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Gentrification Transforming Neighborhoods in Big Texas Cities

Yichen Su

As an influx of new, affluent residents has descended on gentrifying neighborhoods around the centers of Texas’ four largest cities, neighborhood amenities have improved. Meanwhile, increasing housing costs have led some low-income households and at-risk populations to locate in more suburban areas.

Cities across the country have experienced a wave of robust growth, with city centers increasingly attracting college-educated and high-income residents.

The trend began in large metropolitan areas such as New York and Chicago in the 1990s and has spread since the 2000s to more cities, including ones in Texas. The rise in wealth in central cities since the 1990s has surprised many long-term city-dwellers and researchers, given that crime and low incomes had long been associated with the urban core.

This influx of affluent residents is also consequential, helping improve neighborhood amenities, such as restaurants and shops, and leading to an enhanced law enforcement presence. Conversely, it has led to increasing housing costs in these areas, putting central-city living out of reach for some low-income households and at-risk populations.

This process of neighborhood change resulting from an influx of affluent newcomers is commonly known as gentrification.

Gentrification in Texas Cities

While some of the most prominent examples of gentrification have occurred in coastal cities, such as San Francisco and New York, metro areas in Texas have also experienced the phenomenon.[1]

Similar to other large U.S. metros, major Texas metros have experienced the greatest increases in college-educated residents in areas closest to the city center, with lesser changes occurring farther away (Chart 1).[2] San Antonio has also undergone these changes, but they haven’t been as pronounced.

Chart 1

Downloadable chart

Increases in college-educated residents become noticeably weaker for neighborhoods farther from downtown, although the overall change is positive at all distances because the college-educated population has increased throughout major metro areas. Not surprisingly, median income has also surged in centrally located neighborhoods compared with suburban neighborhoods.

In the Texas analysis, we consider the state’s four largest metros: Houston, Dallas, San Antonio and Austin. For purposes of computational simplicity, downtown Dallas is treated as the city center associated with the Dallas–Fort Worth metropolitan area, even though Fort Worth has an important commercial and cultural center that is also experiencing gentrification.

Racial composition in the central cities has also changed considerably since 2000. While the overall non-Hispanic white population share declined in Houston, Dallas, San Antonio and Austin as the population grew more diverse, the proportion of non-Hispanic whites increased in the urban core (Chart 2). The share of Asian residents increased overall, both in the central cities and suburbs of Houston and Dallas and in the suburbs of Austin.

Chart 2

Downloadable chart

To provide a more complete picture of the neighborhood transition from 2000 to 2015, Table 1 shows income changes in the four cities based on quintile rankings of census-tract median income. The 2015 measurement is approximated, drawing on data from the 2013–17 American Community Surveys. On a scale of 1 to 5, the lowest incomes are in the first quintile and the highest in the fifth.[3]

Table 1: Income Quintiles by Distance to Downtown

  Houston Dallas San Antonio Austin
  Panel A. Income quintile: Average and its change
  2000 2015 Chg. 2000 2015 Chg. 2000 2015 Chg. 2000 2015 Chg.
< 3 miles 1.87 3.23 +1.36 1.88 2.81 +0.93 1.31 1.69 +0.38 1.57 2.50 +0.93
3–5 miles 1.98 2.75 +0.77 1.89 2.39 +0.50 1.80 1.76 -0.04 1.65 2.19 +0.54
5–10 miles 2.16 2.42 +0.26 2.09 2.30 +0.21 2.16 2.12 -0.04 2.75 2.67 -0.08
10–20 miles 2.80 2.59 -0.21 2.93 2.66 -0.27 3.84 3.77 -0.07 3.82 3.46 -0.36
> 20 miles 3.79 3.68 -0.11 3.32 3.35 +0.03 3.72 3.87 +0.15 3.29 3.21 -0.07
  Panel B. Percentage of low-income tracts and share gentrified over time
  Percentage of 1st quintile tracts (2000) Percentage of 1st quintile tracts that moved up Percentage of 1st quintile tracts (2000) Percentage of 1st quintile tracts that moved up Percentage of 1st quintile tracts (2000) Percentage of 1st quintile tracts that moved up Percentage of 1st quintile tracts (2000) Percentage of 1st quintile tracts that moved up
< 3 miles 53 44 58 47 79 30 64 50
3–5 miles 54 36 54 24 49 27 62 43
5–10 miles 49 25 48 25 27 24 17 8
10–20 miles 17 16 14 28 3 83 0 N/A
> 20 miles 2 44 14 28 3 0 11 0
NOTE: All census tracts in the four cities are ranked by quintile—from 1 (lowest income) to 5 (highest income)—according to median income levels in 2000 and 2015.
SOURCES: 2000 census; American Community Surveys (2013–17).

In each of the cities, centrally located neighborhoods in 2000 had the lowest median income (Table 1, Panel A).

In Houston, for example, the average income quintile of tracts within three miles of downtown was 1.87 in 2000, compared with 3.79 for tracts farther than 20 miles from downtown. By 2015, the average income quintile of the same tracts within three miles of downtown rose to 3.23, much higher than that of the more distant tracts, except those farther than 20 miles from downtown. Similar changes occurred in Dallas and Austin and, to a lesser degree, in San Antonio.

Table 1, Panel B shows the percentage of census tracts in the lowest income quintile by distance to downtown along with the percentage of those tracts that have become more affluent since 2000. A large fraction of centrally located tracts started out in 2000 as among the poorest within the cities. By 2015, a larger proportion of low-income tracts in the central cities than in the suburbs had moved up.

With a robust inflow of high-income residents into central city locations, one would expect housing demand to increase correspondingly. Yet the rate of increase in housing units in the central cities in general was much slower than the increase in the outskirts, except in central Dallas (Chart 3A). The slower rate may reflect the higher construction and legal costs of adding housing in high-density areas.

Chart 3

Downloadable chart

With the inflow of high-income residents driving strong demand for housing, and slower growth in the housing stock, one would expect centrally located housing prices to rise disproportionately. Indeed, central locations in all four cities saw a large rise in home values (Chart 3B). Rent increases exhibited a similar pattern.

Displacement of At-Risk Residents

Given that high-income and highly educated residents are flocking to central city neighborhoods—and that housing costs are rising in these locations—is there evidence of displacement of low-income residents?

Researchers differ on whether gentrification directly causes the displacement of incumbents. This is mainly because of insufficient detailed data on the migration history of individuals.

However, data analysis of at-risk demographic groups reveals that these groups experienced a population loss in the central cities and strong population growth in the outskirts.

Chart 4 shows population growth rates by distance to downtown for four vulnerable demographic groups that are at risk of displacement: individuals without a college degree, low-income residents (making less than $30,000 annually) and black and Hispanic households. Among all four groups, population growth mainly occurs in the outer suburbs and population decline in the central city locations.

Chart 4

Downloadable chart

Due to inflation and income growth between 2000 and 2015, the low-income population has declined overall (Chart 4, Panel B). But the takeaway is that the decline of this group is much larger in central cities than in non-central locations.

Does the population decline of at-risk groups in central cities mean that gentrification is driving out longtime residents, who then move farther out? Not necessarily. Even in the absence of displacement (i.e., outflow does not increase), a lessened tendency to move in could result in a population decline.

To put it more intuitively, if low-income individuals searching for new locations increasingly pick suburban locations over central city locations, that could lead to a shrinking low-income population in the central cities, even if no low-income residents already living in these areas have been displaced.

Nevertheless, the declining inflow of less-educated, low-income and minority populations into central city locations may be a cause for concern if this means that they must forego access to public transit, social connections and job opportunities, which tend to be more abundant in core locations.

Causes of Gentrification

What has caused high-income and highly educated residents to increasingly seek centrally located neighborhoods? Previously, affluent residents avoided the urban core because of crime fears and a broader lack of amenities.

Some researchers have shown that sharply lower urban crime rates since the 1990s have been a powerful draw.[4]

Others contend that recent generations of college-educated young people have a stronger preference for restaurants and nightlife than their predecessors.[5] Such urban amenities commonly found in central locations of large cities have become a magnet for these new residents.

Long commutes is another reason more affluent individuals have increasingly sought central cities.[6] A disproportionate rise in the value of highly skilled workers’ time since the 1990s increased the costs of commuting and led high-skilled workers to reside in central cities, where high-paying jobs are disproportionately concentrated.

This prompted the development of nearby amenities catering to their tastes, which, in turn, attracted more high-skilled workers who were willing to pay higher housing prices for proximity to these amenities. A recent paper demonstrated a cycle in which the income levels of residents increased, raising the demand for urban luxury amenities and giving rise to still more demand for central city housing.[7]

Impacts of Housing Supply

Regardless of the causes, gentrification will likely continue transforming Texas neighborhoods near urban centers. As more affluent residents move in, more economic opportunities will arise in central city neighborhoods, and amenities and quality of life will improve for local residents. That said, the increasing desirability of these neighborhoods will likely keep driving up housing costs and make central city living increasingly inaccessible to low-income households.

Economists and urban researchers generally agree that increasing the supply of housing in these central city locations is an effective way to minimize rising housing costs and shortages.[8] According to the principle of supply and demand, if housing were abundant enough to keep up with rising demand, rents and house prices could stay relatively low.

Notes
  1. In this article, "city" is used to mean metropolitan area. Four metropolitan areas are considered: Houston, Dallas, San Antonio and Austin. Downtown Dallas is assumed to be the metro center of Dallas–Fort Worth, though historically, Fort Worth has had a freestanding commercial center that has served as a nexus for that portion of the metro area. Because gentrification is concentrated in large cities, only the largest four metro areas are discussed.
  2. Each census tract is assigned a Euclidean distance to the downtown location of the metropolitan area to which it belongs.
  3. The cutoff thresholds for income quintiles differ by city and by year. The income-quintile cutoffs for metro Houston in 2015 are shown for reference: 1st quintile, ($0–$29,646); 2nd quintile, ($29,750–$38,937); 3rd quintile, ($39,067–$48,072); 4th quintile, ($48,357–$64,940); 5th quintile, ($65,750+). The income measure used in the calculation is the median income reported by census tract in the American Community Survey. Dollar gaps between quintiles occur because there are no census tracts with median incomes equal to the omitted values.
  4. See “Has Falling Crime Invited Gentrification?” by Ingrid Gould Ellen, Keren Mertens Horn and Davin Reed, Journal of Housing Economics, forthcoming.
  5. “Urban Revival in America, 2000 to 2010,” by Victor Couture and Jessie Handbury, National Bureau of Economic Research, NBER Working Paper no. 24084, June 2019.
  6. “The Rising Value of Time and the Origin of Urban Gentrification,” by Yichen Su, Federal Reserve Bank of Dallas, Working Paper no. 1913, October 2018, www.dallasfed.org/research/papers.aspx.
  7. “Income Growth and the Distributional Effects of Urban Spatial Sorting,“ by Victor Couture, Cecile Gaubert, Jessie Handbury and Erik Hurst, National Bureau of Economic Research, Working Paper no. 26142, August 2019.
  8. “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco,” by Rebecca Diamond, Timothy McQuade, and Franklin Qian, American Economic Review, vol. 109, no. 9, 2019, pp. 3,365–94. Also see “The Economic Implications of Housing Supply,” by Edward Glaeser and Joseph Gyourko, Journal of Economic Perspectives, vol. 32, no. 1, 2018, pp. 3–30.
About the Author

Yichen Su

Su is a research economist in the Research Department at the Federal Reserve Bank of Dallas.

The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.

Southwest Economy is published quarterly by the Federal Reserve Bank of Dallas. The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.

Articles may be reprinted on the condition that the source is credited to the Federal Reserve Bank of Dallas.

Full publication is available online: https://www.dallasfed.org/research/swe/2019/swe1904.

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