Endogenous Gentrification and Housing Price Dynamics

57 Pages Posted: 2 Aug 2010 Last revised: 30 Apr 2013

See all articles by Veronica Guerrieri

Veronica Guerrieri

University of Chicago - Booth School of Business

Daniel A. Hartley

Federal Reserve Bank of Chicago

Erik Hurst

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2010

Abstract

In this paper, we begin by documenting substantial variation in house price growth across neighborhoods within a city during city wide housing price booms. We then present a model which links house price movements across neighborhoods within a city and the gentrification of those neighborhoods in response to a city wide housing demand shock. A key ingredient in our model is a positive neighborhood externality: individuals like to live next to richer neighbors. This generates an equilibrium where households segregate based upon their income. In response to a city wide demand shock, higher income residents will choose to expand their housing by migrating into the poorer neighborhoods that directly abut the initial richer neighborhoods. The in-migration of the richer residents into these border neighborhoods will bid up prices in those neighborhoods causing the original poorer residents to migrate out. We refer to this process as "endogenous gentrification". Using a variety of data sets and using Bartik variation across cities to identify city level housing demand shocks, we find strong empirical support for the model's predictions.

Suggested Citation

Guerrieri, Veronica and Hartley, Daniel A. and Hurst, Erik, Endogenous Gentrification and Housing Price Dynamics (July 2010). NBER Working Paper No. w16237. Available at SSRN: https://ssrn.com/abstract=1651422

Veronica Guerrieri (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Daniel A. Hartley

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://www.danielaaronhartley.com

Erik Hurst

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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