I’m not saying this is a good thing or that it is necessarily true, but it appears some people are confusing “this sucks for poor people” (which it does) with “this increases income inequality” (which it may not).
It’s important to distinguish gentrification from zoning inequality in this context. While the price rises with gentrification so does quality – and while that may not be at parity with the dollar for poorer people it is still important. Let’s stipulate that ridiculous rents in San Francisco are primarily a result of extreme zoning laws and red tape.Then there are two cases we must consider, of inequality in and around SF and inequality nationwide. Dexterous definition becomes important.
On the one hand, by raw income, inequality almost certainly decreases as people are priced out of the bottom but not the top. The second-order effects of gentrification might modify this somewhat but in any case would be a redistribution within the upper middle class. And whatever metric you use – top n%/bottom n%, gini, mean/median, etc. – removing the bottom 10% will reduce the inequality except perhaps in pathological cases.
And yet it is the case that most residents get some sort of consumer surplus from living in SF and adjust by paying higher rents, diminishing consumption of other items. There are also many moving parts here. Of first-order importance is the relative adjustment of the rich vs. poor. But there is also the question of which goods and services realize lower demand, and who that affects from both a demand and supply side.
There is the undeniable cost of dislocation but so long as housing regulations don’t become progressively harsher this is one-off and regardless not something economists should be concerned about. If having artists is important, the city can easily include an artist tax credit in its next budget. One would need to do a lot more work than simply acknowledge extreme rents to conclude that rents increase inequality within San Francisco.
That leaves the question of nationwide inequality. Surely the absence of affordable housing should increase inequality versus the counterfactual, right? Maybe. In effect pretty much everyone, including the rich tech family that’s paying $10,000 for a 2 b/r, suffers from high prices.
The only beneficiaries are those who have a net long position in property. The simplest way to explain this would be that if I am contractually sworn to be a taxi driver, I observe no increase in wealth if the price of my medallion increases since I am always net short – but I would if I lent an extra medallion to a friend.
It’s clear that poor people are definitely short, middle class people maybe flat, and a sliver of rich people long the housing market. Home ownership rate in SF is around 35%. That means about 65% of people are somewhere short, and of the 35% a whopping majority will be flat.
There is also the point that the “original short” of a tech employee is much higher than a hair stylist. To work at Facebook you need to live around the extremely expensive region. To work as a stylist you can work anywhere. A stylist obviously prefers not to move, but can do so with less penalty to earnings than a top software engineer.
There are other effects too. San Francisco is obviously a high-paying region for relatively unskilled, service jobs. More affordable housing would let more people indulge in this market. But it’s not clear which way the net effect runs, in particular home prices which command over 50% of the income of such individuals has a strong pass through into wage rate demanded.
Important considerations motivated by research Raj Chetty etc. are access to public transportation and commutability of a city. That is within-city inequality might be preferred to across-city inequality, and ceteris paribus more zoning laws encourage the latter.
It might well be the case that income inequality is increased by zoning regulations but the argument needs more evidence than dislocation and expensive rents. However without a doubt this sucks for poor people and zoning regulations should be abolished immediately on simply that account.