Everybody needs good neighbours

Are there such things as ‘neighbourhood problems’ and can they ever be solved given current levels of income inequality?

A recent report from the Brookings Institute argues that regulation of the housing market is the best way to improve the schooling that poorer children get. They propose that lower income families are supported to live near excellent schools.

This is an interesting and provocative argument. Most discussions on education assumes that individual schools can be improved and that this will help children from low income families. In fact, improved schools are just as likely to lead to increased house prices and low income families being prices out of the neighborhood as middle class families move in. This in turn can lead to the schools continuing to improve since middle class people are better at accessing and using public services, and so the cycle of gentrification and displacement continues.

This same pattern can be seen more broadly in approaches to improving neighbourhoods. Just last week it was announced that the local government wanted to ‘transform’ 6 neighbourhoods in Prince George’s County. Can this possibly work? And by work, I mean, can the grievances of the people who currently live in the neighbourhood by resolved without them being priced out of the neighbourhood? Greivances such as crime, poor quality enviroment, lack of well paying jobs, health hazards and so on.

I had a deeper look at the data on this very question for London. There is information available in London down to the neighbourhood level on; average house prices, the percentage of people from different social grades and the amount of neighbourhood problems (using what is known as the Index of Multiple Deprivation). I found that there are very strong correlations between these different factors.

For example, here is a graph showing the connection between the average house price of a neighbourhood and the percentage of people in that neighbourhood who are in social grades A or B (upper and middle class) using the NRS social grading system.

As you can see, the higher the percentage of people from grades A or B in a neighbourhood the higher the average house price. The correlation coefficient is 0.65 which means there is a strong correlation between these two factors. According to my calculations, in London an extra percentage point of people from grads A or B is associated with an increase in house prices of nearly 11,000 pounds.

The exact opposite is true of the percentage of people from grades D or E (i.e. low skilled or on government benefits). The higher the percentage of people from grades D or E in a given neighbourhood the lower the house price. An extra percentage point of people from grades D or E is associated with a decrease in house prices of nearly 8,000 pounds.

We see a similarly strong relationship when we compare neighbourhood populations with neighbourhood problems. This graph show the relationship between neighbourhood problems and the percentage of people who are in grades A or B.

A larger the percentage of ABs in a given neighbourhood means fewer neighbourhood problems. Inversly, the larger the percentage of DEs in a given neighbourhood the greater the likelihood is that we will find neighbourhood problems. The correlation here is a whopping 0.83.

All this adds up to the fact that, unsurprisingly, areas with higher house prices have fewer neighbourhood problems.

There are some dramatic conclusions that we can draw from this. Imagine a neighbourhood that has mutliple problems and a very fed up population of mostly low skilled workers or people who disabled and unable to work. The neighbourhood has lots of crime, poor quality physical enviroment, a lack of decent jobs and health hazzards galore.

Now imagine that through some miracle a government programme, such as the one mentioned earlier from Prince George’s County, was able to start combating the levels of crime, improving the public realm, getting people healthy and bringing new and good jobs to the area. What would happen?

I would bet that the area would become more attractive, wealthier people would move in, house prices and rents would rise and those same residents that were so fed up with all the old neighbourhood problems would not get a chance to enjoy their improving area. Instead they would be priced out of the area and have to move to another neighbourhood, possibly one that was just as bad as the one they started off in.

What should we do in the face of this problem? I would love to hear your thoughts. Please put them in the comments below and I will return to the problem next week.