Can zoning cause gentrification?

The great majority of Austin’s political leaders acknowledge that the supply of housing plays a role in housing affordability. They also acknowledge, to varying degrees, that Austin currently has a shortage of housing.

And yet, when it comes time to talk about allowing more housing in certain neighborhoods, people invariably say that “upzonings” will lead to gentrification and displacement. That complaint is particularly common on the east side, but I’ve heard it thrown around just about everywhere.

There’s a certain logic to the argument. The more that you’re allowed to build on a given lot, the more opportunity there is for profit.

Critics of upzonings worry that if a single-family homeowner’s property is rezoned to allow multifamily uses, then the value of the property will skyrocket because of its potential to be redeveloped into multiple units. If the property value increases, their property taxes will similarly increase, putting pressure on them to sell.

This is at least the general theory. The specifics on the ground in Austin are different, since property taxes can only increase by a maximum of 10% each year and for many (or most?) people they are already increasing by the maximum amount.

A recent study of Chicago upzonings has lent credence to the theory that they can lead to property value increases and therefore fail to make housing more affordable, as is often promised by urbanists. However, it’s worth noting that that study also found that those upzonings did not even lead to increased housing supply, which is not what you would expect in a place like Austin that is dealing with sky-high demand.

Anyway, does it make sense that the government easing regulations in a neighborhood might lead to increased land speculation, increased private investment and therefore higher property values and rents? Sure. The market is a weird place, subject to all kinds of irrational impulses. It’s also shaped by all kinds of cultural forces. In Austin, like most other American cities, racism has probably been the most powerful cultural force shaping the housing market, but there are myriad other cultural phenomena that could alter it: SXSW, Willie Nelson, Franklin’s BBQ, electric scooters … any number of things could play a role in making people think that they want to live in Austin or a certain part of Austin.

If political leaders don’t want to increase housing in an area because it may lead to increased property values and gentrification, I suppose my question would be: What do they think about increased public investment in those areas? Because that could have the exact same effect.

The best example is the ongoing Waller Creek Chain of Parks. City Council unanimously approved investing another $110 million into an effort to “revitalize” Waller Creek by turning what is now considered an urban blight into what will hopefully be a stunning system of trails and parks between Lady Bird Lake and 15th Street.

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Part of what is envisioned for the Waller Creek Chain of Parks. Credit: Waller Creek Conservancy.

Council is financing the Waller Creek project through Tax Incremental Financing, which is based on the idea that the public investment will be paid off by the increased property values generating more tax dollars. So Council is not only OK with property values increasing, it is rooting for its dear life for them to increase.

Similarly, withdrawing public services is a great way to reduce property values. Just look at how rents plummeted in certain parts of Brooklyn when a critical subway line shut down.

But are we going to tell our government not to invest in parks, schools, public transit and other key services in low-income communities because those amenities might raise property values? I certainly would hope not.

In the same vein, if we have a housing shortage and are trying to combat sprawl, the most logical course of action seems to be to build more housing. Otherwise I think we’re basically trying to play the market. And most of the time, we’ll get burned.

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