The downtown area of Los Angeles, which borders the district long known as “Skid Row,” may have been one of the last places where upwardly mobile buyers would have thought of property shopping a scant decade or two ago. But urban pioneers who bought in the 90014 ZIP code, dubbed “New Angeles” by developers, around the new millennium have hit the jackpot.
This neighborhood gentrified the most from 2000 to 2016, according to a recent study from rental listings website RENTCafé. Home values jumped 707% over the period as more affluent renters and buyers came pouring in. But, as is traditionally the case with large-scale urban gentrification, the area’s transformation has proved to be a double-edged sword: Buyers who got in early enough have earned significant home equity, but some longtime residents have been displaced.
RENT Café’s rankings are based on the change in home values, household income, and the number of residents with a bachelor’s degree or higher in the nation’s 11,000 fastest-growing ZIP codes from 2000 to 2016. The data analyzed came from the U.S. Census Bureau. Only ZIP codes with more than 2,000 occupied housing units in both the years 2000 and 2016 were included.
The 90014 ZIP, in downtown L.A., bears some similarities to what Manhattan’s grittier Soho neighborhood was like in the 1980s—before it became an ultratrendy and wildly expensive place to live.
“Tech companies are moving here because it’s more affordable than Silicon Valley,” says local real estate agent Tatiana Tensen of Sotheby’s International Realty. “Young people love it because there’s a Whole Foods and all kinds of restaurants and boutiques, and it’s extraordinarily walkable.”
The L.A. neighborhood was followed in RENTCafe’s list by Washington, DC’s 20001, home to Howard University, and Houston’s eastern downtown of 77003. Philadelphia’s 19123, a former wasteland of abandoned factories and decaying row houses just north of its historic Old City, came in fourth. New York City’s East Harlem ZIP code of 10039, in Manhattan, rounded out the top five.
So how do investors find the next up-and-coming urban hot spots? Buyers “need to get out on the ground and be sure there is still room for improvement in these areas,” says RENTCafé study author Balazs Szekely.
“And you have to be aware that there’s a sad face to gentrification,” he says. “For example, the majority of the residents in downtown L.A. still live under the poverty line.”
Gentrification isn’t always a bad thing for longtime residents, however, particularly if they’re homeowners.
“They can make a lot of money if they sell, enough to pay cash and live mortgage-free if they move to a less pricey area,” says Houston-based real estate broker Marilyn Thompson of Sotheby’s International Realty.
And there are other benefits as well.
“[Gentrification] has a plus side,” says New York University professor of urban policy and planning Ingrid Gould Ellen. “Public housing residents in gentrifying neighborhoods in New York [City] enjoyed higher earnings and scored higher on standardized tests.”