Understanding Displacement

A household is “displaced” when it’s forced to move, often at some distance from the household’s current home. For a lower-income household, this can be caused by:

• Demolition of their dwelling
• Eviction either for cause or without cause
• A rent increase that the household cannot afford

Deregulation (or “upzoning”) that results in allowing one or more of the following can cause displacement of lower-income hosueholds:

• Greater density (allowing more dwelling units based on lot size)
• A higher maximum number of dwellings on a lot, regardless of lot size
• Taller structures
• Greater coverage of the lot area by structures
• Reduced on-site parking requirements

Investor and market economics determine the potential for displacement caused by redevelopment that follows significant deregulation, as the City of Eugene is contemplating. In basic terms, displacement is most likely when deregulation allows investors to purchase an existing residential property, demolish the existing structure(s), and construct a more profitable residential development.

Understanding “direct” displacement by demolition

Demolition is the easiest cause of displacement to understand.

Example: Consider a 4,500 square foot lot in Eugene that is currently zoned “R-1 Low-Density Residential” and has a single, two-bedroom, one bath house that rents for $1,300 per month. The R-1 zoning would currently allow only one more dwelling on that lot, so the landlord could decide to add another small rental unit. However, at current costs for new construction, that wouldn’t be an attractive investment.

However, if the City Council were to amend the R-1 Zone regulations to allow four dwellings on the lot and a much larger structure (as Eugene planners have recommended), redevelopment becomes an attractive investment because an investor can buy the property, demolish the house, and construct a “quadplex” with four three-bedroom, two bath, upscale apartments that each rents for $2,300 per month, a total of $9,200 gross income — seven times the previous gross income.

Of course, the basic principle of real estate investment is to maximize the return on investment and minimize risk. In the Eugene market, a “sweet spot” for new residential development is mid/upper quality quadplexes with four or more rental units. A “two-up/two-down” structure is cost-efficient both in the lot area required by the building and the compact form of the building. Building anything smaller or less appealing to the market would reduce the rate of return on investment.

With this strategy, investors look in appealing neighborhood areas for the lowest cost properties to redevelop. Based on current housing market trends, that’s typically in areas that are close to the urban center, have a low ratio of structure-to-land value (i.e., small, old, and/or poorly maintained rentals), and are undervalued for some reason. Very commonly, neighborhood areas that have a significant non-white population, but which are close to ameneties and transit service are “prime” investment targets. This is one of the reasons that “BIPOC” (Black and Indigenous People Of Color) neighborhoods are often subject to redevelopment (whether by private or public money) and resulting displacement.

A consequence of investors seeking out the lowest-cost properties to redevelop is that the dwellings lost to demolition are the most affordable of the local housing supply. Consequently, in our previous example, the supply of relatively affordable rentals would be decreased and the supply of expensive rentals would be increased.

Not only would the increase in supply of $2,300/month apartments not reduce the rent on $1,300/month apartments, decreasing the supply of $1,300/month apartments would increase the rent on comparable apartments in the same price range. The net result would be that one lower-income household would have to move, and with diminished supply of dwellings that the household could afford, they often would have to move further away from the urban center.

Now consider which kinds of neighborhoods this scenario would negatively impact. A neighborhood that is generally white and more expensive may have a few low-end rentals, which may even be considered “eye-sores” by some current residents. Displacing the tenants in those houses isn’t going to destabilize the neighborhood and may even be welcomed by some residents.

At the other extreme is a predominantly Black, urban neighborhood close to a commercial area that’s being revitalized. That area will have many residential properties that investors would view as attractive redevelopment investments. The loss of the most afforable rentals and the neighbors who get displaced could have a huge immediate impact, as well as a longer-term “ripple” effect from rising rents that force more households to move.

Understanding “indirect” displacement by increased rents

An upzoning, such as described above, substantially increases the value of land, often as soon as the upzoning appears likely to be adopted. On a purely “book” level, the rate of return on low-cost rental properties in an upzoned area goes down because the rent incomes are now based on significantly more valuable assets. That fundamental economic factor destabilizes neighborhoods in which there are numerous lower-cost rentals.

The first areas to suffer the impacts are those areas most attractive to investors, as discussed above. As properties are sold and redeveloped (whether or not an existing dwelling is demolished) owners of other properties face a choice: capture a higher return by selling to an investor or raise the rent to a comparable level. Current residents that cannot afford the higher rent are forced to move to a different area where they can find an affordable rental.

This from of displacement fits into the broad category of “gentrification,” which has been documented as displacing tens of thousands of residents of poor, nonwhite neighborhoods in many American cities. The extreme deregulation proposed by Eugene planners would simply be a “turbo-charged” version of gentrification.

Is this really a problem?

Proponents of the extreme upzoning being pushed by City planners and vested development interests subscribe to the neoliberal theory that deregulation and an unfettered “free” market will produce the best social outcomes. All one has to do is look around at what unfettered “free” markets have produced to see why this theory has long been abandoned by sensible economists and social theorists.

The simple (and should be obvious) fact is that upzoning that would allow more lower-cost housing to be built does not in any way mean that a single investor will sacrifice their greatest potential return and actually build affordable housing. Here is a perfect, recent example of what a rational investor will do when allowed:
Click to view

Take about 7 minutes to watch this video of a Portland developer who explains: “I know exactly how to make the most money by tearing down your neighborhood and rebuilding.”     https://youtu.be/O3LnoZTxx3A

If you want a deeper analysis and “real world” perspective, read the Portland, Oregon report which found the following conditions.

“The city has almost 34,000 households at risk of being displaced. These are low-income renter households living in a gentrifying area who pay more than 30% of their income on rent. Regulated affordable housing units are not available or planned in areas that are most at risk. Even small increases in rents may push these households out of the city to places where they are better able to afford to live.”
2018 Gentrification and Displacement Neighborhood Typology Assessment

What is the Eugene Planning Commission doing about displacement?

Nothing!
Inexplicably, neither the Eugene Planning Division staff, nor the Eugene Planning Commission have bothered to consider the potential for displacement because of the staff’s proposed extreme deregulation of residential zones in response to House Bill 2001 (the so-called “Middle Housing” bill).