Sharing the Wealth

This essay was originally prepared for Tragically Hip, a London-based zine focusing on critical analyses of gentrification. The editors ultimately felt that this essay was too market- and policy-oriented for their audience, so I am publishing it here.

Sharing the Wealth

Smoother residential gentrification through shared ownership

From the moment early man first pointed to the ground and said “mine”, we have fought for control over land. For most of our history, this conflict involved bloody violence; in recent decades, however, economic conflict has replaced physical, and “pirate raid” is replaced by “pricing out”. It is right to interpret this as progress, for it is — and to recognize that competition over land has never been absent from the human experience.

The question is not one of “stopping gentrification” — it is intellectual laziness to conclude that our perennial competition to occupy land can be permanently stopped through some perfect policy — but rather one of best managing its energies. Here we can have hope: while a river cannot be stopped, a well-built dam can be a source of tremendous power.

Why do we view residential gentrification — the claiming of land from the less affluent by the more affluent — as “bad”, a social ill to be prevented? Surely it is not the basic experience of change, as change is as constant as breathing. No, we view residential gentrification as bad because, the logic of capitalism aside, home is an emotional sphere which exists outside and apart from the market, even while the physical space remains embedded within it. As Karl Polanyi says in his seminal The Great Transformation, there exist three “fictitious commodities”: land, labor, and capital — which we embed in markets, even though truly markets are embedded in them. We should place housing in this category also.

Unfortunately, recognizing home as a fictitious commodity does not solve the underlying problem, as we lack a better alternative for resolving conflict for the underlying land, as nationalized land ownership and rent control — two possible strategies — come with their own pernicious costs. It does, however, suggest that there may be more to the social contract. If we accept that people may always have to leave, the question becomes one of “what does leaving look like”? And here we can find answers and inspiration.

What happens when a neighborhood gentrifies? The prices go up. Rents increase, goods and services become more expensive, and the value of land and property rise. To whom does this value accrue? Overwhelmingly, the landowners. This is the problem: the residents, who participated in the creation of the neighborhood (by living their lives, raising their families, and supporting local businesses), receive none of the upside. To transform the experience of residential gentrification, we must find a way to transfer some of this new value from the landowners to the residents. Being priced out of your home is an unfortunate but sometimes unavoidable reality. What is not unavoidable is walking away with nothing. The emotional experience of gentrification would be very different were a family to walk away with tens of thousands of dollars — or more — to start a new life.

Simply: tenants should receive partial ownership of their buildings, as a function of the duration of their tenancy. This partial ownership recognizes the role the tenants play — as the fabric of the community — in creating the value that is currently captured entirely by landowners. One scheme would be to set aside 20% of the building’s increase in value for tenants (much like companies often set aside a percentage of their stock aside for employees), and to distribute these to tenants as a function of tenure — say .2% per year. After ten years, a tenant can claim 2% of the increased value of the building. If the value of that building increases by $1,000,000, that tenant receives $20,000.

There are many ways such schemes could be implemented. One approach involves landlords adopting a policy where, every ten or so years, they “buy out” their tenants at the then-appraised value. Another approach involves tenants redeeming their shares against future rental income. If I spent a decade in a neighborhood paying $1000/mo, and then get priced out at $1500/mo, then I could claim a percentage of these higher rents over a period of several years — an empowering passive income stream for a class which has historically struggled to accumulate capital.

It is reasonable to wonder why landowners would ever agree to such a scheme, absent a significant social movement to force new legislation. The answer is that it aligns the incentives between landowners and tenants, by giving tenants a reason to “think like owners”, resulting in better-maintained and more beautiful living spaces. The contemporary landlord-tenant relationship is toxic, with each party encouraged to extract as much value as possible from the other. Neither party is incentivized to invest in the improvement of the property: the tenant does not because they capture none of the value, and the landlord does not because it cuts into their short-term bottom-line. Under a scheme in which the upside is shared, the tenant knows that they will be able to capture some of the upside associated with their contributions, and the landlord knows that the tenant will be motivated to take care of any improvements — saving the landlord in maintenance costs and real, but hard-to-price, emotional conflict. While it may seem outlandish to contemplate, a scheme like this would increase the quality of landlord-tenant relationships, the way in which landlords are viewed by society, and the quality of our living spaces — a win-win-win.

Absent some radical new development in law or philosophy, we should view gentrification as a fact of life, much like death and taxes. The productive train of thought is not how to “stop” gentrification, but rather how to shape the process. Here we propose a shared-ownership scheme which aligns the interests of landlords and tenants in a way which takes much of the bite out of gentrification, and allows the tenants, who may inevitably find themselves needing to look for a new home, to walk away with something substantial — wealth which can be invested in new neighborhoods and new communities. This new type of windfall will transform the emotional experience of residential gentrification (a key aspect of gentrification writ large) from one of powerlessness to one of agency in the face of change, and represents an important step forward in urban policy.

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