The Rent Gap Theory

by Biljana Spirkoska

The Rent Gap theory or renting gap theory was founded in 1979 by the geographer Neil Smith. The theory forms an explanation for the beginning of the process of Gentrification or social restructuring of a quarter, arguing that the process is driven by land prices and urban speculation rather than cultural preference for inner city living. The Rent Gap theory, according to Smith, is essentially a measure of the difference in a site's actual value and its potential value at 'best use'. In his further explanation, when the overall rent gap (the actual rent and the potential rent after rehabilitation (rent gap), in an area is determined to be great, it is suggested that the area will undergo gentrification as developers identify this difference as an economic opportunity on which to capitalize.

In his lecture on The Rent Gap Theory, Frank Eckardt explains the transformation of devalorized inner-city housing stock into an affluent neighborhood as follows. In search for low prices, authentical and central location, the more economically marginal subgroups, for example artists and yuppies, are the first to arrive in the devaluated inner-city urban neighborhoods. Since these young individuals usually live in non-family households, they have a higher tolerance for perceived urban ills such as crime, poor-quality schools, lack of amenities like shops and parks, and the presence of disadvantaged racial, ethnic, or socio-economic groups, the same main reason these areas are being avoided by the middle-class. As the number of the newcomers grows, they create amenities valued by them, particularly service establishments such as new bars, restaurants, and art galleries that serve them. These added amenities and investment to the area, increase local property values, and pave the way for attraction of the middle-class. Given that the cost of the rent in the area in turns increases significantly, the local residents no longer can afford to leave there, meaning they are priced out of their own neighborhood. In the same way, certain businesses which were catering this particular segment of population shut down once that population is displaced.

Smith further links the phenomenon of gentrification also to a restructuring of the economy. In his explanation, "deindustrialization has not only brought about the downfall of certain city districts, but also stimulated the growth of the service sector, which generated a particular employment structure in central urban areas"(GUST, 1999). In other words, while the economic activities are suburbanized, high-level service functions and executive decision-making tend to be increasingly centralized in a downtown central business district. In this context, Smith demonstrates that "gentrification is not only a local phenomenon but just as much determined by international and global factors. Gentrification is more than rehabilitation of the housing stock. It has become the hallmark of the unevenly developing global city"(GUST, 1999).

The positive and negative sides of the gentrification process are being broadly argued. While some are emphasizing the undeniable contribution made towards the revitalization of the city centers, others point to the associated displacement of lower- income residents and small-scale businesses, which results in transformation of the neighborhood's character and culture. Furthermore, they argue that "gentrification didn’t solve any of the urban problems like crime, homelessness, since the problems were only exported to other neighborhoods"(GUST, 1999). From Smits critical perspective, "the phenomenon amounts to little more than a greed-inspired attack by politicians and realtors against a mix of local minorities, lower classes, and homeless persons".
The critics on the gentrification process have mounted to the point when even community organizations have started to be established to fight against it, and rent control ordinances have been passed by some cities.

I will finalize with Peter Marcus explanation of the two opponent sides:
…the poorer residents of the Lower East Side of Manhattan, of Kreuzberg in Berlin, and of the area around the University of Southern California in Los Angeles wish to keep the gentrifiers out as much as the residents of the suburbs and luxury housing of these cities want to keep the poor out; yet the two desires are not equivalent morally. One represents the desire of those poorer to insulate themselves from losses to the more powerful; the other represents the ability of the more powerful to insulate themselves from the necessity of sharing with, or exposure to, those poorer. One wall defends survival, the other protects privilege. (GUST, 1999)



This text is based on a lecture on The Rent Gap Theory held by Prof. Dr. Frank Eckardt within the course German cities in transition at Bauhaus University in Weimar.

Further references:
― Ghent Urban Studies Team, 1999. The Urban Condition: Space, Community, and Self in the Contemporary Metropolis, 010 Publishers, Rotterdam
― http://www.sfu.ca/geog452spring00/project3/m_rent.html
― http://en.wikipedia.org/wiki/Gentrification
― http://www.answers.com/topic/gentrification