One of the best things about our work is the opportunity to travel and work alongside interesting and inspiring people. Back in 2015, one of those people was Eric Shields, who was working with the Indiana Economic Development Corporation. While we collaborated on the Indiana Regional Cities Initiative, we started discussing the many ways that state and local decisions can influence quality of place, a key driver for economic success and a guiding principle for the program.
A few weeks ago Shields published a thoughtful consideration of public-sector roles and responsibilities in neighborhood change, in which he stresses that the role of subsidies, their intended and unintended consequences, ways to agree on objectives and measure success, and accountability and transparency must all be grappled with before they are used to preserve housing affordability for homeowners in Indiana.
Shields shared these thoughts in response to a proposal from Indiana State Representative Cherrish Pryor to provide property tax breaks to homeowners to balance reinvestment and affordability concerns.
Key questions for the public sector
The article, called Strong Neighborhoods Are Vital to Economic Success, poses important questions to the public sector. How can state and local government best balance market forces and residents? When are state or local governments best-suited to intervene? Should property owners be required to return subsidies when they sell their homes? What other factors, such as the type of development, contribute to displacement?
The evidence reveals unseen drivers of displacement
This last question is one that I would like to focus on. Shields rightly points out that if subsidies are provided to homeowners, but new development does not include a mix of housing options, then “displacement is inevitable over the long term.”
A key question, then, is what drives resident displacement? From there, both state and local interventions can be developed. Property tax abatement programs are based on the accurate assessment that property tax increases are a burden on existing residents, especially lower-income residents. Based on what we know about residential displacement, some other drivers to target could be:
1. Lower-income renter churn. In addition to longtime homeowners, renters are of course a community of concern with regard to displacement. One primary driver of renter displacement is beyond price increases and stems from a deeper housing stability pattern: lower-income renters tend to move more often than middle- and higher-income renters for a variety of reasons.
The problem for lower-income renters arises when, at this “normal” churn rate, they struggle to find another unit to move into within the same neighborhood. Therefore, programs designed to keep renters in their homes may miss the mark because lower-income renters face pressures beyond affordability that cause them to move around. Instead, programs that aim to preserve the number of units available at an appropriate price point within the same neighborhood, and perhaps marketed to neighborhood residents first, could help address this issue.
2. Changing business types. Displacement is caused not only by cost pressures, but also by neighborhood changes that alienate existing residents, called cultural displacement. Cultural displacement can happen in places experiencing racial and ethnic demographic changes, but can also happen in ethnically homogenous areas. The common thread defining cultural displacement is that the businesses that arise in changing neighborhoods to not feel welcoming or relatable to existing residents.
A classic form of cultural displacement occurs when a main street is suddenly awash in hip coffee shops, artsy boutiques, and quirky restaurants. Even if existing residents can afford to shop in these places, they are unlikely to see them as neighborhood-serving businesses. The policy question here lies in what kinds of businesses receive tax abatements, zoning variances, or other incentives, and how a City balances business attraction and retention strategies.
3. Crime rate changes. A recent study of decades of household moving and city crime rate patterns revealed that high-income and college-educated households are more likely to move to central city neighborhoods when those neighborhoods experience a three-year reduction in violent crime, while lower-income households and those without college degrees do not demonstrate the same phenomenon.
Because high-income and college-educated households are more willing move to lower-income and majority minority neighborhoods following a reduction in crime, these households would drive displacement even at normal household turnover rates because they would gradually make up a larger portion of demand for housing in the area. The result would be a neighborhood that has changed in its makeup, but not necessarily due to affordability challenges (although these can certainly happen at the same time). The policy implication here is to target displacement interventions to central city neighborhoods when they approach three years in crime rate reductions.
Neighborhood change and displacement are complex issues that deserve both an evidence-based approach to policy and an ability to implement new programs quickly. While examining the evidence is crucial, displacement is happening always and everywhere, and attempting to keep people in their homes and neighborhoods should always come first.