaranteed a high rate of profit. Disinvestment from the urban core was manifested in abandoned buildings and lack of repairs. However, in contrast to actualized rents, the potential rents in such locales remained high. As neoclassical economists tend to frame the issue, urban land was not being put to its so-called “highest and best use,” that is, generating the maximum possible rate of profit. In particular, the rapid growth of producer services over the past three decades and their reliance on agglomeration economies elevated the importance of locations in maximally accessible places. Thus, a significant discrepancy arose between potential and actual rents, in other words, a rent-gap. Real estate developers and others with a vested interest in land sensed that higher rates of profit (rental streams) may be earned by attracting corporate capital or higher-income residents. Lured by the potential profitability of these sites, capital, much of it speculative, began to flow into urban cores in vast quantities as corporations reclaimed the spaces of inner cities, stimulating a building boom in luxury residential uses and commercial ones such as offices, waterfront developments, and sports stadia. The emergence of such land uses is usually accompanied by an influx of well-paid professional labor. Typically, such a process involved the invasion and displacement of low-income, working-class, often ethnic minority communities. The rent-gap thus closed, at least temporarily, until future fluctuations in the economy threaten to re-create it.

The rent-gap thesis ties waves of building construction in the landscape to the dynamics of capital accumulation, investment, and uneven development. It offers a structuralist, production-oriented explanation of gentrification that does not rely on demographics or the residential preferences of yuppies. Thus, it posits gentrification in terms of the structural dynamics of class, labor, and capital rather than individual preferences or lifestyles. Critics have alleged that the thesis is economistic and functionalist, leaving little room for human agency.