The cycle of valorisation-devaluation: a specific form of spatial creative destruction creative destruction

As epitome of the monopoly control of rent, Smith’s five-stage model of decline describes how the rent gap is produced in a given spatial and temporal context, so it

20 Particularly important for the analysis of rent gap is the following: whereas the value of land is appropriated in economic transactions as ground rent (hence the concept of ‘rent’ gap), the building value (BV) must be conceptually separated from land value, even if the actual selling price of a plot usually incorporates in a single amount the value of the building and the land. This point will be recalled in CHAPTER 5.

results from a complex pattern of infrastructural investment, disinvestment and reinvestment, that allows that large rent gap areas (when other conditions are fulfilled) can be widened and closed through gentrification (Smith, 1987). But this is a “rather schematic attempt to explain the historical decline of inner-city neighborhoods in terms of the institutions, actors, and economic forces involved.” (Smith, 1979: 543-5) Without entering into quantitative explanations, the model accounts for the causes and effects of the variations of CGR in an urban area. This scheme comprises the following stages:

a) New construction and first cycle of use: House prices reflect the value of the structure and improvements plus the ground rent. The house value would be only slightly diminished with use, while CGR increases due to surrounding urban development.

b) Landlordism and homeownership: In view of the gradual and inevitable devaluation of their buildings, homeowners and landlords tend to de-invest, producing a decline in the quality of the building, a considerable decrease in the CGR and an expanding effect of lowering rents in the rest of properties in the neighbourhood.

c) Blockbusting and blow-out: Real-estate agents tend to accelerate building devaluation exploiting racist (or classist) outlooks of decadence among homeowners²¹. Blow-out is the outwards spreading of slums from the inner city in order to amplify the rent gap “and the consequent squeezing of still healthy outer neighborhoods against secure upper-middle-class residential enclaves lying further out.” (Smith, 1996b: 66) When the neighbourhood is mainly a renting urban market, the creation of rent gap also comprises attempts to sapping existing local infrastructure seeking to artificially decrease CGR in the area of interest, deepening artificially the gap between an even more devalued land and its market price, improving the potential profit for the owner in case of future regeneration (Parker, 2004; Smith, 1987).

21 In North American cases, fear-provoking white owners with the imminence of new black or Latino residents, just to get hold of their properties at lower prices and resell them at higher prices precisely to black or Latino newcomers.

d) Redlining: Financial institutions that could operate in the neighbourhood declare these areas financially not viable, further hampering access to funds for maintenance and repair by local people. Aalbers has observed that in redlined urban areas there is an observable increased presence of ethnic minorities or socially excluded groups (Aalbers, 2006).

e) Abandonment: Progressively, properties are abandoned, even sound ones, as they stop being profitable. The tightening of municipal requirements and ordinances and costs of insurance play key roles in this process. Finally, the neighbourhood is deteriorated to the extent that each of the properties can be bought for a song. This is the time when gentrification becomes a real possibility (Darling, 2005).

Figure 2.2. Model of inner city ground rent valuation/devaluation Source: Clark (1995)

As Eric Clark (1995: 1497) stresses, the tension between actual and potential ground rents is far from being “clinically clean of ties to power in social contexts nor of ties to the imagery of agents.” In fact, it is the opposite. For the appropriation of the rent gap, the state and private owners and investors have specific roles. The former creates the

economic, legal, and administrative framework; the latter responds to its private interests over land rent accumulation. But the artificial creation of rent gap by diminishing the quality of life of an environment is inherent to the previous phases of every process of gentrification (Smith, 1996b). Obviously, this devaluation has plenty of social connotations.

Hammel (1999: 1291) observes that potential ground rent (PGR) is produced by factors that work at the scale of the entire city (i.e. the logic of rent distribution in the metropolis, the location within the metropolitan area, development of infrastructure and land use policies), whereas in contrast the CGR is constructed at neighbourhood scale, since

the perception of an impoverished neighbourhood prevents large amounts of capital from being applied to the land [and t]he surrounding uses make high levels of development infeasible, and the property continues to languish. […] factors at the neighbourhood scale constrain the capitalised land rent to a lower level.

In fact, what Hammel does is to broaden Smith’s definition of CGR, zooming out the focus from the single plot toward the whole neighbourhood or even larger scale. The appraisal of a piece land is constructed always by observing the conditions of its surrounding environment. Only from this point, it is possible to firmly argue that capitalised land rent is in fact socially produced, and that an existing social milieu could devalue the CGR in a neighbourhood.