Decentralization + Upward Mobility vs. Gentrification
If there’s anything blockchain’s ethic of decentralization is trying to do, it’s, well… combating centralization.
But in all seriousness, many blockchain enthusiasts and entrepreneurs will regularly speak to the tenets of decentralization as a means to provide better security, stability, and access in any given economic system. “Centralization” is the status quo we see today. In a centralized economy, hierarchies are very easy to build but extremely difficult to break. Mobility between these hierarchies can oftentimes become too difficult for any normal person to reasonably access, and the only reasonable route of innovation is to deconstruct these vertical systems.
This is one of the core reasons that real estate costs are widely outpacing wage growth in the United States. As we discussed in our last article, the bar for entry into property ownership and governance is impossibly high for most people, and those who control the mass volume of real estate that we live and operate in are able to make drastic decisions that we have no choice but to follow. The modern real estate industry is admittedly focused on profit and easily ignores the core values of urban development that many developers today are looking to incorporate through ‘impact investing’.
Homeownership fell to a record low in half a century and is now barely meeting the lull of the 80s. Fewer people own the properties they live in and the outlook for the most recent adult generation isn’t looking optimistic. Fewer buyers mean fewer people participating in one of the largest and fastest-growing economic sectors, as well as greatly reduced stability in today’s global urbanization.
As a result, we’re left with a “wicked problem” that has seen no viable solution — Gentrification.
What actually happens during gentrification and why?
If you live in or nearby a city you’re probably very familiar with this term. Gentrification is simply the process and consequence of affluent individuals moving into a historically less affluent neighborhood. Well-known examples include Silicon Valley, Soho and Williamsburg in NYC, and even full cities like Houston and Portland have experienced massive shifts in economic demographics.
There are countless factors that lead to gentrification, ranging from general economic growth to social trends of urban living. Part of the reason this issue is so difficult is our inability to pinpoint how trends and external forces will actually manifest in our neighborhoods. It could start with a coffee shop coming in, or some grungy dive bars, or a factory being converted into cheap artist studios.
What we do know for certain are the phenomenon’s overall negative consequences, particularly for the historic residents of any given community. The arrival of the gentry massively increases financial instability, potentially forcing the relocation of residents and business owners altogether. It creates cultural instability as well, pressuring a neighborhood to end or introduce local businesses and developments that cause social friction. Finally, there is a tremendous tragic irony in the situation, where the original population of individuals largely responsible for nurturing local vibrancy is implicitly threatened with the rapidly changing context.
And these are just the quantitative effects of demographic change and wealth inaccessibility; there are plenty more qualitative “used to be so much better” changes that happen to the aesthetics and general energy to a place when Sephora and Starbucks set up shop. To those who are even fortunate enough to have local real estate under their name, these developments can have a major hit on the culture and attractiveness of a once more vibrant neighborhood.
How do we fight gentrification?
We… don’t really know. Despite the long history of this problem in the US, any proposed solutions are either temporary, highly contextual, or simply ineffective. This is further evidenced by the real estate industry’s inability to even induce gentrification when desired, such as in post-industrial cities like Detroit and St. Louis. Combating gentrification is almost counterintuitive to the general desire for a higher quality of life in a given place. We all want our neighborhoods to be safer, more culturally vibrant, economically attractive, and so forth, but unfortunately, those motivations open the door for higher-net-worth individuals to displace what was historically a different demographic.
There are some methods that institutions have pushed to at least quell the threat of gentrification over a longer period of time. Typical strategies are advocacy for better zoning laws, rent control, and protection of public institutions and space under new legislation or historical guidelines. These do not work (very well). Zoning is largely an inherited political exercise covered in red tape. Rent control is relative to overall price hikes and is still likely to outpace wage growth for lower and middle-level income earners, delaying the inevitable pricing-out of current residents.
It’s important to point out that the main cause of gentrification’s negative effect is the inability for residents to participate in upward mobility. When the property values of a neighborhood rise, residents can only feasibly stay if their respective salaries and wealth can keep pace (unlikely due to rate of rent increase in popular cities) or if their wealth is somehow tied to local property. In today’s market, that usually just means people who own their apartments or homes. Anyone else has little chance of securing long-term residence.
So with that core issue identified, the question for BLDG BLOX is simple:
How do we get more participants involved in the appreciation of real estate?
We can at least hypothesize that if residents had more access to equity and wealth buy-in, they would have a chance at preserving their place through growth. Of course, we can’t propose any specific solutions without understanding the specifics of social context, local policy, and cultural significance, but we can at least speculate on general strategies of wealth creation to inform what we’re working towards at BLDG BLOX.
To clarify, the term “equity” here goes beyond simply the percentage of ownership one has in an asset. Our team looks at equity as a combination of factors in ownership, access to opportunities, decision-making, rewards for contributions, and others that affect the level of “buy-in” one has in a community. Having cultural, political, and organizational equity is a proven mechanism to secure stability alongside monetary investments.
Let’s explore some options…
- Create opportunities for ‘work’ in exchange for micro-property ownership. For example, if good and reliable businesses occupy a new development, that business and potentially the local employees working there could receive a mixture of paychecks and vested equity in the property itself. This would produce a long-term workforce and social constituency that is incentivized to stay future-oriented, commit to that neighborhood, and take part in the community’s growth. As we’ve touched on before, the lack of liquidity when it comes to real estate equity bars many people from earning a spot in the market’s movement.
- Distribute wealth effectively and fairly. Building off of the previous point, there is a clear distinction between money and equity. Money does not adapt in direct response to changing values and local growth. Individuals need more access to the wealth generators that will buoy their chances of residence in the future.
- Establish attractive and rewarding opportunities for corporate sponsorship and money to come in. Wealth needs more openings that help find its way directly to those doing the ‘work’. Corporate Social Responsibility (CSR) applications have made it easier for companies to donate to non-profits, creating a general increase in distribution. The same needs to happen with impact investing, making it easy for corporations and institutions to directly participate in well-oriented real estate growth.
- Create reliable and accountable metrics for impact. A core concern is that we’re not able to accurately project what a favorable outcome looks like, and are currently only gauging when something not so great happens. Both investors and the public need more access to measurements that clearly outline progress or regress, i.e. percentages of retention, polled sentiment, recorded levels of engagement, and more.
Our hypothesis is that with the right tools to implement and measure impact investing (both time and money), we’d be opening up the market for a more dynamic real estate development economy, one that doesn’t rely on the tippy-top management of traditional property developers.
The overall goal here is to have residents participate in the upward mobility of their given neighborhood and provide more ways for wealth to flow in and down from the top. Ultimately, the residents are the driving catalyst for the value of a property and neighborhood, there should naturally be a way to incentivize and retain those agents as the neighborhood changes physically, infrastructurally, and culturally. There needs to be a better way to spotlight the people who keep things safe, vibrant, interesting, etc. with whatever manner of contributions they might bring to the table.
In contrast to the deep hierarchies of centralization outlined at the beginning of the article, decentralization begins to eliminate the basis of those hierarchies. This is why we were inspired by the prospects of blockchain many years ago and are confident that the offerings to governance, liquidity, incentives, and engagement are worth pursuing to potentially dismantle the causes and effects of gentrification.
Thanks for reading and as always, let us know your thoughts below!
Website: bldgblox.io
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