Gentrification, an urban phenomenon?

Amy (Year 13) looks at the issues surrounding gentrification of an area and the impact this has on the value and cultural capital of an area.

Gentrification has often been seen as a contested and negatively connoted process; it is routinely blamed to be destroying the ‘souls’ and ‘hearts’ of many cities across the globe, with higher housing costs to increasingly globalised high streets acting as forces driving those less privileged out of historically culturally rich community areas. It can be seen as an oppressive mechanism which, in potentially adding fiscal value to an area, does so at the expense of cultural diversity.[1]

Gentrification is a term first created more than 50 years ago by the German-born British sociologist Ruth Glass to describe changes she observed in north London – but it is a phenomenon that has been at the heart of how cities evolve for centuries. Cambridge dictionary defines the term as ‘the process by which a place, especially part of a city, changes from being a poor area to a richer one, where people from a higher social class live.’[2] It is an important factor in the change and transformation of urban areas. However, whether it really eradicates poverty is subject to lively debate.

From NewDream.org

In London especially, gentrification characterises economic and demographic changes as the predominantly middle-class citizens settle in areas often occupied by high percentages of ethnic minority residents, who are often priced out of the new ‘improved’ areas. Not only does it have significant negative impact on smaller community areas, it also sends ripples throughout the rest of the country and down the class hierarchy.

Much resistance has been seen from those who see the process as an antagonised way of removing character and community from an area. In particular, estate agents and property developers are subject to this disapproval, with many campaigners vocal against their activities, given they seek to make money from attracting new, richer residents. Especially extreme campaigns such as the 200 anti-gentrification and housing campaigners that disrupted the beginning of the annual Property Awards in 2016 reveal the strong opinions many people have towards the process of gentrification.

When examining this change in London, it is important to inspect the history and background of the city itself. Gentrification is not a new process to the city, beginning in the 1960s when bits of the run-down, old post-war city attracted adventurous young architects who started doing up often cheaper, damaged, Georgian squares. The process is deeply ironic, as these forces of change accused of ruining London are products of its revitalisation.

Decades ago London was still recovering from detrimental damage done during World War 2. The population of inner London was still attempting to recover to its pre-war importance. At this point, it wasn’t the wealthy being the cause of change in the area but skilled manual workers seeking cheap and convenient land, headed for ‘the New Towns’ in the 1950s.

By the start of the 2000s however, London’s dynamic had completely changed. London had become an influential source of economic growth, catalysed by its ability to generate money from its ‘turbo-charged’ Square Mile. Increased profit immensely amplified the attractivity of London, in turn increasing the demand of space in the city. It is regularly said that ‘demand for space is the seed of gentrification’[3], and a failure to meet that demand is what stimulates the growth of it. London is a prime example of this. Hugely inflated property prices are a certain cost of gentrification, and this can be seen all throughout London. The average house price in Hackney, and area renowned for its influence of gentrification, has increased by 489% in the last two decades, up from £91,000 in 1998 to £536,000 in 2018. This directly drives out many ethnic minorities and those living on low income or relying on government benefits to afford housing costs.

Hackney wick’s ‘graffiti building’ – from Londonist.com

The standard picture of gentrification is that new arrivals benefit greatly from gentrification at the expense of lower-income residents. This picture is often true in many cases. New arrivals to a community often get stylish housing and all of the expensive accessories of life in a trendy urban neighbourhood (boutiques, bookstores, coffee shops, clubs and more) that they can afford. While long-time residents may benefit initially from cleaner, safer streets and better schools, they are eventually priced out of renting or buying. As the new arrivals impose their culture on the neighbourhood, lower-income residents become economically and socially marginalized. This can lead to resentment and community conflict that feeds racial and class tensions. Ultimately as lower-class members of the community move out this can induce loss of social and racial diversity. Rowland Atkinson, a member of the ERSC centre for research describes it as ‘a destructive and divisive process that has been aided by capital disinvestment to the detriment of poorer groups in cities.’[4]

However, should gentrification really be held accountable for the unacceptable level of poverty in London? Assertions that it is ‘pushing out’ the deprived of the city often look less persuasive when examining the figures of social housing which still exist in classic ‘gentrified’ areas of north London. In Camden, 35% of all housing is for social rent, in Islington it’s 42% and in Hackney, 44%. Although poverty rates have fallen in those boroughs, the absolute numbers of poor people (people living on the reliance of government benefits) remain high.

Although there are many deservingly negative outlooks on the consequences of gentrification, assumptions should not always be made to antagonise the process. For example, middle class pressure often leads to improvement in community features such as modernised and beautified public buildings and spaces. As the property tax base increases, so does funding to local public schools.  Jobs arrive with the increased construction activity and new retail and service businesses, and crime rates habitually decline.

Edward Clarke of the UK urban policy research company Centre for Cities writes that the debate should not be reduced to ‘a simple battle between plucky communities and greedy gentrifies’, emphasising that this ‘fails to recognise that the roles and functions of urban neighbourhoods have always changed over time and within a city’ or to acknowledge that gentrifying ‘new work businesses can create new jobs and improve wages in many fields.[5]

Clarke concludes in general that the real roots of the problems that come with thriving urban economies are ultimately down to “poor city management”. He argues that to improve this it requires better skills training for local people, more planning and tax-raising powers to be devolved to local politicians and more land, including a small portion of green belt, being made available for building.

Ultimately gentrification, as a form of change and transformation in urban areas, is an issue that has been going on for decades. Although it potentially brings improvement to the appearance and functionality of urban environments, the problems created by this process must be addressed; failing to do so will result in places like London becoming so unaffordable they will begin to deteriorate – not only in potential economic value, but also in cultural capital. The process often exacerbates inequality on a local scale and drives out the cultural diversity that can so often be found at the heart of London’s communities.


Bibliography

Glass, R. (1964). London: Aspects of Change. London: MacGibbon & Kee

Hill, D. (2016). Let’s get our gentrification story straight. London: Guardian

Dr Atkinson, R. (2002). Does Gentrification help or harm urban neighbourhoods? An assessment of the evidence-base in the context of the new urban agenda. CNR Paper 5

Clarke, E. (2016). In defence of gentrification. London: Centre for Cities

[1] See https://newdream.org/blog/consumption-gentrification-and-you

[2] See https://dictionary.cambridge.org/dictionary/english/gentrification#:~:text=Meaning%20of%20gentrification%20in%20English&text=the%20process%20by%20which%20a,of%20East%20London%20by%20gentrification.

[3] See https://www.theguardian.com/uk-news/davehillblog/2016/oct/24/lets-get-our-gentrification-story-straight#:~:text=Demand%20for%20space%20is%20the,were%20born%20%E2%80%93%20look%20further%20afield.

[4] See http://www.urbancenter.utoronto.ca/pdfs/curp/CNR_Getrifrication-Help-or-.pdf

[5] See https://www.centreforcities.org/blog/in-defence-of-gentrification/

What is a sovereign wealth fund and why are they important?

Lily in Year 13 looks at the importance of sovereign wealth funds, telling us more about this area of Economics.

Simply, a sovereign wealth fund is a state-owned investment fund meaning countries can invest in shares and assets internationally in the hope that these investments will then increase in value. These profits can then be extracted by a government when shares are sold and ideally then used to benefit the country’s economy and citizens.

The term sovereign wealth fund was initially created in 2005 by the economist Andrew Rozanov who stated that the funds in question “are neither traditional public-pension funds nor reserve assets…but a different type of entity altogether”. A new and exciting form of investment was emerging, now commonly called the sovereign wealth fund.

Sovereign wealth funds are important because of the economic benefits they can bring to a country. The largest fund in the world at the moment is the Government Pension fund of Norway which “owns on average 1.3% of all equities listed worldwide”,  which means that Norway owns 1.3% of global stocks and shares, now worth over $1 trillion in assets. This shows the scale of these funds and the influence they can have on the world economy.

One key benefit of sovereign wealth funds is the diversification of countries incomes. This is because sovereign wealth funds almost always invest in foreign assets which is particularly helpful if a country relies on a single commodity for their income as they are more at risk if that particular industry experiences a downturn. This is why many oil reliant countries have sovereign wealth funds as oil markets are often volatile. This factor has become particularly important in 2020 through the corona virus epidemic, one specific example being in the oil industry since “US oil prices went negative for the first time in history” in April 2020, resulting in companies paying people to take oil off their hands because the demand for oil had fallen so rapidly.

This shows the oil industry is particularly vulnerable to large fluctuations in price and if a country relies on oil for their income they could be at risk of an economic downturn (recession). Sovereign wealth funds have been shown to limit this risk as some funds around the Gulf (largely oil reliant countries) are already “channelling some of their billions back to counter the recession triggered by the coronavirus pandemic.”, showing how important these funds have already been for the recovery and survival of oil reliant economies throughout the Covid-19 outbreak.

However, there are debates surrounding the benefits of sovereign wealth funds as there will always be an element of risk in making investments since they can never be one hundred percent safe as assets always have the possibility of decreasing in value. This includes the idea of black swan events – the idea that some events are unpredictable and therefore markets cannot prepare for the shocks they cause. This is one way of stating we can’t predict the future and therefore will never be able to completely rely on an investment bringing positive returns. Which poses the question ‘is it a good idea to be risking millions of public money on the stock market?’

Sovereign wealth funds can be very beneficial but there are always opportunities for investments to turn sour. This means that it is important for a country to analyse the rewards that can be generated before creating a sovereign wealth fund. These countries are still not immune to black swan events which can disrupt the global economy however, if profits from these funds are used well they can actually mitigate these risks and add huge value to their economies, such as through diversification. A well-managed and cleverly invested fund will always benefit the country at hand if it is used wisely. These benefits mean that sovereign wealth funds are likely to become more and more common, making them important as they a likely to become a huge factor of the global economy.


Sources:

Report – Who Holds the Wealth of nations? By Andrew Rozanov – see http://piketty.pse.ens.fr/files/capital21c/xls/RawDataFiles/WealthReportsEtc/SovereignFunds/General/Rozanov2005.pdf

How Sovereign Wealth Funds improve firms’ corporate Governance by Vincent Bermejo – see https://www.forbes.com/sites/esade/2019/11/11/how-sovereign-wealth-funds-improve-firms-corporate-governance/

FT article – US oil prices below zero for the first time in history – see https://www.ft.com/content/a5292644-958d-4065-92e8-ace55d766654

Bloomberg article  – Gulf sovereign wealth funds seen shedding $300 billion in market mayhem, by Mathew Martin and Nicolas Parasie – see https://www.bloomberg.com/news/articles/2020-03-26/gulf-sovereign-funds-seen-shedding-300-billion-in-market-mayhem

Nassim Nicholas Taleb ‘The Black Swan’ Penguin see – https://www.amazon.co.uk/Black-Swan-Impact-Highly-Improbable/dp/0141034599