The Causes of Rapidly Rising Rents


Over the past twenty-five years, many cities in the United States have experienced striking economic fluctuation. After decades of trying to lure real estate investors, business capital, as well as a resident base with higher taxable income, officials in these cities now find themselves with a significant amount of all three. One of the most visible results of this shift has been soaring housing prices. The demand for housing has grown too far exceeding the existing supply, causing inflation. For the purposes of this paper, we are defining gentrification as rapid rent growth in areas occupied by lower-income households.

Urban regeneration has been implemented with the intention of improving inner cities through housing policies, but the more significant impact has been gentrification. As such, this idea was criticized and denounced because of its implementation on only the affluent instead of those in need. Especially when looking at old industrial lofts (Zukin, 183), the free market transformation has opened pathways for private owners to capitalize on real estate.

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By renovating the Lower East Side, this pushes the boundaries of the failing urban economy. The flood of investment into these areas presents both opportunities and challenges for policymakers in high-cost cities.

Research shows that the presence of higher-income households in a neighborhood can bring with it more retail activity, which may bring employment, an improvement in city services, as well as improved academic facilities. As the demand for housing has grown too far exceed the existing supply, many urban neighborhoods that have long served as a home for mostly low- and moderate-income households are now seeing an influx of higher-income individuals; in other words, they are experiencing gentrification.

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The influx of an artistic population in the Lower East side increased the speed of gentrification by offering a local color and influence to the entire area.

Loft Gentrification

Gentrification did not happen out of thin air in New York City. Sharon Zukin, author of "Loft Living Culture and Capital in Urban Change," described the phenomenon of artists and bohemians created living large spacious warehouses. Living lofts seem to represent a typical, though specialized, real estate market. The loft market went through two stages that were because of the relationship of supply and demand.

First, the decline of small businesses that had occupied lofts continuously through most of this century, in addition to the expansion to more modern industrial plants of those firms that had survived into the 1960s, caused vacancies in loft buildings. This created the factor of supply. As vacancies increased, new tenants (primarily artists seeking to live and work at a cheap rent) claimed the empty spaces for their own use. This suggests this supply then led to a demand fueled by the artist community. As usual, the new residential rents were higher than existing manufacturing rents, and the growing demand for lofts by residential tenants encouraged further rent increases. In the absence of new manufacturing tenants, landlords began to advertise "lofts for artists." A booming market was born.

The second stage of the loft market developed when the demand for living lofts expanded to middle-class people who had no connection with the arts. Their demand encouraged landlords to increase supply to fulfill their wishes. She states in her book, "The average rent for a living loft in 1977 was just under $400. But lofts also require an additional investment to make them habitable·. An average expenditure toward the end of the seventies was about $7,000 a loft, although living lofts that have been featured in glossy magazines like New York or the New York Times Magazine may have cost $50,000 to $100,000 to renovate. (Zukin pg. 12)." The total value increased by about 1,750 percent by the end the 70s. (Social Explorer) This was an extreme rate of change that took place in just a couple of years.

Middle Class Surge

The major price surge the creative artists created brought in a wave of middle-class tenants into the Central City. Currently the Lower East side has its own aesthetic; the Hipsteresque, vintage of townhouses in the LES. This is due to Jane Jacobs revitalizing a culture of neighborhood preservation and urban vitality through her book of "The death and Life of Great American Cities." Tearing down old trademark buildings and rebuilding on old areas was denounced (Zukin 176). In America, this concern for the epunvironment was heavily influenced by the middle class. In modern language, the artists are what we call the "trendsetters," and the middle class are considered to be those that hop on the bandwagon. As more educated residents flocked to the LES, this helped to attract and keep higher-income residents.

High-status residents and higher rates of homeownership are likely to be correlated with superior public services (such as schools), which will make a neighborhood more attractive to higher income households. (Hwang and Lin, 2016). Low-income city neighborhoods experiencing large gains in relative income are now also experiencing much larger socioeconomic changes, namely in race and educational attainment, resulting in greater increases in rents (Ellen and Ding, 2016). Now as the housing stock becomes more attractive to wealthier households, neighborhoods with newer housing are more likely to gain economically (Rosenthal, 2007). This emphasizes preferences for neighborhood socioeconomic composition. Thus, if a neighborhood becomes a better place to live, people will be willing to pay more to live there. Additionally, the impacts of schools and the impact dorms have on the housing market. One important reason raised in this volume is the increased demand for centralized neighborhoods among younger, more educated and white households (Hwang and Lin, 2016) would be capitalized into higher property values.


However, when a surge of white middle class population rushed into the Lower East side, the entirety of the area had to be changed. Which is why has centrality increasingly come become the local amenity. Gyourko et al. [2013] tied gentrification to a growing number of high-income households in the central business district of NYC. The premium on central location seems to reflect more than a filling-up of scarce space by high-income households. Urban revival currently gathers considerable media attention and interest from the public. We have seen that this revival is prevalent in lower Manhattan and it is driven by the location decisions of the young and college-educated. While the rest of the country continues to move disproportionately to suburban areas, college-educated 25-44-year-old have flocked to downtown areas.

Currently, the initiative for consumption amenities -such as retail, entertainment, and service establishments -explains the diverging location decisions of the young and college-educated individuals. Because of the creative culture that the Artists have brought to the Lower East Side, factors like changes in urban relative to suburban neighborhood characteristics, tastes for living in close proximity to job locations, or willingness-to-pay for housing close to universities or their occupations help to explain why the young and college-educated are moving downtown in big cities, while the rest of the area moves away. The diverging preferences for consumption amenities to which we attribute urban revival are found from a correlation between changes in the location choices of individuals in different educational groups and the distribution of consumption amenities in 2000.

Also, we see that young professionals (or soon to be) now have higher disposable income than in 2000 (Social Explorer) and that center amenities are luxury goods and recreational activities. If the key factor at play is a changing preference for urban amenities, then there are important consequences for the sustainability of the urban revival trend and its welfare implications. Since these amenities originate in the LES, their concentration will grow with local demand and may act as an attachment for the new generation of college-educated households, keeping them closer to the central city as their demand for space and schooling rises. NYU and The New school are prime examples of how the demand for spacing rises. NYU and The New school have overpopulated Greenwich village and NoHo (North of Houston Street), forcing new tenants and future tenants to look elsewhere. Elsewhere meaning the LES. The consumption amenities in the LeES will compensate the young and college-educated for the high housing prices that they will increase in the future.

As the population of lower Manhattan increase, the values of housing will increase. As affordability drops, poorer households will either be displaced or must pay the high housing costs to continue to live in downtown locations where the businesses offer fewer of the amenities that suit their less expensive tastes. Thus, creating the power to only have high class groups in the area which is exactly what the housing


One of the most significant challenges facing many cities today is how to maintain affordability and diversity in the face of dramatic increases in housing demand and housing prices in the LES. In this paper, we have explored the causes of rapidly rising rents with the arrival of a large wealthy class. This threat to affordability in gentrifying neighborhoods needs special attention if economic diversity is to be preserved. In areas where rents are on the rise, strategic use of city subsidies, land use regulations, and city-owned land can help create and preserve affordable units for a large proposition of the lower middle class to the lower class themselves providing a equal share price for New York citizens.

Updated: Aug 22, 2022
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The Causes of Rapidly Rising Rents. (2019, Dec 20). Retrieved from

The Causes of Rapidly Rising Rents essay
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