Urban growth and stratification: The role of locational externalities

Abstract

Urban areas that have undergone rapid and recent growth processes can shed light on the forces driving urban stratification and gentrification. This article analyzes how the process of urban growth itself, driven by migration, affects the stratification of the city. The availability of detailed data makes it possible to observe how high-income settlement patterns are driven by attraction (homophily) and repulsion (heterophobia). We consider neighborhood composition (i.e., the number of high-income residents in the vicinity of a given location) as a potential factor that can explain agents' higher willingness to pay in some locations. We propose a model of urban spatial equilibrium with locational externalities, related to preexisting neighborhood characteristics, that can help explain why new rich neighborhoods are located close to existing rich neighborhoods and far from poor neighborhoods. In this model a monopolistic owner will allocate available locations to those agents willing to pay the most, taking advantage of agents' willingness to pay more when locations are surrounded by high-income individuals. The location externality influences the dynamics of urban configuration through attraction-repulsion effects, as new rich neighborhoods are located near other rich neighborhoods and far from poor neighborhoods, thus reinforcing socio-spatial-stratification. This mechanism sheds light on why gentrification occurs only in some areas, while others with a priori better localization do not experiment changes.