Production-side theory is associated with a geographer, Neil Smith, who explains gentrification based on the relationship between money and production. Smith said that low rents in suburban areas after World War II led to a movement of capital into those areas as opposed to inner cities. As a result, urban areas were abandoned and land value there decreased while land value in the suburbs increased. Smith then came up with his rent-gap theory and used it to explain the process of gentrification.
The rent-gap theory itself describes the inequality between the price of land at its current use and the potential price a piece of land could attain under a “higher and better use.” Using his theory, Smith argued that when the rent-gap was large enough, developers would see the potential profit in redeveloping inner city areas. The profit attained by redevelopment in these areas closes the rent-gap, leading to higher rents, leases, and mortgages. Thus, the increase in profits associated with Smith’s theory leads to gentrification.
The consumption-side theory, professed by geographer David Ley, looks at the characteristics of people performing gentrification and what they consume as opposed to the market to explain gentrification. It is said that these people perform advanced services (for example they are doctors and/or lawyers), enjoy arts and leisure, and demand amenities and are concerned with aesthetics in their cities. Gentrification allows such changes to occur and caters to this population.
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