A mas model based on Smith’s RGT

A mas model based on Smith’s RGT

8th Design and Decision Support System in Architecture and urban Planning

Heeze, 4-7 July 2006

Lidia DiappiDpt. Architecture and Planning

Politecnico di Milano

A mas model based on Smith’s RGT

• A simply preliminary model of Gentrification is presented

• The model is based on the Smith’s Rent Gap Theory

• A Multi Agent simulation approach is adopted to model the Gentrification spread in Milan

• Self organized Criticality (SOC) emerges.

A mas model based on Smith’s RGT

Almost every historic city exhibits the Gentrification phenomenon: certain run-down inner-city neighbourhoods at some point suddenly ‘take off’, showing signs of regeneration, spontaneous rehabilitation of buildings and economic revival.

The old community is replaced by a new one, which is young, cultured and affluent, and able to pay rapidly rising real estate prices .

The scale of the phenomenon is the “neighbourhood”, an intermediate scale between a few blocks and statistical urban areas (in Italy).

A mas model based on Smith’s RGT

The classical LRT (Ricardo, Von Thünen, Marshall and Alonso) explains land value in terms of “location” and accessibility.

But many cities show decayed neighbourhoods in the city centre.

Empirical evidences against LRT:

•High “Position value” and “accessibility to the centre” do not always mean “high rent” (i.e. the pioneering Hoyt’s analysis on land rent valleys)

•Land rent is affected by land use;

•Land rent depends on spatial context and scale effects.

Gentrification and Land Rent Theory

A mas model based on Smith’s RGT

The spatial influence of a degradated block on the neighbouring rents

Real estate values near the “Inganni” social

housing settlement in Milan

A mas model based on Smith’s RGT

Gentrification is “..a demand pressure of the suburban middle and upper class which want come

back to the city” ( Ley, 1996),

Changes in lifestyles…”decrease the relative desiderability of single family, suburban homes”

(Lipton,1977)

The “demand side” explanations of Gentrification

A mas model based on Smith’s RGT

[Gentrification is] “.. a back to the city movement by capital, not people”

Smith identifies a crucial nexus between property value and land value.

Smith argues that the production of “gentrifiable areas“ is explained in terms on building cycle in

urban neighbourhoods.

The Neil Smith’s “Supply Side” approach

price

house value potential groundrent

capitalized ground rent

rent gap

Time (from construction date)

Dol

lars

The devalorisation cycle and the rise of the rent gap

N. Smith , 1995, The new urban frontier, Routledge, p. 71,

Capitalized ground Rent is “the actual quantity of ground rent that is appropriate by the landowner, given the present land use” (Smith, 1979, p. 543)

Potential ground rent is the rent which might be realized , given the site location, under the “highest and best use”

House value is the construction cost minus the depreciation due to wear and tear

Price is the sum of house value plus the capitalized ground rent

Rent gap is the disparity between the potential ground rent and the actual ground rent capitalized under the present land use

WIDE RENT GAP

REDEVELOPMENT

GENTRIFICATION

NEIGHBOURHOODTENDENCY TORENTAL TENUREUNDERMAINTENANCEOUT FLOWOF CAPITALS INHABITANTS

FILTERING DOWN

REDLINING AND ABANDONMENT

INITIAL DEPRECIATION(WEAR AND TEAR

OBSOLESCENCE IN STYLE,NEED OF MAJOR REPAIRS)

LANDLORDS ANDHOMEOWNERSSELL OUT AND

SEEK NEW HOMES

Capital depreciation in the inner city

1

2

3

4

5

6

SOCIAL SEGREGATION

DISINVESTMENTSBY LANDLORDS ANDFINANCIALINSTITUTIONS

A mas model based on Smith’s RGT

In the first stage home owners act individually,

whereas

in the following five stages

the process is brought about by the collective action at the neighbourhood

scale.

The relevance of the neighbourhood

A mas model based on Smith’s RGT

The CA MAS model

A mas model based on Smith’s RGT

AGENTS DECISIONS INFORMATION

Landlords Invest / undermaintain Local

HomeownersInvest and stay / undermaintain and let out

Local

Tenants Stay / move Local/Global

Developers Buy and invest/ wait Global

A mas model based on Smith’s RGT

1. Every building is undergoing a continuous decay process, which drops the rent with a constant annual rate λ.

2. Landlords and homeowners decide to invest only if the neighbouring rent is higher than the expected rent after rehabilitation. After rehabilitation: Capitalized rent in i= Neighbouring rent

The transition rules

A mas model based on Smith’s RGT

3. Investors perceive the Rent Gap between potential rent and local capitalized rent. Given residual capital availability if PR(i) –CR(i)> orPR(i)/CR(i) > investors choose the locations where to invest among cells showing the highest profitable Rent Gap. After rehabilitation:CR(i,t+1)=PR(i,t)

Transition rules

The Milan case study

• In the last thirty years the housing market in Milan has experienced periodical “bubbles”of real estate market.

• In the same period the city, as many other European cities, had lost most population, approximately 500.000 inhabitants (37%)

• The historical centre is an highly speculative market, where the unsatisfied demand of investments pushes up the prices.The population turn over concerns high income families.

• In the middle peripheral areas the decay process in Milan has been contrasted by the massive renovation process promoted by fiscal incentives and new external demand.

• Population turnover mainly concerns new emerging professionals in design, fashion, communication which deplace middle income families in the suburbs.

• Milan has shown recursive waves of Gentrification affecting central and semicentral rings

Other parameters:

Annual Decay rate λ = 0,02 Available capital = 100.000

Construction cost for each building = 1.000Neighbourhood radius = 10 cells

Capitalised rent ranges from 1.500 to 7.000

Parameters setting

A mas model based on Smith’s RGT

Potential rent is assumed to be a conic surface which interpolates the highest rent values for each ring

Parameters setting

y = 6396e-0.028x

R2 = 0.993

0

1000

2000

3000

4000

5000

6000

7000

0 10 20 30 40 50distance from the center

ca

pit

aliz

ed

re

nt

A mas model based on Smith’s RGT

Real estate Zoning system : 67 zones identified by Borsino Immobiliare of Camera di Commercio di Milano

The data base supplies mean transaction values (sales) for each zone in the period (every 6 months)for different land uses.These values for residence are the Capitalised rents at time t

1993

Initial state

Maintenance statusFor each zone has been identified a distribution of maintenance

status (Very good, good, bad, very bad) on the base of Census Data 1991. The allocation of the status to each cell has been

implemented through a Monte Carlo procedure.

34.0 - 35.0

33.0 - 34.0

32.0 - 33.0

31.0 - 32.0

30.0 - 31.0

29.0 - 30.0

28.0 - 29.0

27.0 - 28.0

26.0 - 27.0

25.0 - 26.0

24.0 - 25.0

Stato iniziale

0

21-3-1 10

21-3-1 20

21-3-1 30

21-3-1 40

21-3-1 50

21-3-1 60

21-3-1 70

10 20 30

9080706050

40

100

160150140130120110

170 180 190 200

0

21-3-1

A mas model based on Smith’s RGT

A systematic exploration of the model is already underway, concentrating on the relationships between model parameters and the way different values lead to different spatial pattern.The Smith’s theory has provided a sound starting point for a MAS model.The model was able to give an approximate description of the spatial pattern of Gentrification and their recursive waves. From numerical simulations emerges the key role of potential rent and the way by which rent gap measure influences the evolution of the market.In order to build a more realistic scenario both PR and RG should articulated at local level taking in to consideration local values (historical buildings, accessibility, housing stock level, parks, etc.).Necessity to measure and investigate the elasticity of RG vs. the dynamics of the local R.E. market.

Concluding remarks