A mas model based on Smiths RGT

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A mas model based on Smiths RGT
Lidia Diappi Dpt. Architecture and
Planning Politecnico di Milano

• 8th Design and Decision Support System in
  Architecture and urban Planning
• Heeze, 4-7 July 2006

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A mas model based on Smiths RGT

• A simply preliminary model of Gentrification is
  presented
• The model is based on the Smiths Rent Gap Theory
• A Multi Agent simulation approach is adopted to
  model the Gentrification spread in Milan
• Self organized Criticality (SOC) emerges.

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A mas model based on Smiths 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).

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A mas model based on Smiths RGT
Gentrification and Land Rent Theory

• 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 Hoyts analysis on land rent valleys)
• Land rent is affected by land use
• Land rent depends on spatial context and scale
  effects.

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A mas model based on Smiths RGT

• The spatial influence of a degradated block on
  the neighbouring rents
• Real estate values near the Inganni social
  housing settlement in Milan

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A mas model based on Smiths RGT
The demand side explanations of Gentrification

• Gentrification is ..a demand pressure of the
  suburban middle and upper class which want come
  back to the city
• ( Ley, 1996),
• Changes in lifestylesdecrease the relative
  desiderability of single family, suburban homes
  (Lipton,1977)

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A mas model based on Smiths RGT
The Neil Smiths Supply Side approach

• Gentrification is .. a back to the city
  movement by capital, not peopleSmith
  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.

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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
Dollars
Time (from construction date)
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Capital depreciation in the inner city
REDLINING AND ABANDONMENT
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WIDE RENT GAP REDEVELOPMENT GENTRIFICATION
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SOCIAL SEGREGATION DISINVESTMENTS BY LANDLORDS
AND FINANCIAL INSTITUTIONS
INITIAL DEPRECIATION (WEAR AND TEAR OBSOLESCENCE
IN STYLE, NEED OF MAJOR REPAIRS)
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NEIGHBOURHOOD TENDENCY TO RENTAL
TENURE UNDERMAINTENANCE OUT FLOW OF CAPITALS
INHABITANTS FILTERING DOWN
LANDLORDS AND HOMEOWNERS SELL OUT AND SEEK NEW
HOMES
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A mas model based on Smiths RGT
The relevance of the neighbourhood

• 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.

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A mas model based on Smiths RGT

• The CA MAS model

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A mas model based on Smiths RGT
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A mas model based on Smiths RGT
The transition rules

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

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A mas model based on Smiths RGT
Transition rules

• Investors perceive the Rent Gap between potential
  rent and local capitalized rent. Given residual
  capital availability if
• PR(i) CR(i)gt ? or
• PR(i)/CR(i) gt ?
• investors choose the locations where to invest
  among cells showing the highest profitable Rent
  Gap.
• After rehabilitation
• CR(i,t1)PR(i,t)

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The Milan case study

• In the last thirty years the housing market in
  Milan has experienced periodical bubblesof 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

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A mas model based on Smiths RGT
Parameters setting
Other parameters Annual Decay rate ? 0,02
Available capital 100.000 Construction cost
for each building 1.000 Neighbourhood
radius 10 cells Capitalised rent ranges
from 1.500 to 7.000
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A mas model based on Smiths RGT
Parameters setting
Potential rent is assumed to be a conic surface
which interpolates the highest rent values for
each ring
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Initial state
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
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Maintenance status For 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.
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Stato iniziale
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A mas model based on Smiths RGT
Concluding remarks

• 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 Smiths 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.