3
New Economics
There seems to be a correlation between gentrification in certain places of the global South and rapidly developing, urbanizing economies. The gentrification of cities at the ‘fringes’ of the capitalist world shows us several ways in which neoliberalism can unfold; the way the local dominant classes, sometimes global, deploy their power spatially, and the way states intervene to realize their goals. We understand neoliberalism here not as a colonizing force that renders local relations to succumb to transnational elites, but as a contextual force that interacts with local power relations to produce variegated capitalist relations in each locality. For instance, the East Asian developmental states (Taiwan, South Korea, Singapore and Japan) were often known as ‘vassal’ states, having huge dependence on the US during the Cold War era of the twentieth century, but the region did not really go through neoliberalization as such during this period and these countries' policies were developing and maturing over time (see Park, Hill and Saito 2012; Tsai 2001; Yeung 2000). It should be acknowledged that neoliberalism has been evolving and ‘travelling’ at an uneven pace, which also in turn affects how certain ‘neoliberal’ policies have travelled across the world. Capitalist relations at multiple geographical scales are going to be inherently uneven across national borders and often within borders as well (see for example Zhang and Peck 2014), and gentrification is a spatial process that polarizes those relations even more. From this point of view, to claim a singular ‘form’ of gentrification makes no sense at the planetary scale.
In this chapter, we deal with six economic aspects to see what is essentially new about planetary gentrification. First and briefly, gentrification can be a device for producing capital switching from the primary circuit of industrial production to the secondary circuit of the built environment, but now on a global scale. Second, gentrification is a massive form of creative destruction of capital fixed in the built environment replacing outmoded fabric with newer infrastructure; this multiplies the amount of capital including speculation on real estate, always in search of higher rates of return in the next cycle of accumulation. A third aspect is the production, uneven accumulation, and disputes over ground rent in redeveloping urban areas, a process that Slater (2015) has also called ‘planetary’. Some time ago rent gap theory was depicted as over deterministic, but it has recently seen a revival as it has proven useful in addressing the essentially neoliberal inequalities between economic forces and social agents in many rapidly transforming cities, through the complex interplay between national, metropolitan, urban and neighbourhood levels. The rent gap also helps measure gentrification-led displacement, for the private capture of ground rent (López-Morales 2011, 2013a; Shin 2009a,b; also Slater 2006, and Marcuse 1985a) always has a class-monopoly nature (Jaramillo 2008). There is also an ongoing comparative discussion being held in many Latin American countries, about land value capture by national states, as part of socially redistributive agendas of the rent gap (see Smolka 2013). After the 1990s, debates over the rent gap faded away, and more recently, despite Slater's (2006) argument that gentrification researchers need to look more at the displacement of low-income populations, there have been very few attempts to link gentrification economics with displacement and exclusion, and to address the seemingly crucial question of who really captures the ground rent when an area comes to be redeveloped, and what happens when the rent gap levels are so unequally captured that they effectively dispossess land value from local populations who previously had claims on that land; even if they chose to sell, or even if they wanted to stay. The latter ‘effects’ were not clearly seen in the 1980s and 1990s when rent gap theorizations were at their height in the global North; but we argue now that the conflicted nature of the land-economic side of gentrification is one of its main common ‘planetary’ characteristics.
There are also other forms of class-led appropriation of urban resources – one is ‘spatial capital’ (Rerat and Lees 2011), the way transport-oriented public policies transform spatial opportunities in the city, with the explicit (or not explicit) aim of spatial appropriation by upper-income social groups (Blanco et al. 2014); this is a fourth aspect we address here. A fifth aspect is the contemporary forms of public and private sector involvement in inner city favela, colonia, gecekondu redevelopment in the capitalist world, in what has come to be called ‘urban entrepreneurialism’ (Harvey 1989a). Given the increasingly intense scholarly and political interest in the phenomenon of urban ‘policy mobilities’ (McCann and Ward 2010; Robinson 2011a; see Chapter 5), we explore the intertwined roles of the state and holders of economic capital in the production, distribution, and representation of urban exclusion and segregation, and the roles that gentrification plays in the production of these effects (we also discuss transit-oriented development in Chapter 6).
A sixth, additional fundamental aspect is whether there is a new economy of gentrification in the global South and North that essentially differs from the post-war economy of gentrification in the North (as the dominating narrative of gentrification in the literature). In the final section we address the impacts gentrification has generated in the post-socialist world and also Tiger economies (South Korea, Taiwan and Hong Kong) and the industrialized capitalist economies different to transitional economies, such as China and Vietnam. The greater integration with global investment capital flows and the growing importance of real estate interests in cities in Brazil, Chile, Mexico, and so on, suggests that there exists a frequently conflictual interaction between ‘traditional’ urban space (often characterized by slums and decaying inner-city places) and emerging ‘gentrified’ urban space that caters for the needs of the new rich and international visitors. Finally, we move back to the global North to see what the debt crisis has meant for gentrification in the US.
Gentrification and the global economy
Inspired by Marx and Engels' Communist Manifesto, Schumpeter (1976) synthesized capitalism as a ‘process of creative destruction’ and claimed that capitalism revolutionizes its economic structures from ‘within’, incessantly creating a new one and destroying the old one. Capitalists destroy and replace their fixed capital, means of production, physical and social infrastructures, according to the pace of new technological advances, in order to remain competitive. This is precisely the force that sustains the capitalist city as a machine of production and competition, and gentrification as a way to open up spaces for new rounds of profit and accumulation, especially when the scale of gentrification involves comprehensive state policies for city transformation and the involvement of large-scale redevelopers and financiers. This is happening not only in most of the countries of the global South but also now in the US (Mueller 2014; we come back to this case later) and the UK (Davidson and Lees 2010). Obviously, there has been a leap from the period of ‘Haussmannization’ and the Communist Manifesto to contemporary capitalism and neo-Haussmannization. The latter now spreads as ‘a similar process that integrates financial, corporate and state interests, tears into the globe, sequesters land through forcible slum clearance and eminent domain, valorizing it while banishing former residents to the global hinterlands of post-industrial malaise’ (Merrifield 2013a: 915).
Drawing on these ideas, Schumpeter agreed with Marx that capitalism would ultimately find its definitive exhaustion, but the fact is that capitalism so far has been able to mutate and evolve into new forms of industrial organization. All over its development, capitalism has regularly fallen into major crises that drive capitalists to switch from the primary circuit and invest in the secondary circuit, in forms of fixed capital and, more specifically, the built environment and urban space. David Harvey (1973, 1982, 2010a) has demonstrated how city space performs a greater role in this process of capital amplification, calling this process ‘capital switching’. For instance, the sub-prime mortgage financial crisis that exploded first in 2008 in the US and the UK, and was apparent in the rest of Western Europe (where we could see its devastating consequences for low-income, elderly and ethnic minority populations) is still a vivid example of this. It was capital that, for more than a decade, had regularly switched from the secondary circuit into the speculative financial markets of mortgage-backed securities. And then, after the crisis, this money returned from the financial sphere to the secondary circuit to be converted into real estate capital again by the ‘hyper-commodification’ of urban land and other basic social necessities like housing, transport access, public space, and other public goods like healthcare, education, and even water and sewage disposal (Brenner, Marcuse and Mayer 2012). Another good example is the so-called Asian Crisis of the late 1990s that shocked many Asian economies and then hit the Latin American region for five years or so. In this latter example, the secondary circuit of capital accumulation gained particular importance due to its function in absorbing shocks generated from the main production circuit (Shin and Kim 2015; Shin 2014a); there, the secondary circuit was a means to boost the economy and re-establish economic growth, a classic strategy also evident in the New Deal projects during the Great Depression in the US and later elsewhere in the Western world.
In contrast with other more volatile economic sectors, urban space is an efficient form of capital fixation, allowing the processes of accumulation to work within certain levels of stability in profit rates (e.g. the constant rent produced by a residential building). However, cities can also be destroyed in order to clear space for new accumulation. The re-organization of city space is thus not only an expression of the globally induced crises of capital accumulation, but a device for managing them locally (Harvey 1973). Outmoded spaces act as barriers for a more rapid renovation and need to be removed somehow because urban space never changes as fast as the pace of economic development demands. Or, as Rachel Weber (2002: 519) says, the ‘accumulation process experiences uncomfortable friction when capital (i.e. “value in motion”) is trapped in steel beams and concrete’.
One of the deepest and most pervasive cases of global-scale creative destruction generated by capital switching was the de-industrialization of industrial cities in advanced capitalist nations, namely the UK and the Midwest of the USA, from the early 1970s and for over a decade afterwards (Hall 1999). Post-Fordist flexible production techniques replaced industrial structures and infrastructures developed under the Fordist regime, while once vibrant industrial regions were emptied and replaced by urban economies largely determined by the secondary circuit, where the exploitation of land for real estate purposes was probably the main device for capital generation. This is what Lefebvre (2003) called the ‘Urban Revolution’.
Another much less-known example is the first experiment in global neoliberalization, in Chile, in the early 1970s. Neoliberal reconfiguration there was aimed at dismantling the institutional apparatus and productive capacity established during a previous Keynesian regime of industrialization, so as to remove as many barriers as possible to international trade, liberalization of domestic capital markets and openness to external financial markets (Gatica 1989). The consequence was a considerable drop in the share of manufacturing from 26.3 per cent of GDP in 1960 to 21.6 per cent in 1980, and a fall in manufacturing jobs from 40.7 per cent of the national total in 1960 to 16.5 per cent in 1979. Whilst during the previous Keynesian regime, between 40 and 50 per cent of the workforce living in the most precarious enclaves belonged to the industrial proletariat (Castells 1974), during the neoliberal dictatorship, from 1975 onwards, this number decreased to 20 per cent, whereas workers became precariously self-employed (35 per cent), and the level of unemployment among the lower-income sector increased from 18 per cent in 1971 to 35 per cent in 1984 (Chateau and Pozo 1987). A massive switch of capital was made possible in 1976 through the abolition of taxes on underdeveloped land, lower taxes on land transactions, liquidation of state-owned reserves of urban land, delivery of property land titles to more than 100,000 households in Santiago alone (for a population at the time of 4 million) that now faced new tax bills, the eviction of residents from (now) illegal campamentos in areas of highest land value, new laws that implied the elimination of most of the restrictions on urban expansion, and the dismantling of the existing state-built social housing apparatus via setting up a laissez faire land market with open access to private financers, realtors and developers. This was followed by the easy flow of international credit as the financial sector saw a big opportunity to invest the now idle formerly industrial capital into the land and property markets.
A more recent sociological example of post-crisis urban strategy for macro- and micro-economic recovery is given by Alexandri (2015) in Athens, where gentrification is seen by the state apparatuses as a ‘noble’ contribution from the private sector to society, when in reality gentrification is a class-war against illegal immigrants, drug users and the homeless that use the devalued areas of the city now targeted for redevelopment, amid increasing rates of unemployment. The flows of real estate capital in Greece have less to do with the real needs of people (for housing, open spaces, amenities, social reproduction, etc.) and more with the needs of private capital to stabilize, reproduce and expand. This case shows how capital switching is precisely what Marx (1973, Notebook VI) defined as one of the immanent means in capitalist production to check the fall of the rate of profit (crisis) and accelerate accumulation of capital-value through the speculative creation of new capital, at any political or social cost.
What early 1970s Chile and post-2008 Greece show is that in reality no laissez faire exists in neoliberalism, but a market protected by continuous flows of state subsidies and market-friendly land flexible regulations. Both neoliberal authoritarian states are systems of rapid capitalization via land rent private accumulation, thus resulting in privately led urban market expansion. Both cases show how urban space is not only a condition for production (e.g. hosting manufacturing) but the element for production itself, subject to exploitation and hence accumulated without intervention of the primary circuits of capital, or capital flowing into productive spheres. In short, with capital switching into secondary circuits, land rent, instead of profit extracted from labour exploitation, is exacerbated as a profitable commodity per se (Harvey 1989a). One exception could be current China, where the switching of capital from manufacturing into land/real estate circuits has not happened after any economic crisis of over-accumulation or political shock, but strives to accelerate both urbanization and industrialization at the same time; as an accelerated growth has been sustained by the national regime for at least two decades (see Chapter 7).
Gentrification and land rent
The devaluation of capital that has been previously fixed in specific parcels of urban land, or the valuation of other areas that become targeted for new rounds of investment leads to a situation where the ground rent capitalized under current land uses is substantially lower than the ground rent that could potentially be capitalized on if the land uses were to change. Neil Smith (1979) called this process a ‘rent gap’, namely when redevelopment becomes sufficiently profitable, capital begins to flow back into disinvested land parcels, the redevelopment of outmoded fabric becomes the dominant form of urbanization, and then substantial fortunes can be made, often at the expense of low-income people currently occupying that temporarily devalued land and subject to dire displacement.
We have witnessed for some time now how an array of policy makers and top-ranked officials from all around the world have justified redevelopment-generated displacement as an irrelevant negative side of a largely more positive gentrification coin (see Slater 2006). But in fact, displacement is a substantial part of gentrification and in this chapter we substantiate this affirmation, for rent gap theory provides a powerful means to assess what has come to be called ‘ground rent dispossession’ or a structural form of social displacement and exclusion (López-Morales 2011, 2013a). Neil Smith (1979,1996) provided an explanatory model for both inner city decline and ‘regeneration’, where the rent gap was (after its ‘realization’) integrally set within the logic of the circulation of capital within the secondary circuit and monopolized (see Lees, Slater and Wyly 2008, for a detailed review).
In the global North of the 1970s and 1980s, the declining industrial inner city was an effect of the movement of capital to the suburbs where higher returns were more easily attainable. The same happened in peripheral contexts like neoliberalizing Chile in the 1970s. Thus, a combination of concerted disinvestment by investors in the inner city, due to its high risk and low rates of return, triggered a long period of deterioration and lack of new capital in these areas. After decades of sustained suburbanization, a valley in the ground rent curve deepened in the inner city due to a continued lack of productive local capital investment. Over time, a rent gap appeared. This gap is the disparity between the ‘capitalized ground rent’ (CGR, rent attracted by a piece of land), devalued by the current dilapidated use of land, and a ‘potential ground rent’ (PGR), increased by the new improvements in the surrounding area. So, PGR implies the ‘highest and best use’, or at least higher and better use given the central location of inner-city space (Smith 1996). However, its realization can come exclusively from the development that involves an intensity of fixed capital investment designed to accommodate this potential use.
At the present time, such a post-industrial situation does not exist any more. So we need to ask first, who possesses the means of making the potential ground rent realizable, especially when potential ground rents are much higher everywhere due to the increased (local and global) demand for urban land amid a far more globalized urban economy than in the 1980s. For the appropriation of the rent gap, the state, private owners and investors also play new roles; the former more decisively (than ever) to create the economic, legal, and administrative framework; the latter still responding to its private interests over land rent accumulation but now they are more mobile and transnational. Although there are still few empirical investigations of rent gap theory in countries beyond the global North, the global South world is currently showing a growing array of cases.
Towards a comparative urbanism of planetary rent gaps
Since Smith's (1979) theorization, rent gap theory has been a key feature not only in the economic causes of gentrification but also in observations of conflictual land and housing markets all over the world (Slater 2015). To some degree, this confirms the assertions by Lees (2000), Smith (2002), Lees (2012, 2014a) and Lees et al. (2015) that gentrification has gone global insofar as capital has expanded in search of new spaces of profit in tandem with entrepreneurial policy transfers (see Chapter 5); but we need to more specifically scrutinize how this happens, because as we said, gentrification at the planetary scale is not a ‘force’ that diffuses from North to South, but an outcome of the interplays between global and local politico-economic forces, intertwined with an ample array of different institutional arrangements that characterize the currently hyper-connected capitalist world.
Sýkora (1993, 1996), in Prague, at the dawn of post-socialist market transition, was one of the first (outside the Anglo-American context) to document an emerging land price gradient, showing ‘functional gaps’ generated by the underutilization of available land and public buildings under the socialist command economy (this case was extensively documented in Lees, Slater and Wyly, 2008). More recently, Wright (2014) has produced a quite different, feminist analysis, of the Centro Histórico in Ciudad Juárez, on the Mexico-USA frontier, amid the transcontinental drugs war and the failure of the states of Mexico and the US to put an end to the warfare (especially the carnage of lower-income women) and tackle the unprecedented role that drug trafficking has in the GDP of those economies. Wright found in Juárez that the rent gap theory was highly applicable in accounting for a situation whereby ruling elites and the city government attempted a redevelopment plan, a strategy that comprised denigrating the lives and spaces of residence and work of lower-income women and children, and the eviction (by using eminent domain) of any kind of business that did not match with the entrepreneurial state-led development plan. The aim was to reduce the capitalized ground rent, enlarge the rent gap, and ultimately close it by wiping out the area and re-establishing it as a place for upstanding households.
Indeed, new issues have arisen from new rent gap analyses that are different to the traditional narratives of the 1980s in the global North (Smith 1979, 1996 and Clark 1987), which had assumed it was landlords who exclusively captured rent. But we now realize that capitalized ground rent can be captured by multiple actors, for example, land owners (who can be low-income residents), developers (usually the dominant stakeholder), and even transnational classes operating in a local territory as Sigler and Wachsmuth (2015) have shown in Panama. In cases where zoning laws are flexible and attractive for redevelopers, and after decades of state policies of mass land titling, like in Chile and Mexico, rent gap analysis makes visible a huge difference in the ground rent levels obtained by redevelopers, who build at the highest land use permitted by local building codes. Therefore, in urban economies based on high rates of petty land-ownership (paradoxically, this is an outcome of many neoliberal policy prescriptions), when redevelopment frenzies start, land-owner households who receive a lower ground rent when they sell the land they inhabit, especially when there is more than one family, are doomed to be excluded from the housing market as they cannot afford to purchase any renovated high-rise residence. When those households come to sell their land to real estate redevelopers, the price does not come from competitive bidding but a sort of monopsony (where one buyer is faced with several sellers) that reduces the cash value for their land and limits their post-occupancy options. This has happened in Chile (López-Morales, 2011, 2013a), Mexico City (Delgadillo, 2014) and Seoul (Shin 2009a), where local owner-occupiers have been co-opted by joining the property-based interests to claim a stake on ground rents. The redevelopment of Casco Antiguo of Panama City (Sigler and Wachsmuth 2015; see Figure 3.1) also shows a form of ‘transnational gentrification’ where the leisure-driven migration of a transnational class with considerably higher purchasing power than the original population, supplied the demand for neighbourhood reinvestment schemes thus increasing the potential ground rent to a point that existing local demand was not allowed an opportunity for profit. In fact, this latter study offers a quite imaginative way to understand the rent gap from a global – even imperialistic – perspective.
The rent gap research by López-Morales (2010, 2011, 2013a,b) in Santiago, Chile, has shown that conflict emerges when the portion of the rent gap paid to the original petty landowners for their land is not high enough for them to find replacement accommodation in the area. Low-income petty landowners also lack bargaining power for they usually have limited education and less access to legal means, and because developers acquire land plots in advance in order to avoid the entry of other competitors, and therefore can exert extra pressure on the remaining landowners in the same block (this can be called ‘blockbusting’ for the reasons explained below). In the poorest, most derelict quarters of Santiago, where original resident households range from middle- to lower-income, or where there is a considerable presence of extremely low-income and immigrant tenants in still non-gentrified residences, redevelopment is more harsh on local people.
In addition, the nature and tremendous power of potential ground rents to attract capital and political forces together has only recently been discussed in any detail. For instance, if Smith (1979) and Clark (1987) saw the concerted devaluation of properties and land by local realtors and financiers as a way of enlarging the rent gap, more recently Hackworth (2007) defines post-recessionary gentrification in the US and Canada as a moment where real estate markets rely less on reduced capitalized ground rents, and far more on state-led land and building regulations as ‘amplifiers’ of potential ground rents. In this vein, López-Morales, Gasic and Meza (2012) have critically examined the role of national-level state policies in Chile in the physical transformation of neighbourhoods through the amplification of Floor Area Ratios (FARs), namely the ratio of a building's total floor area to the size of the land upon which it is built. The same has been done by Shin (2009a, b) in China and South Korea, and by Sandroni (2011) in Brazil, where land use re-zoning and FARs have also been identified as the main drivers of land rent increases and their uneven social distribution.
Shin's (2009a) discussion of the role of the state in rent gap formation amid substandard settlements in Seoul, South Korea, provides a useful perspective on how the long-term designation of substandard settlements as redevelopment districts acts as redlining (see also Lees 2014b,c, on public housing estates in London). Together with a lack of de sure property-ownership, state-imposed conditions present disincentives for any potential investors who consider long-term investment in properties in such informal settlements, thus preventing the arrival of individual ‘gentrifiers’ until uncertainties are addressed. But while disinvestment leads to the creation of a rent gap in such substandard settlements, the gap is further widened due to the increasing disparity between these settlements and adjacent urban districts that experience real estate booms in times of highly speculative urban development (see also Shin and Kim 2015). Nevertheless, the rent gap closure, and hence gentrification, is only made possible by the intervention of concerted efforts by external property-based interests who also co-opt poorer owner-occupiers who are given a share of ground rents.
In Seoul, Shin and Kim (2015) further confirm that the endogenous dynamics of urban redevelopment have provided fertile ground for the rise of ‘new-build’ gentrification from the early 1980s, dictating the course of urban spatial restructuring that has been carried out in a highly speculative manner. This was made possible initially by one of the world's most aggressive residential renewal programmes, namely the ‘joint redevelopment programme’ (JRP), and subsequent redevelopment programmes that have roots in the JRP, all of which have been designed to maximize landlord profits rather than improving the housing welfare of low-income residents who have been displaced from their neighbourhoods (Ha 2015) (see Figure 3.3). Other new cases include piecemeal operations, like in the vast Palermo area in Buenos Aires (Herzer 2008), but also the (often foreign) speculation in, and capitalization on, land in the form of mega-events, large construction projects, urban ‘regeneration’ schemes and assorted ‘growth machine’ agendas (Porter 2009; Raco 2012; Shin and Li 2013). Shin and Kim (2015) see Seoul's new-build gentrification not just as a replica of the global North's new-build gentrification, but as revealing distinctive characteristics given the strong influence of the neoliberalizing state, as the process of gentrification in Seoul itself could not have been consolidated without the presence of these large conglomerates as the major partners of the Korean developmental apparatus, something that was not considered in earlier gentrification literatures.
Linking gentrification with the local geography of power relations is also key to seeing the capacity of the extremely powerful real estate and construction sectors in the emerging national economies of the global South that permeate national and local-level states and have advocated a series of entrepreneurial policy prescriptions and implementations in central areas, from Beijing and Seoul (Shin 2009a,b) to Mexico City (Delgadillo 2014) and Buenos Aires (Herzer 2008; Herzer et al. 2015). As cases around the world show, behind the supposedly positive effects of gentrification, lie powerful private economic forces and institutional arrangements that speculate with urban land, create and capitalize ground rent increases by putting land to its ‘highest and best uses’, and supply increasingly expensive dwellings that – if public policies on housing and land were genuinely redistributive – should instead be aimed at low- and middle-income users. In this way a growing problem of housing unaffordability in central locations globally is (being) created. In fact, the implementation of an increased number of public subsidies aimed at the acquisition of middle-income strata housing, developer-friendly land use zoning at local and metropolitan levels, as well as a number of tax exemptions that benefit large-scale developers, are not natural processes but are political strategies of gearing urban land markets towards generating considerable revenues for the private development and finance sectors.
There are also different forms of blockbusting and illegitimate pressure by landowners on owner-residents to sell and leave, for instance the negative impact of condo construction on adjacent properties (Gaffney forthcoming), and the role of financial institutions and especially the state in redlining certain areas (López-Morales et al. 2014), generating abandonment and speculative deterioration of properties. Economic practices vary from case to case but the speculative landed developer's interests in cities is roughly always the same: how to buy property as cheaply as possible and sell it at the highest price.
Stigma and devaluation
The negative way in which certain parts of cities in the global North and South, targeted for renovation, are portrayed by politicians, policy-makers and/or think-tanks is critically important to debates about the rent gap (Slater 2015). A growing body of work points to a direct relationship between the defamation of place and the process of gentrification (Wacquant 2007; Wacquant et al. 2014; Lees 2014b,c), but so far there is no evidence that territorial stigmatization intensifies the rent gap, and further investigations are needed to understand how the theory might be recalibrated to account for the pressing issue of the symbolic defamation of space (Slater 2015). This recent debate very much recalls past discussions on the discourses of blighting. Rachel Weber (2002) suggested that the built environment experiences a greater degree of flexibility and is receptive to real estate capital investment in times of neoliberal urbanization because ‘discursive practices that stigmatize properties targeted for demolition and redevelopment have become increasingly neoliberal’ (p. 519). She argued that obsolescence has become ‘a neoliberal alibi for creative destruction’, which concentrates on areas with the highest return on investment in a market that has been increasingly entwined with global financial capital (ibid. 532). To aid and perpetuate this process the local state ‘operates through decentralized partnerships with real-estate capitalists, and what remains of the local state structure has been refashioned to resemble the private sector, with an emphasis on customer service, speed, and entrepreneurialism’ (ibid. 531). In this regard, both stigmatizing places and, in parallel or soon after, improving the ‘quality’ of the built environment has been one of the main urban accumulation strategies, increasingly adopted by many governments at both national and sub-national scales.
The contradictions between the needs to destroy fixed capital (or consumption funds) and increase the rate of return by land rent exploitation, finds one of its best examples in contemporary Hong Kong. In a recent study, La Grange and Pretorius (2014) see how much of the city's residential buildings in the inner area are depicted as old and obsolete, but at the same time what is really striking is that they provide affordable, well-located housing for lower-income and disadvantaged groups and small-scale commercial clusters. The gap between current and future potential landed profits is evident in Hong Kong, but this is not the result of economic decline (as we see in the ‘post-crisis’ section of this chapter, next) but rather of formidable frictions that make land assembly and vacant possession of buildings, in a particularly hyper-dense urban morphology difficult and where redevelopment needs to draw on strong policy action.
In Hong Kong land has great importance as a state owned and controlled resource, and specifically as a public-sector asset that monopolizes it. Yet private redevelopment is favored by the rather authoritarian public sector because it generates significant state revenue from the physical and economic intensification of sites. Gentrification is not on the public agenda but rather is a significant outcome of much-desired redevelopment activities. A relevant ‘institution’ of state-led gentrification includes the state monopoly regulation of the leasehold land management system. Higher development densities generate higher fiscal revenues from the same plot of land (but also higher revenues for developers); therefore, incentives to densify are ever-present. Although the Urban Renewal Agency is an entrepreneurial institution and executes redevelopment projects in partnership with powerful developers, significant aspects of its operations are designed to mitigate the financial and other distress of displaced lower-income owners and tenants, and to facilitate their remaining in their neighbourhoods.
In mainland China, a number of former rural villages have gone through some sort of informal densification, helped by the investment by original villagers who aim to extract rents from leasing part or whole of their densified properties to migrant tenants (see Tang and Chung 2002; Wang, Wang and Wu 2009). Very often, these urbanized former rural villages are stigmatized as undesirable, unhygienic or sources of urban crime, and become targeted by urban governments for redevelopment, especially when such places come in the way of city promotions such as mega-events (see Shin and Li 2013). They also occupy strategic locations as urbanization deepens, thus showing an increasing degree of potential profit when their lands are put into a ‘higher and better’ use, accommodating commercial, residential and business functions to cater for the needs of urban elites and more affluent households (Chung and Unger 2013). The redevelopment of such former rural villages may also be seen as an example that contradicts the experiences of the West in the original framing of rent gap expansion and closure, with disinvestment in the earlier phase and subsequent reinvestment in the final stage. The heavy household investment made by villagers goes against the notion of disinvestment as argued by most cases in the global North. It is the case of how ‘obsolescence’ and ‘stigmatization’ lay the foundation for such former rural villages to experience redevelopment in order for urban governments and developers to capture increased ground rents when under-utilized former village lands (from the perspective of those urban governments and developers) are put into a ‘higher and best’ use.
The resurgence of rent gap theory
Rent gap theory was largely criticized during the 1980s and 1990s for its supposed rejection of individual and social agency as factors that determine neighbourhood redevelopment (Duncan and Ley 1982). Currently, we know that an enlarged rent gap is not a sufficient condition for gentrification to exist, but it explains important situations, the most important one being the fact that amid redevelopment processes, an important number of owner-residents will not receive enough compensation and will not be capable of affording decent relocation, while they are compelled to sell their landed properties (or cede their land use rights) cheaply to more powerful economic agents.
As we have shown in several cases above, and also in greater detail in Lees, Shin and López-Morales (2015), researchers in the global South visualize a gentrification that depends largely on state policies and huge economic investment in redevelopment. As such, the classic ‘icon’ of the middle-class gentrifier is weak if compared to the great land purchasing power of developers. The result is that the content of the terms, ‘state-led’ gentrification and ‘gentrifier’, need to be reconsidered in order to comprise a different kind of relation between the agent and the producer. In fact, Eric Clark's (2005) use of the word ‘users’ rather than ‘residents’ seems quite appropriate to this goal. We also agree with Slater (2015) who argues that it is futile to advance the complaint that the rent gap cannot tell us anything about the new middle classes that gentrify city space, as this theory was never designed to do so, and as we now know middle-class behaviour is not a sufficient precondition for gentrification everywhere (we tackle the ‘middle-class’ issue in Chapter 4). In fact, we think at some point it is impossible to deny the power exerted by bankers, developers and state officials both in the devaluation and revaluation process of urban change. As Slater (2015: 19) says,
[t]he rent gap is fundamentally about class struggle, about the structural violence visited upon so many working class people in contexts these days that are usually described as ‘regenerating’ or ‘revitalizing’ . . . Without the rent gap, we would not understand this class struggle like we do, nor have such a clear set of critical analytic optics through which to interpret and challenge cycles of investment and disinvestment in cities.
Contra many other sophisticated post-structural theorizations, the rent gap is a simple idea that anti-gentrification activists can read, understand and debate, and then apply to their everyday realities for nurturing their struggle to challenge the dominant systems of urban segregation (see London Tenants Federation, Lees, Just Space and SNAG 2014):
Identifying rent gaps, and identifying those institutions creating them with a view to capturing profits from them, is clearly vital to the formulation of strategies of resistance and revolt. Therefore it is a critically important challenge for scholars and activists, together, to identify precisely where developers, owners and agents of capital and policy elites are stalking potential ground rent; to expose the ways in which profitable returns are justified among those actors and to the wider public; to raise legitimate and serious concerns about the fate of those not seen to be putting urban land to its ‘highest and best use’; to point to the darkly troubling downsides of reinvestment in the name of ‘economic growth’ and ‘job creation’; to examine the possibilities for concerted resistance; and to reinstate the use values (actual or potential) of the land, streets, buildings, homes, parks and centres that constitute an urban community.
(Slater 2015: 20)
Spatial capital and gentrification
In the global South, public policies are more important causal factors of gentrification than they were in the global North in the 1980s, and there is little understanding of the public investments and changes at the macro scale that have increased accessibility and mobility into certain neighbourhoods, with an artificial generation of ‘spatial capital’ (Rerat and Lees 2011). What characterizes the gentrification of vast urban regions in cities of the global South is its widespread occurrence after the creation of new centralities in previously undervalued urban areas, but whose location has become strategic now for higher-status office or residential revitalization, or service provision. In newly developing economies and expanding urban markets, this dependence on infrastructures is due to the traditionally profound shortcomings of services, amenities, and access to transportation, in the formal or informal neighbourhoods that exist (and that can be peripherally or centrally located), and are now undergoing intensive redevelopment of their infrastructure.
Drawing on Urry (2007), Blanco et al. (2014) suggest that mobility is relative and in fact there are a range of possible mobilities, according to the place where people live and work, plus other contextual constraints like time or economic or cultural assets. People's access also depends on the means of transport and communication available for them that makes some areas more desirable than others in the city, hence more likely to be appropriated by a dominant class that holds higher cultural and economic means. Spatial capital is in fact an outcome of the interplay between access, competence and appropriation. Access is related to the range of possible mobilities according to place, time and other contextual constraints; competence refers to the skills of individuals and groups, while appropriation refers to the strategies, motivations, values and practices of individuals, including the way they act in terms of access and competences (be they perceived or real) and how they use their potential mobilities. It is curious that this theory of ‘spatial capital’, which was conceptualized by Rerat and Lees (2011) based on a well-developed country like Switzerland, has garnered so much interest in a developing country like Blanco's Argentina.
Policy-led changes in transport access allow one class to increase their chances of taking over a certain territory while the other class loses access to it. These changes can be seen as a politico-technical form of segregation too. And among the other things that the concept of spatial capital can inform us of is an understanding of what differentiates the gentrifiers from the gentrified is not only their economic power to purchase, assemble and/or speculate with land and properties, but also, crucially, their class differentiated material and immaterial accumulation of access to a wider range of spatial capital. In Rio de Janeiro, Cummings (2015) discusses the idea that the Metrocables in downtown Rio favelas, like Morro da Providencia, are elements that enclose spaces of informality and poverty within a forced socio-spatial formalization and commodification of the central space of the metropolis. In Santiago, Chile, the Efecto Metro has been a highly decisive policy for opening new spatial niches of operation to real estate developers and housing consumers, enlarging rent gaps, and enabling new social classes to capture spatial capital, so generating indirect forms of displacement (López-Morales 2010). In Manila, the Philippines, Choi (2014) observes how the urban poor located in informal settlements are exposed to the risk of displacement by public transportation projects, especially a regional train line that valorizes not just the land surrounding the infrastructure but also the locational opportunities generated (we discuss more of this in Chapter 7 on Mega-gentrification and displacement).
Centrality and spatial capital are important key issues in arguing against the notion that planetary suburbanization is becoming the leading force, while gentrification is becoming somehow increasingly irrelevant (Keil, 2013). However, as Andy Merrifield (2013a) argues, if we think of the rise of multiple centralities and the realignment of centre-periphery relationships, as Rerat and Lees' (2011) ‘spatial capital’ theory tells us to do, then we can also assume that new ‘urban frontiers’ are going to be everywhere where such new centralities emerge. This is where transport access and the creation of spatial capital rises as a leading variable in attracting capital (re)investment and producing contestation between existing inhabitants and gentrifying forces, particularly when the reinvestment cycle kicks in.
Post-crisis gentrification
We claimed earlier that the subprime mortgage financial crisis, which exploded first in 2008 in the US and Western Europe and resulted in skyrocketing housing prices, sending millions of people into default, is a recent vivid example of capital switching. On the one hand, the increasing complexity and scale of the global industry of subprime debts, and on the other the way national states ‘rescued’ the private bank sector after the crisis, are both forms of the speculative creation of capital. In the US and Europe, while the price of urban properties soared by a hypertrophied demand fed by ‘risky’ credits, some members of the most vulnerable social groups were able to inhabit neighbourhoods and houses that were previously financially unaffordable to them. What seems to have changed in European countries like Spain and Greece and the US after the crisis, is that millions of households were displaced as the dwellings they had bought were repossessed by banks. But those same devalued emptied properties, are now being massively re-bought by buitres (vulture) international funds, due to the fact that large rent gaps have been created, and so those countries have started to see ascending land and property prices again. The housing situation in the developed countries of the world most affected by the 2008 crisis has considerably changed in the last ten years, and vast neighbourhoods are facing new forms of exclusion and certainly gentrification (Aalbers 2011).
Mueller (2014) discusses the gentrification of the vast, mostly poor and mostly black residential areas of Washington DC, where the liberal attitudes of the middle classes that raid into these neighbourhoods (which resemble Jane Jacobs' descriptions of bohemian barrios, and that have become a focus of desire for the liberal middle classes) are much less important than the deeply structural economic forces that sustain these changes. Washington DC epitomizes the US critical economy: 15 per cent of families earn US$200,000 or more a year, but 15 per cent lives under the poverty line. There, government-led gentrification has trickled down to small home buyers, as neighbourhood recovery has been a takeover planned by large business interests who fund projects with tax exemptions. Real-estate values have soared again, and speculative condo developments have begun to replace single-family homes, very much resembling what we see today in Santiago's or Mexico City's gentrifying inner quarters. In Washington DC, the average price of a residential property in 2000 was around US$150,000; in 2009, it was over US$400,000, and then prices increased again by over 10 per cent in 2013. Currently, the local professional, higher-income classes can secure mortgages in gentrifying neighbourhoods and buy property, then ride those property values to secure their position as middle class. The mostly black, lower-income strata cannot do this. As Mueller claims, this market is economically racist, as it was before the crisis, with poor black households living the illusion of becoming middle class. We can see here how gentrification is very much a top-down affair, not a ‘spontaneous hipster influx orchestrated purely by the real estate developers and investors who pull the strings of city policy, with individual home-buyers deployed in mopping up operations’ (Mueller 2014: web article). Public policies like the construction of a trolley line (spatial capital again) advertise neighbourhoods as up and coming, with the possibility of skyrocketing property values, rapidly creating a mix of property circulation.
As the latter case shows, financial capitalism recovers or takes over from crisis through ‘dirigiste’, entrepreneurial state roles in gentrification. This was also seen in the early 1990s in Russia once the introduction of a free-market economy took place (Badyina and Golubchikov 2005), where gentrification in central Moscow was (and still is) the product of a complex interplay between market pressure aiming to meet the demands of Moscow's new post-Soviet economy, the demand by new upper-middle classes and oligarchs, and Moscow government's entrepreneurial orientation. And it can also be seen in East Asia, where the case of Taipei's gentrification is a good example of this in the current era of political shifts, characterized by privatization, deregulation, marketization and individualization (Jou et al. 2014). Huang (2015) stresses how public-owned assets located in the city centre of Taipei have played a major role in gentrification, as direct government-led policies include the rent-seeking privatization of public land and buildings, previously aimed at public housing, also opening the door for the participation of private developers in inner areas' urban renewal and making public investments to increase the locational advantages of certain spaces. Taiwan's urban and housing policies have also comprised large doses of class-motivated violence or revanchism (Atkinson 2003) during the last quarter century, for the sake of finance and property capital reproduction (Jou et al. 2014). In 1998, the Taiwanese state started a trend of policy modifications towards the establishment of a new housing policy that, over the past decade, has turned centrally located public land and housing into enclaves for the super-rich and elite professionals, in many ways resembling a form of hyper-gentrification, which has also happened in London, New York, and San Francisco. Hyper-gentrification is an accelerated taking over of land which is bigger, faster, and much more destructive than the traditional narratives of gentrification. Due to this, a large number of public housing units have become upscale commodities on the real estate market, as the Taiwanese state has sold them to large-scale market agents, turning them into enclaves for the wealthy and elite professionals and also pushing up dwelling prices in surrounding areas (also see Lees 2014b on the same process re. London's public housing estates). Taipei has become increasingly inaccessible for middle-class or young people to live in. In 2008, the ratio of median housing prices to median family annual income in Taipei rose to ten, and in 2012, further rose to fourteen, being one of the highest in Asia.
Conclusions
Amid a harsh, global, financially created economic crisis, the theory of capital switching seems more relevant than ever as a measure for crisis resolution, in the process of capital accumulation. In this vein, the increasing scale of gentrification worldwide seems to be an effect of the current needs of financial real estate speculators. Some are still able to deal in ‘subprime’ risky assets, most are directing their attentions towards upscale redevelopment and consumers of considerably higher income, thus skyrocketing prices in certain neighbourhoods or cities. Within a framework of international neoliberal policy prescription, capital switching accommodates various spatial investment strategies attuned with local-level public policies of land upzoning, social cleansing, real estate privatization, transport accessibility, and so on; in order to facilitate the revaluation of land and real estate, be this in newly post-socialist regimes, or already highly neoliberalized national economies. To some extent, global speculative gentrification has replaced subprime markets.
The current scales of gentrification range from micro to mega. Both scales lead to the re-writing of the urban landscape. The key question is who is making these changes, and at the cost and for the sake of whom these changes are being made. In fact, in the present global economic crisis, the devalorization of capital invested in specific parcels of urban land leads to a situation where the ground rent capitalized under current land uses is substantially lower than the ground rent that could potentially be capitalized if the land uses were to change. If no financial capital is available in loco (like in current Spain or Greece, or post-soviet Russia), global financial capital is readily available as it experiments by moving around the world. It is at this point that it operates at the state level, opening new spaces for financial reinvestment, destroying outmoded physical and social infrastructures, blighting or stigmatizing spaces, and upzoning places, etc. But not all the cases of gentrification can be effectively deemed ‘neoliberal’, for other forms of dirigiste-states can be found, especially in East Asia.
The 2008 global economic crisis has made governments set policies aimed at reducing financial housing affordability for lower-income segments, and increasing the power that large-scale economic agents deploy in the land and housing markets. We can see everywhere, from London to Rio de Janeiro, and from Taipei to Santiago, that when redevelopment and rehabilitation become profitable prospects again, capital begins to flow back into disinvested land, and then substantial profits can be absorbed, very often at the expense of low-income people currently occupying that land. Rent gap theory is currently proving useful again to measure the effects of these massive economic projects, especially addressing the unequal capacity urban agents have to capture the economic riches provided by land, and also addressing the way the essentially class-monopoly absorption of the ground rent leads to differential rates of direct and indirect displacement. As such, it seems always necessary to uncover how and where rent gaps are emerging in different societies across continents, and to test, extend, complicate, and challenge initial frameworks of this theory by taking it into, and comparing it across, new geographic, empirical, and analytic terrains. This chapter has aimed to do so. We think that much more research and reflection are needed on the connections between land, rent, displacement, and the everyday production of urban segregation, namely gentrification. We do not mean that private economic profit is the only or main causal factor of gentrification everywhere, but we do claim that the new economics of gentrification explain fundamental questions like the induced inequalities of land and housing affordability, the essentially neoliberal economic mechanisms of displacement, and the financialization of urban change. Indeed, we believe there is a pressing need for more theoretically guided comparison and dialogue across national borders to avoid getting locked into the parameters of local debates (this is one of the risks of a too empirically oriented ‘comparative gesture’, like Robinson's 2011a, see Lees in press), especially in order to understand the phenomenon of speculative landed developer interests as probably one of the main forces reshaping cities everywhere in the capitalist, and indeed non-capitalist, world.