Gentrification and the Real Estate Market: What Can We Learn from the Rent Gap Theory?

Abstract

Real estate plays a central role in the constitution of assets, which it helps to differentiate according to several dimensions: value and number of properties owned, rental income generated, and so on. This chapter examines how the rent gap theory was a reaction to the irruption of gentrification in the 1970s and 1980s. The rent gap hypothesis as presented by Smith remains very theoretical – he himself never really tested it and left this work to his followers and detractors. Ley, Clark and Badcock were the first to reflect on the operationalization of the rent gap hypothesis. The increased supply of capital for real estate and the urban environment in general makes it possible to reconsider in a new light one of the results most frequently drawn from rent gap tests: the relative roles of the capitalized ground rent and the potential ground rent in the creation of rent gaps.

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