40 Years Ago: Neil Smith, Gentrification, and the Flow of Money

In 1979, Neil Smith — future professor of geography and anthropology, and a young PhD candidate studying under David Harvey — reconsidered the very foundations of gentrification, elucidating the cyclical flow of capital that continues to reshape city centers today.

His JAPA article "Toward a Theory of Gentrification: A Back to the City Movement by Capital, not People" not only explained one of planning's most controversial processes but also predicted a historical sequence of urban restructuring that more or less unfolded over the next decades.

Smith began by challenging notions of gentrification rooted in neoclassical economics. The prevailing 1970s literature, he argued, prioritized individual consumption patterns, changing middle-class lifestyles, and rising construction costs as catalysts for gentrification.

Gentrification Explained by Rent Gap

But Smith saw this explanation as reductive of cultural preferences and blind to the part of the housing market, including real estate developers, government agencies, landlords, and others in the quest for capital: "to explain gentrification according to the gentrifier's actions alone, while ignoring the role of builders, developers, landlords, mortgage lenders, government agencies, real estate agencies is excessively narrow," he wrote.

His theory, instead, considered how capital flows in and out of neighborhoods, and how financial investments in pursuit of long-term profits created incentives for the redevelopment of certain pockets of a city.

Illuminating why some areas redevelop and others do not — a question that continues to perplex planners today — Smith suggested the answer lay between the capitalized ground rent and the potential ground rent in depreciated areas. That is, the "rent gap" between the current rent a landlord charges for their units and the potential rent that could be charged if the units were redeveloped. The wider the gap, the more the area is positioned for redevelopment:

"Gentrification occurs when the gap is wide enough that developers can purchase shells cheaply, can pay the builders' costs and profit for rehabilitation, can pay interest on mortgage and construction loans, and can then sell the end product for a sale price that leaves a satisfactory return to the developer."

As suburbanization continued and properties within the city depreciated, developers stood to profit from redeveloping these properties; thus, capital would flow from the suburbs back into the city.

Smith made a prediction: "The working class and poor would inherit the old declining suburbs," a trend reflected today as low-income people are priced out of neighborhoods in the city center.

Rent Gap: Enduring Gentrification Theory

Joseph Heathcott, JAPA editorial board member and associate professor of urban studies at the New School, reflected on Smith's ideas. "Here we get a glimpse of a brilliant graduate student under the tutelage of a great advisor," Heathcott said, "churning through the well-trodden ground to produce something fresh, insightful, and compelling — if perhaps rough around the edges."

He acknowledges that Smith's account is not comprehensive: "Many today would argue that his analysis of 'potential rent' needlessly downplayed the immense cultural shifts occurring in the 1960s and 1970s and how those pushed the potential rent curve upward. Such shifts, particularly in terms of racial replacement and community erasure, are too often treated as epiphenomenal and dismissed as 'ideological' by Marxist scholars."

However, Professor Heathcott maintains the enduring value of Smith's theory.

"The rent gap thesis remains a powerful explanatory framework, so much so that if one wants to become well-read in the theory of gentrification, Smith remains the point of departure."

Top image: New construction in the Dogpatch neighborhood of San Francisco. Getty Images photo.