The “rent gap” the­o­ry offers on the com­mon expla­na­tions for gen­tri­fi­ca­tion. Accord­ing to this the­o­ry, investors will be most tempt­ed to pur­chase land when there is a dis­par­i­ty between the cur­rent rental income of the land and the poten­tial­ly achiev­able rental income. The the­o­ry makes sense at first glance—why invest mon­ey in land if you can­not make a prof­it on it?

What is more con­tro­ver­sial is the use of rent gap the­o­ry to jus­ti­fy oppo­si­tion to new mar­ket-rate hous­ing. One argu­ment is that if new mar­ket-rate hous­ing is built, land­lords will dis­cov­er that they can afford to charge more rent for exist­ing hous­ing, and thus start rais­ing rents and evict­ing ten­ants. Thus, it is argued, mar­ket-rate hous­ing in low­er-income areas leads to gen­tri­fi­ca­tion and the dis­place­ment of poor­er ten­ants. It seems to me, how­ev­er, that the log­ic of this argu­ment sup­ports no new mar­ket-rate hous­ing any­where: if new hous­ing rais­es rents, obvi­ous­ly any new hous­ing (oth­er than gov­ern­ment-sub­si­dized low-income hous­ing) is bad.

It seems to me, how­ev­er, that this ver­sion of rent gap the­o­ry is based on a cou­ple of ques­tion­able assump­tions. First, it over­looks the effect of zon­ing on “poten­tial­ly achiev­able rental income.” It seems to me that anti-hous­ing zon­ing actu­al­ly increas­es poten­tial rent: a city that severe­ly lim­its the sup­ply of hous­ing will nor­mal­ly increase the price of such hous­ing, which in turn means that the rental income poten­tial­ly avail­able to a new build­ing’s land­lord will be much, much high­er than the rental income that a land­lord might get in a more per­mis­sive city. It fol­lows that restric­tive zon­ing may increase the rent gap, rather than eras­ing the rent gap. 

Sec­ond, the use of rent gap the­o­ry to oppose new hous­ing makes sense only if new hous­ing increas­es the val­ue of exist­ing hous­ing near­by, thus cre­at­ing a rent gap where none exist­ed. In the­o­ry, this might be true if new hous­ing leads to ameni­ties that make the exist­ing hous­ing more attrac­tive. On the oth­er hand, some stud­ies sug­gest that new hous­ing not only holds city­wide rents down by increas­ing hous­ing sup­ply, but might even have the same effect on near­by hous­ing. For exam­ple, a new study by Evan Mast and two oth­er econ­o­mists finds that new mar­ket-rate units low­er rents in near­by build­ings by 5 to 7 per­cent. Thus, new hous­ing might not be the cause of a rent gap. More broad­ly, new hous­ing might be the result of gen­tri­fi­ca­tion rather than the cause—otherwise, neigh­bor­hoods like New York’s West Vil­lage (which have expe­ri­enced less new con­struc­tion than oth­er city neigh­bor­hoods) would nev­er gen­tri­fy.

So even if the rent gap the­o­ry is to some extent valid, it does not fol­low that it jus­ti­fies oppo­si­tion to new hous­ing.