High-end Housing and Gentrification: Evidence from a San Francisco Lottery

18.03.2024 14:15 – 15:30

INSTITUTE OF ECONOMICS AND ECONOMETRICS SEMINAR

(jointly with: Patrick Kennedy)

Abstract:

In major cities throughout the United States and around the world, contentious debates over housing policy frequently focus on the extent to which high-end housing developments are a cause of gentrification. In this paper, we contribute novel empirical evidence to this debate by studying a unique lottery in the city of San Francisco that allowed a limited number of property owners to convert their buildings into high-end condominiums. Relying solely on exogenous variation from the lottery, we study the long-run effects of these developments on local home prices, demographics, and new business entry. Compared to losing lottery applicants, winners are vastly more likely to invest in alterations and renovations in their properties, to see their property values increase, to rent their properties to new tenants, and to sell them to new owners. The home values of adjacent buildings also increase. At the neighborhood level, conversions lead to higher resident incomes, home values, and rental prices, while also increasing the shares of the population that are White, young, college-educated, and working in information and professional services. Over time, new establishments specializing in education and professional services enter the neighborhood. We discuss economic interpretations of these results in the broader context of a local housing market where demand is high and supply is sharply constrained.

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