Urban Trends to Understand

[Kevin Dickson]

I try to stay on top of urban trends.

Rising home prices "decrease income mobility and ultimately hurt the U.S. economy," reports Nicole Goodkind in this article:

http://www.cnbc.com/id/49551180

Jane Jacobs noticed that overly gentrified neighborhoods will often implode because of their lack of income diversity in her book "The Death and Life of Great American Cities".

Has anyone else identified other trends, like how zoning codes can ruin a city?

[Ryan M]

Kevin, I would be very interested to know if you have ever seen a gentrified neighborhood implode?

I've read Death/Life and know it focuses mainly on NYC, perhaps there are cases of this there.

Where you are at in Denver, Wash Park, Observatory Park and the Highlands seem to be doing well and have been gentrified for many years. Have you seen any evidence of this implosion there or elsewhere firsthand?

Reason I ask is because as an infill home builder, I am sort of an agent of the gentrification.

Anyway it would be nice to hear your thoughts/experience.

Best,
Ryan

[Jon Klaus]

Good question, Ryan (agent of gentrification). I'm interested in this too, as I've been working in a gentrifying area of East Austin. I haven't considered the neighborhood imploding, but do wonder about the depth of unintended consequences.

Welcome to BiggerPockets

[Kevin Dickson]

[b]Jane Jacobs, Wash Park, Montbello, and Park Hill

@Ryan M

I'm in Wash Park (56 years now). The scrapeoff trend in Denver started in Wash Park and Bonnie Brae in the early 90s. Prior to that, "pop tops" were the redevelopment method of choice, starting in the 80s.
Prior to that, there was very little neighborhood redevelopment because the new neighborhoods were still close in and there was a huge selection of brand new houses.

Jane Jacobs talks about the bustling NYC neighborhoods that got too reliant on only one industry (like shirtmaking). Changing economic forces could easily kill a non-diverse area like that. Most slums in NYC have now re-gentrified because of sheer housing demand.

Neighborhoods can have healthy gentrification too, diversity is the key. The Highlands was "the next Wash Park" for 20 years. Recently that prediction has come true. It still has more diversity than Wash Park, which bodes well for it.

Montbello is one example of a downtrodden neighborhood with low home values. It's lack of diversity in terms of built environment and income levels is the primary culprit. Now (if you can imagine) it's essentially a slum made up of solid 3 bedroom 1960’s brick ranches. There is definitely some fixup and investor activity there, but scrapeoffs are at least 20-30 years out. [url]http://en.wikipedia.org/wiki/Montbello,_Denver

Now, will Wash Park get over-gentrified and implode? Jacobs' observations indicate yes, it could happen. Home prices in gorgeous neighborhoods in Park Hill (NE Denver) suffered greatly due to "white flight" in the 60s and 70s. Those areas have since recovered: [/url]http://en.wikipedia.org/wiki/White_flight
If Park Hill had more income diversity at the outset, home values would have remained healthier.

Even though Denver's unemployment rate is double what it was during the recent boom years, Wash Park currently has about 50 scrapeoffs going right now. The value of these new homes will be $1M- $3M each. Eventually this activity could force out the lower income homeowners and renters because property taxes might get too high.

Some preliminary conclusions:

1. Try to get a toehold in those obviously gentrifying areas if it’s not too late. Understand that older homes are selling for the land value, and sell before the next bad cycle. (Real estate cycles are easy to spot compared to the stock market).

2. Racial issues were the main cause of some Denver real estate problems in the past. Racial problems are diversity problems.

3. Zoning policies are by definition anti-diversity, and are usually the wrong solution to imaginary problems.

[Bill Gulley]

Interesting thread! An issue that certainly plagues larger cities with less economic and social diversity.

Just a comment as to zonning. Keep in mind that most zonning categories are progressive, that a property use can be used at a lower concentration but not higher. You can build a home in an industrially zonned area, but you can't put a factory in a residential subdivision. Generally, you can obtain special use permits to run with title or exceptions in buffer areas.

Zonning can choke an area and the expansion of a metro area will or should be constantly considered by planners. Zonning should be viewed as flexible, changing and adaptable to changing needs, the process and results should provide economic stability.

Zonning is your friend and can protect property values. In time, a mature area will change as to its highest anf best use.

[Kevin Dickson]

There is much debate about zoning and property values, and we seem to think it's a necessary fact of life.
But always keep this in mind: All of the most charming, desirable, and expensive urban neighborhoods "in the old part of town" were laid out and built by profit seeking developers before zoning was even invented.

[Grant P.]

Denver is the only real estate market I have ever worked in, and this site has really opened my eyes to how different it seems the rest of the country is to Denver.

With our model we count on the future appreciation and try to get into neighborhoods before its too late. So far it has worked flawlessly. We hold all of our properties in the Golden Triangle, Cherry Creek, and now LoHi.

The Golden Triangle Properties have cash flowed from day 1, and have their future potential as development sites due to us changing the zoning to allow 20 stories of mixed use, the Cherry Creek house is 23 feet wide on a 33 foot lot. The zoning bluk plane starts at 12 feet, our house bulk plane did not start until 27 feet.

We react to neighborhood trends quickly, we always purchase unrenovated/scrape properties and renovate extensively, and my partner just so happens to be one of the top design/zoning experts in the country.

As long as out market continues to grow like it has for my entire lifetime, I don't think it is going to hurt us in Denver