Rent-gap theory

The rent-gap theory was developed in 1979 by the geographer Neil Smith as an economic explanation for the process of gentrification. It describes the disparity between the current rental income of a property and the potentially achievable rental income. From this difference arises the interest of investors to renovate blocks or entire neighborhoods, resulting in an increase in rents and real estate value.{{cite journal |last=Smith |first=Neil |date=1979 |title=Toward a Theory of Gentrification: A Back to the City Movement by Capital, not People |url=https://miguelangelmartinez.net/IMG/pdf/1979_smith_gentrification_japa.pdf |journal=Journal of the American Planning Association |volume=45 |issue=4 |pages=538-548 |doi=10.1080/01944367908977002 |access-date=20 December 2024}}{{Cite web |date=2012-10-23 |title=Neil Smith obituary |url=http://www.theguardian.com/environment/2012/oct/23/neil-smith |access-date=2022-11-18 |website=the Guardian |language=en}}

Investment in the property market will only be made if a rent gap exists. Thus, the rent gap theory is contrary to explanations for gentrification that focus on cultural and consumption preferences and housing preferences. It is mainly an economic approach that sees cultural factors as secondary. Leslie Kern has noted that the rent gap approach helps to explain why gentrification happens in areas that seemingly lack the cultural characteristics that might make it appealing to wealthier inhabitants (for instance Little Village in Chicago): it is exactly in those areas that the disparity between the current and potential land use is exceptionally large.{{cite book |last=Kern |first=Leslie |date=2022 |title=Gentrification Is Inevitable and Other Lies |location=London |publisher=Verso |page=53-54 |isbn=9781839767548}}

In his original 1979 exploration of the concept, Smith noted that the rent gap could be used to explain why gentrification occurred both in North America and Europe despite differences in suburbanization and city structures. The theory has also been applied to other regions of the world, including Chile, Lebanon, and Korea.{{Cite journal|last=Krijnen|first=Marieke|date=2018-08-09|title=Beirut and the creation of the rent gap|journal=Urban Geography|volume=39|issue=7|pages=1041–1059|doi=10.1080/02723638.2018.1433925|issn=0272-3638}}

The theory has further been used in agent-based modelling of the effects of gentrification on real estate markets.{{Cite book|last1=Picascia|first1=Stefano|last2=Yorke-Smith|first2=Neil|date=2017|editor-last=Namazi-Rad|editor-first=Mohammad-Reza|editor2-last=Padgham|editor2-first=Lin|editor3-last=Perez|editor3-first=Pascal|editor4-last=Nagel|editor4-first=Kai|editor5-last=Bazzan|editor5-first=Ana|chapter=Towards an Agent-Based Simulation of Housing in Urban Beirut|title=Agent Based Modelling of Urban Systems|volume=10051|series=Lecture Notes in Computer Science|language=en|publisher=Springer International Publishing|pages=3–20|doi=10.1007/978-3-319-51957-9_1|isbn=9783319519579}}{{cite journal |last1=Diappi |first1=Lidia |last2=Bolchi |first2=Paola |date=2008 |title=Smith's rent gap theory and local real estate dynamics: A multi-agent model |url=https://www.sciencedirect.com/science/article/abs/pii/S0198971506001037 |journal=Computers, Environment, and Urban Systems |volume=32 |issue=1 |pages=6–18 |doi=10.1016/j.compenvurbsys.2006.11.003 |access-date=1 May 2025}}