Rent-gap theory

The rent-gap theory was developed in 1979 by the geographer Neil Smith as an economic explanation for the process of gentrification. It describes the disparity between the current rental income of a property and the potentially achievable rental income. Only from this difference arises the interest of investors, to renovate a particular object (to entire neighborhoods), resulting in an increase in rents and also the value of the property.[1]

Investment in the property market will therefore only be made if a rent gap exists. Thus, it is contrary to other explanations for gentrification related to cultural and consumption preferences and housing preferences. The rent-gap theory is a purely economic approach.

While the processes described with the rent-gap theory can be observed especially in North America , the theory is being adapted for the global south, including Chile, Lebanon, and Korea[2].


Application

The theory has been used in agent-based modelling of the effects of gentrification on real estate markets [3].

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References
  1. The Guardian, https://www.theguardian.com/environment/2012/oct/23/neil-smith
  2. Krijnen, Marieke (2018-08-09). "Beirut and the creation of the rent gap". Urban Geography. 39 (7): 1041–1059. doi:10.1080/02723638.2018.1433925. ISSN 0272-3638.
  3. Picascia, Stefano; Yorke-Smith, Neil (2017). Namazi-Rad, Mohammad-Reza; Padgham, Lin; Perez, Pascal; Nagel, Kai; Bazzan, Ana (eds.). "Towards an Agent-Based Simulation of Housing in Urban Beirut". Agent Based Modelling of Urban Systems. Lecture Notes in Computer Science. Springer International Publishing. 10051: 3–20. doi:10.1007/978-3-319-51957-9_1. ISBN 9783319519579.
  • Jürgen Friedrichs, Robert Kecskes, Michael Wagner, Christof Wolf: Applied Sociology . Publisher of Social Science, Wiesbaden 2004, ISBN 3-8100-4117-3, page 26 ff
  • Gentrification and the rent gap. N Smith - Annals of the Association of American Geographers, 1987
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