If Harlem was once a well-known symbol of urban decay, that torch may be currently held by Detroit, Michigan. The famed Motor City, built up by car companies and populated by those companies’ employees, was once the country’s fourth largest city. But white residents left for the suburbs, taking with them many of the resources for infrastructure and development needed to sustain parts of the city. Over time, the city declined. As the car companies struggled, parts of the city literally crumbled.
According to the economists’ model, demand for housing triggers gentrification in neighborhoods near rich areas. When the researchers tweaked their model, substituting a boom for a bust, the data gathered from Detroit produced evidence consistent with their main findings.
Detroit’s long bust provided Professors Veronica Guerrieri and Erik Hurst, along with Daniel Hartley, the opportunity to see if their model, built to measure the effects of a housing boom, worked in reverse.
As Detroit’s economy contracted, incomes in neighborhoods near rich areas declined sharply. Wealthier residents moved out and poorer residents moved in, trying to locate as close as possible to the few good neighborhoods that were left.
The economists began their research in the mid-2000s, when housing demand and prices were rising across much of the United States. At that time, Detroit was the only major city in the country (with a sufficient number of housing tracts to study) to have experienced a bust. But then many cities’ housing bubbles burst, causing prices to fall from Las Vegas to Miami, Chicago to Washington, DC—all of which are now potential testing grounds for the economists’ model. Detroit, for its part, declared bankruptcy in 2013—but also welcomed a staple of gentrifying neighborhoods, a Whole Foods grocery store.
Veronica Guerrieri, Daniel Hartley, and Erik Hurst, “Within-City Variation in Urban Decline: The Case of Detroit,” American Economic Review: Papers and Proceedings, 2012.