Originally published in the Front Range Voluntaryist, Issue #11, January 2018
In late November 2017, social media went on fire and protests ensued as Denver area residents expressed their frustration and discontent with a coffee shop that had placed, stupid as it was, a pro-gentrification sign in front of their business. As quickly as the flair up started, it has fizzled away from the media blitz that included coverage from news outlets as far away as the UK publication The Guardian. Many at the protests decried the sign, which stated, “Happily Gentrifying the Neighborhood Since 2014,” as disgraceful and disrespectful to the local residents and businesses.
The outrage over the sign quickly steamrolled into a more general conversation about gentrification and its relationship to changing neighborhood dynamics and a community lost. One protest organizer told the crowd that “…he and other community members from across Denver will be forming a coalition to ‘make sure we are putting a curb to gentrification within our entire city,’ and emphasized that ‘the question now is how this business and others — citizens and lawmakers — will respond to continued concern regarding increasingly inaccessible Denver neighborhoods.’“ There is no question of the inflated nature of the Denver housing and rental market. If there was ever a good example of a market that is ripe for a reset, it is Denver’s housing market.
Some of the protesters have broached the subject of rent control and have called for the city to add additional affordable housing units in the neighborhoods surrounding the coffee shop, among other areas of Denver as well. But, if we are to be concerned with affordable housing, we must be wary of the reality of any attempts at rent control. Let’s start with a mental exercise: take a statement and replace “I” with government. Rent control is: a) I get to determine what my neighbor’s property is worth, or b) government gets to determine what my neighbor’s property is worth. If you don’t agree with with the “I” statement, why would it be acceptable for government to do the same?
Taking a deeper dive into the concept of rent control, economist Robert P. Murphy has noted that, “The most obvious problem is that rent control immediately leads to a shortage of apartments, meaning that there are potential tenants who would love to move into a new place at the going (rent-controlled) rate, but they can’t find any vacancies. At a lower rental price, more tenants will try to rent apartment units, and at a higher rental price, landlords will try to rent out more apartment units. These two claims are specific instances of the law of demand and law of supply, respectively.” Continuing on with regards to the long-term viability of rent controlled neighborhoods, “In the long run, a permanent policy of rent control restricts the construction of new apartment buildings, because potential investors realize that their revenues on such projects will be artificially capped.” Other types of investments might be more attractive to developers which, in turn, leads to housing shortages, a problem rent control sought to alleviate in the first place.
“In the long run, a permanent policy of rent control restricts the construction of new apartment buildings, because potential investors realize that their revenues on such projects will be artificially capped.”
-Robert P. Murphy
Another negative aspect of rent control is that there is a decreased incentive for the owner to upkeep the building when there is an oversupply of potential renters. The incentive to work hard to keep tenants happy is removed. There is no motivation to “install lights, cameras, buzz-in gates, a guard, or other (costly) measures to protect his customers,” as Murphy points out. Finally, there is no incentive to work with a tenant who has fallen behind on rent payments due to the backlog of potential tenants who are ready to move in. Using government to keep things artificially low is one and the same coin as using government to keep things artificially high. That is, for instance, using government to upgrade roads and add sidewalks, etc. will thereby incentivize construction in an area that otherwise would not have been developed. This represents an undue influence on letting the market determine where improvements should occur.
I used to rent a cheap studio apartment in the Uptown area, just East of Downtown Denver. I can’t imagine what that place is renting out for now-a-days. It had a really nice view of another apartment building five feet away; my window looked out onto a brick wall. The building is still there and I’m sure someone is easily paying twice as much as what I paid for rent. One thing I can tell you is that there is no way I would pay to live there now, given the current rental climate. My early housing options were a continual effort of finding the cheapest place I could live. I slept on a mattress on the floor, mainly because it was easier to move every year. What’s the point of this mea-culpa? I lived a very transitory lifestyle for a number of years, but I am sympathetic to those who have lived in a place their whole lives and who may have been the victims of nefarious schemes to get them out of their house. If you own it, there should be no governmental coercive mechanism in place to remove you from it. By the same token, if an investor buys a property there should be no mechanism in place to force them to do anything against their wishes.
It bears emphasizing that there has been a concerted effort at shaping the downtown and surrounding neighborhoods of Denver for many years and there appears to be a mental block, in that so many seem to be eager to invoke government to solve a problem that government helped create in the first place. The areas abutting and including the location of the Ink! Coffee shop (Five Points and Whittier neighborhoods) certainly have an African American history, but as with most things history, there are multiple factors at play. It wasn’t as if one day gentrification took over and everyone was expelled from the community via the wicked hand of a single business. Decline and flight from these neighborhoods had been occurring outside of and well before any concerted gentrification efforts for a multitude of reasons and there is a sordid history of racism in the Five Points/Whittier neighborhoods that is undeniable. As summed up by the city’s own Library Resources website: “Ironically, the slow, bitter end to the segregation of Denver’s neighborhoods forever altered Five Points as the seat of the city’s African American community. With the opportunity to acquire homes in other neighborhoods, most notably the immediately adjacent precincts of Park Hill, residents began to move. And with that movement, the populations of Five Points and Whittier went into precipitous decline. In 1959, the population of Five Points was 32,000; by 1974, it had declined to 8,700. Similarly, Whittier’s population was more than halved between 1950 and 1990, declining from 9,160 to 4,350 people.” Inherently, those kind of numbers translate into a lot of vacant properties, which, in turn, translate into lower rent prices and lower property values across the board. It is very possible that this neighborhood would be seen as a viable location for development given its proximity to downtown outside of any concerted governmental attempts at development, especially given the ever filling up number of downtown housing units. It’s far less capital intensive to build a four story rental property than a high rise building downtown and with an ever increasing Denver population it would seem to be a good fit. Surely, there are a number of reasons that people have moved to Denver; many fleeing from overt taxes and overly regulated jurisdictions in other parts of the country. But, recently, there are reports that people are moving to other areas in the US because Denver is too costly and over-regulated. What is the common theme? Too much government interference. Of course, government is always for the good of the people, right?
Using the 1990’s as a jumping off point, let’s revisit one of the government interventions into the redevelopment of the neighborhoods surrounding Ink! Coffee: the opening of the Central Line Light Rail in 1994. Funded in much the same way as all the recent seven part, $937 million, massive bond packages were passed, that is, with a continuation of an existing tax structure, so the politicians can say, look see – we didn’t raise taxes on you! The desire to promote growth in the areas adjacent to downtown has been a long time in the works. The stated goals of the RTD (Regional Transportation District) light rail projects were to reduce traffic, increase commuting options and to use the RTD stations as magnets for development. Former RTD general manager Cal Marsella summed it up: “If we expect to grow intelligently, we know we have to make the right investments, and that’s what really motivated this program. This is a business investment this community is making to position ourselves for the future so people can get to work, get to school, get to events.” You see, it’s for the good of the people! (Sound familiar?) It’s also determining how and where investment will occur, completely outside of any business risk-reward pattern due to its reliance on public funding.
Let’s stop for a brief bit of history, for we have had street rail services tied up with development in Denver before. Some of the oldest neighborhoods in Denver were served by a combination of cable cars and electric rail cars. Most notably Elyria (North-East of Five Points), City Park (adjacent to Five Points), and Berkeley/Highlands (two recent residential hot-spots North-West of downtown)and University Park (near present day Denver University). Three companies originally ran a number of streetcar surface rails and over several years of government negotiation, backroom dealings, franchise litigation (one company held an exclusive horse railroad franchise, another classic government intervention benefiting one company over another) and good old fashioned competition; the three companies wound up generally as one Denver Tramway System. The public/private nature of the Tramway System ultimately did it in for a multitude of reasons including perpetual arguments over fixed fares and legal battles over franchise contracts with the city. With years of neglected infrastructure and an inability to increase fares, the pre-existing rail system fell into disrepair and ultimately folded. Certainly, that is a quick summary, but the point is master planning and transportation oriented development is nothing new in Denver, specifically in the neighborhoods that surround the Ink! Coffee shop. For more on this topic, check out the book Riding Denver’s Rails: A Mile High Streetcar History. The heart of the system revolved around the former stockyards, trainyards and downtown Denver and included a few spurs out to what we would call suburbs of their time. No doubt a somewhat of a chicken versus egg argument: were the early rail lines put in to provide a needed service, or generate development in certain areas of town? It seems more of the latter as land speculators not served by existing railways believed that they needed to add their own street railway service to get better value from their real estate. No problems there, right? A private company building a rail line sounds great, but this created problems due to the franchise agreements that were already in place with the city. What if there were no government sponsored interferences relating to franchise agreements, how would that have affected development in Denver? Pull up an old map of the routes and note the similarity to where the current central light rail line goes now. It was a good idea in the past, then a bad idea, and now, believe it or not, it’s a good idea again. What will it be next?
Continuing on, let’s get out a map of Denver and chart out the following current government interventions in the areas directly in the shadow of downtown, which include the National Western Stock Show Redevelopment, Brighton Boulevard redevelopment, RINO (River North) redevelopment, Central I-70 reconstruction, City Park Golf Course renovation, Colfax Corridor upgrades, 17th Avenue Corridor upgrades, Union Station RTD redevelopment, Civic Center Park RTD redevelopment, former Stapleton airport redevelopment. Hell, even go back to the 1980’s 16th Street Mall upgrade (also set for a new “upgrade”), the LODO (Lower Downtown) redevelopment and the addition of Coors Field. Add all that up and you have some serious economic intervention into the development of every area surrounding the Five Points/Whittier neighborhoods. Similar instances like this can be seen in countless cities across the country. As business see the opportunity, they seek to capitalize since there is not as much risk with all the incentives offered via economic development packages and the physical infrastructure improvements occurring in the neighborhood. If there is no undue intervention, it is possible that investors would not necessarily seek to develop in some areas were it not for an incentivized process. That being said, undoubtedly, amidst all the redevelopment dollars floating around, there have been some outrageous insider dealings to “encourage” developers to invest, zoning favors pulled, friendly building department review boards, concessions made and individual property rights have been trampled upon. With the insane amount of money floating around, the little guys will be ignored. This should make it patently clear why ceding power will ultimately come back to haunt you. You have no recourse. Sure, go ahead and vote the current Mayor out of office, government will roll on.
The anger directed as Ink! Coffee is real. The sign became the catalyst. There are many that have been left out at the hand of government induced development. But how many in Five Points/Whittier have ever voted to decrease, limit, or discourage the power that government wields? The message seems to be to blame Ink! Coffee, a 2,000 SF storefront and a very small player in the greater gentrification debate. The anger is real. By all means protest in front their business, create a social media buzz, bring to light strong arm tactics used on unsuspecting home owners, band together and voice your opinion. But don’t give more power to government by invoking rent control or demanding community centers be built. Don’t fall into the “it’s okay to spend tax money so long as it is something that I am happy with,” mentality that so often occurs in politics from the national on down to the local level. Why not blame the Colorado Rockies? Why not blame RTD? Why not blame government. Why not blame voters who continually vote to give more power to government? Why not blame the taxes that fund these redevelopment efforts. It’s much easier to mock someone who proclaims “Taxation is Theft,” because that guy is a whacko. You can’t have it both ways, you can’t vote every damn election to accede more power and tacit authority to government to regulate business, take care of the poor, advocate for “economic development,” provide transportation, keep us safe from terrorism, educate our masses and any other of the multitude of “services” the government provides and then expect them to limit themselves?? This is a vicious cycle, start anywhere: ask government for help, neighborhood improves, rent costs rise, ask government to control rent prices, investors flee with profits arbitrarily capped, neighborhood declines, ask government for help, and on and on. And what happens when the tax base dries up? Think back to the housing crash in 2008; not one year before, Denver voters passed a massive bond package that relied upon a booming housing sector. Who do you think footed the bill when property taxes tanked, did government decrease spending? Did government adjust? You certainly had to. The problem isn’t what government should do, the problem is government. How easily we forget…and history repeats itself.
