I know a landlord who trades on gentrification. This is how he does it.
My acquaintance looks for rent-controlled apartment buildings for sale in “transitional neighborhoods.” He generally seeks out older buildings that have not been refurbished in a long time. If the price is right, he will buy it with the intention of making cash offers to existing tenets to leave. Generally speaking, these will be working class people for whom a $20,000 or $30,000 cash offer to move somewhere else is worthwhile. In some cases, his plan requires that everyone in the building leaves. But, with cash offers flying to lots of people, this can generate tremendous pressure from neighbors for everyone to agree to leave. It’s rare that one or a handful of holdouts will maintain that stance for long.
Once existing tenets have exited and their rent control is no longer in effect, he can proceed to update the units. He replaces or refurbishes everything. The units go from 1970s styling and finishes to looking like something out of an Ikea catalogue. He can now start looking for new renters, who in many cases will not be under the same rent control that the building had under its previous owners. Even if it is, he can start the new rents at very high prices. He does this by appealing to the aesthetic sensibilities of the professional class and, of course, making sure all of his renters are members of said professional class. He can rent strictly to people holding advanced degrees (though he said he absolutely will not rent to lawyers). He can avoid renting to families.
By renting to young professionals, he can rely on the turnover rate of the units being very high, so that even if the building remains under a rent control paradigm, the renters are likely to leave before it becomes a strain to him as a landlord. And this type of screening does not run afoul of any anti-discrimination laws — looking for advanced degree holders who don’t have kids — even though it results in demographic shifts to neighborhoods. This is plainly evident in any city in the United States where rent control and gentrification are in tension. It’s even worse in instances where units are shifted away from serving as residences to serving as locations for short-term stays. Many of us have seen situations where half the “tenets” in a building are there on an Air BnB stay.
At the end of this process, he can decide whether to retain the building, or try to sell it. We’ve all heard of flipping houses, but this is how you flip a rent-controlled apartment building.
So how does this relate to UBI?
To understand how UBI can combat this and serve as a buffer against gentrification, we need look no further than the lynchpin in this entire process: the cash offer to vacate. If we consider a UBI such as the Freedom Dividend that has been proposed by Andrew Yang, where each adult US citizen receives $1,000/month cash, then we see quite clearly that a cash offer has to be larger to have the same effect on people living in rent-controlled units that it does now. It is much easier to pay someone $20,000 to leave an affordable unit and move elsewhere if they don’t already have $1,000/month per adult living in the unit. In fact, it may be impossible for landlords to bribe people to leave at a price that makes sense for them to pay.
This type of policy could result in a strong pushback against gentrification. The description I have given of the gentrification process at the level of individual landlords, buildings, and renters is not isolated. It is the same story I have heard multiple times from multiple landlords. Everyone wants to rent to 25-year-old single doctors. Nobody is clamoring to rent strictly to working class families. Ideally, stronger rent control laws and better public policy in general could shift these incentives, but what realistic pathways to that outcome can we hope to achieve in our lifetimes? How do we help neighborhoods where communities are being uprooted and fragmented right now? There are many answers, but it is certainly the case that people with a reliable cashflow are harder to push around, economically, than people who are desperate for a quick cash injection.
Some doubters of UBI speculate that it will cause rents to go up. In the above case, it would keep rent control locked in place by making it hard for landlords to bribe tenets to leave. There is a threshold where landlords such as the one I know cannot afford to implement this cash buyout tactic, and it’s not a very high threshold in his case. He is obviously a capitalist, but he is not a hyper-wealthy capitalist who owns dozens or hundreds of buildings. But there are dozens or hundreds of people like him in every major city in the United States, some of which have rent control policies that they can game this way.
The one class of people Andrew Yang’s Freedom Dividend does not directly help in this situation is immigrants, since the “U” in his version of the UBI isn’t really universal, but only applies to US citizens. This could be especially difficult for immigrant families. To be fair to him, his platform also includes an expedited path to citizenship so that immigrants, documented or not, can become citizens faster and more reliably, but situations such as this (and many others) could make it a hard road for people immigrating to the United States. UBI could offer immigrant families indirect protection in cases where an entire building has to be vacated, though, as one or two units with residents who are United States citizens could present a sufficient buffer to make this apartment-flipping process untenable for a landlord.
Ultimately, this gentrification gamesmanship that investors and landlords employ is a reminder that things aren’t always the way we assume. Many people on the political left who are opposed to gentrification and also to UBI have never been in this situation. It’s very easy to tell people we need to resist gentrification, but it’s very hard to tell a family who could use financial help that they should not take a cash offer to move across town. You had better show up with a counteroffer that is more than just words, especially if you’re also telling this family that you don’t want them to receive $1,000/month for every adult US citizen among them.