Cities and their neighbourhoods are like living beings that change and adapt. It is a process that may have to do with the increasing age of the residents, economic issues and, most often, a mixture of both.
One of the processes that has grown the most in recent years is gentrification, which is no longer a local thing and is becoming less and less spontaneous.
What is gentrification?
Although the word gentrification has become more popular in recent years and is more frequently seen in the media, the truth is that this phenomenon began to occur in the main cities of the world during the 1960s.
So, what is gentrification? One of the best definitions is that of the Urban Displacement Project, an initiative of the University of California and Toronto. According to these experts, gentrification is a process in which people with higher incomes begin to buy housing and live in already established neighbourhoods, causing the standard of living and services to rise, which causes the expulsion of older residents.
That is, imagine a working-class neighborhood located in the center where homes begin to be built or purchased and renovated by higher-income people of a higher class.
These new homes will be more expensive, the neighborhood will begin to have new, more expensive shops and services, and the price of rents and properties will rise because other people with greater purchasing power will be interested in living in this new, more popular area.
That's what gentrification is all about.
Some of the most popular examples in Spain are found in the Gracia neighbourhood of Barcelona, which went from being a middle-class neighbourhood to an upper-class one. In Madrid, La Latina and Fuencarral are good examples, which in some cases were lower-class and have become middle/upper-class.
Why do gentrification processes occur?
Now that you know what gentrification is, you're probably wondering why it happens. That is, what's behind these movements of people with more purchasing power to certain neighborhoods.
The truth is that there is no common cause for all cases. Sometimes it is a spontaneous process and sometimes it is a more planned process.
Spontaneous gentrification occurs when certain professionals with higher incomes begin to live there for different reasons. Maybe they are looking for more tranquility or maybe, at the time, they were looking to buy houses at lower prices than in other areas.
These individual movements can attract other people with the same purchasing power and gradually raise the average income in that neighborhood, causing everything to become more expensive.
This is often the case in certain peripheral areas of large cities. Perhaps a neighbourhood further from the centre offered lower prices and this attracted the attention of certain professionals who, in turn, motivated others to move, gradually raising prices in that area.
In the case of planned gentrification, it usually occurs when developers or real estate investors start buying properties or buildings to renovate them or simply build properties with more luxurious features. This causes the price of all nearby properties to progressively rise due to the increased interest of other investors or developers.
Finally, a new phenomenon has emerged in recent years, related to tourist gentrification, which is caused by the expansion of vacation rentals offered on various platforms.
Although this impact is, for the moment, less measured, it most frequently affects middle-class and upper-class neighbourhoods, raising the price of rent and housing, as owners can earn more income by renting to tourists and this, in turn, attracts new investors to do the same, which ultimately causes housing prices to rise.
What is the impact of gentrification on housing prices?
The main impact is the increase in housing and rental prices. This means that former residents are forced to sell their homes to obtain a higher profit or, alternatively, to leave due to the increase in the cost of services in general.
However, the most affected are usually people who live in rented accommodation, who often see their rent skyrocket. If they have a valid rental contract, they can maintain the conditions, but if they are close to renewing, they will normally have to renegotiate and even change neighbourhoods.
If we take specific examples, in the Fuencarral neighbourhood of Madrid the average price of housing for sale has gone from 2,782 euros per square metre in 2015 to the current 4,038, exceeding the highs of the real estate boom. In the case of rentals, the effect is just as strong, going from 10.1 euros per square metre in 2013 to the current 15.7 euros, according to data from Idealista.
Strategies for acquiring housing in gentrified areas
The truth is that gentrification has its disadvantages, but also its advantages. For those owners who have a home in this type of neighborhood, selling or renting it can be highly profitable. Therefore, it is normal that many investors feel attracted to buying property in this type of area.
So, if you are thinking of buying a home in a gentrified area, there are some strategies that can be of greater help. For example, it may be interesting to buy a property that is not in good habitable condition in order to renovate it and increase its value both in the sales and rental markets.
If you can't find properties of this type, the second strategy is to look for properties that have not become too expensive. In this case, you can check the prices in that area, as well as those in the surrounding areas. Perhaps, just two streets away from the neighborhood, you will find properties that are 20% cheaper, something that is more common than it may seem.
If you want to buy to rent or sell, you can also buy a property and renovate it , giving it more value. It may be interesting to invest in energy efficiency and make it a more sustainable home or make renovations such as installing a jacuzzi or a personal gym.
In any case, the essential thing is to be aware of the opportunities that may arise and to continuously monitor prices so as not to buy at levels that are too expensive compared to the neighborhood or neighboring neighborhoods.
