The Beauty Contest: Or, How John Maynard Keynes Explains Seattle’s Gentrification

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Earlier this month, Washington, D.C.-based economist Ben Klemens and I wrote a two-part series about how the human desire to emulate other people can help explain (and help cities address) gentrification for the website Strong Towns. The two-part series can be found here (Part 1) and here (Part 2). Here’s a bit of the beginning of Part 1, which explores a game-theory concept known as the Beauty Contest (which, as the non-economist author, I’ll describe as the process by which people sometimes make decisions based not on their own preferences or prejudices, but on the perceived preferences and prejudices of other people). The series focuses on the corner of 23rd and Union in Seattle, and the neon-clad monument to cannabis consumerism that is Uncle Ike’s.

It’s a little more academic than the usual fare here at The C is for Crank, but I encourage you to read it if you’re interested in alternative ways of looking at gentrification.

 

This story takes place in Seattle, but it could be set in any large or midsize city where gentrification is changing the political, cultural, and physical landscape. For the purposes of this story, we’ll define gentrification as the process by which the residents of historically working-class, minority neighborhoods are displaced, often rapidly, by people with lighter skins and higher incomes. [Editor’s note: Read our own previous discussion of the different understandings of “gentrification” here.] How you choose to explain gentrification says a lot about your political worldview. Do gentrifiers act out of self-interest? Racism? A little of both? Or something else entirely?

In Part 1 of this two-part series, we use the example of one Seattle neighborhood to argue that it’s entirely possible to explain gentrification with something we can easily observe—signals, which communicate to prospective homebuyers what other people like them believe about whether it’s a good idea to invest in a certain neighborhood. Then, in Part 2, we use accessible theoretical modeling to demonstrate two ways in which, even in the absence of conscious beliefs (such as racism, classism, or the belief that land values will rise over time) or preferences (a desire to live next to popular amenities), signals can still lead to gentrification.

But before we get to Seattle, we have to go back to 20th-century economist John Maynard Keynes, and an economic concept called the beauty contest. In 1936—a time when newspaper sweepstakes were popular—Keynes came up with the following thought experiment: What if newspaper readers were asked to choose the most beautiful woman from a roster of photos, and the sweepstakes winner was drawn from a list of everyone who chose the most popular woman? The trick to winning that kind of “beauty contest” isn’t to pick the woman you personally find most beautiful, but to guess which woman other players think is the most beautiful, knowing that they’re doing the same thing.

The crux of the beauty contest is that we don’t form our opinions about beauty, the value of a dollar, or a house, in a vacuum—we come up with those beliefs based on a long chain of assumptions about what we think other people think. Why do I think a piece of paper printed by the Treasury that says “$1” in the corner is worth a dollar? Because I think I can give it to somebody, Steve, because Steve values it. Why does Steve value it? Because he thinks Maria thinks it is worth something. And I believe Steve thinks Maria values it because she knows Paula will accept it. And so on.

If the piece of paper said something else (maybe the ID for a bitcoin wallet), the same process might not happen. Given multiple options, it isn’t always obvious who’s going to win the beauty contest, or which centrally located neighborhood is going to suddenly shoot up in value. What is certain is that as long as human beings make predictions about value based on these signals, they will result in predictable behavioral patterns—you may not know where gentrification is going to happen next, but there will be some sequence of signals that will precede it.

So let’s make this less abstract.

Consider buying a new condo, with an asking price of $500,000. Whether it is a good deal today at $500,000 is partly a question of whether it will one day sell for more or less than $500,000. Your purchase is a wager, based on the information available to you, that the value of your condo and similar properties in the area will continue to appreciate.

Your decision to buy also depends on what amenities are nearby now. Will your friends want to move in nearby? Will restaurants and a grocery store start filling up empty storefronts nearby, and will they be able to stay in business? Will you have access to reliable transit lines when you move in? In a decade? All these questions also factor into whether you choose to buy here or across town.

There is no way to poll all the people somehow involved in such questions, so we have to play a beauty contest game, guessing what our friends, local restaurateurs, and transit planning agencies are thinking, and what they will be thinking in a decade. Meanwhile, they’re all doing the same thing: just as I don’t want to move to a neighborhood with no restaurants, no restaurant wants to open in a neighborhood where they aren’t likely to have customers.

In the 1950s, determining a neighborhood’s status was easy: check the map. As part of an arrangement by the National Association of Realtors and the U.S. federal government to limit the ability of African American homebuyers to buy houses in “white” neighborhoods, maps were developed with clear red lines around black neighborhoods and explicit racial covenants or bank practices enforced the racial divides on those maps. Today, these formal covenants have been replaced in most US cities by zoning, which walls off certain areas—often those originally segregated by redlines—as designated single-family-only neighborhoods, which tend, by historical precedent and by design, to be mostly white.

Seattle’s Central District in 1968. (Source: Seattle Municipal Archives)

Recent years have seen the demographics in the Central District nearly flip. In the 1970s, the neighborhood was more than 70 percent black; by 2016, that number was 20 percent. Whites now make up about 60 percent of the area’s population, and the trend is on track to continue.

Few neighborhood businesses more perfectly exemplify this demographic shift—or serve as more of a lightning rod for protests and accusations of racial insensitivity and white colonization—than a flashy recreational pot shop called Uncle Ike’s. (Washington state voters legalized recreational pot in 2012.) Lit by cheeky neon signs—on the next block: “Hey, stoner, around the corner”—it sells recreational pot like fancy coffee: expensive and unabashedly bourgeois. A ten-pack of Magic Kitchen peanut butter brownie bites will set you back $28, and a bottle of Moss Cow Mule cannabis ginger ale goes for $20.

Situated between an old car wash (recently purchased by Uncle Ike himself, Ian Einsenberg, and rebranded as Uncle Ike’s Car Wash) and an African- American church, Uncle Ike’s is a sign of the apocalypse for anti-gentrification activists, at the literal crossroads of old and new. Across one street: A doomed strip mall anchored by a liquor store, a barber shop called Earl’s Cuts and Styles, and Africatown, a local nonprofit working to build affordable housing and preserve the history of the neighborhood. Across the other: A sleek modern apartment box called The Central, where open-plan one-bedrooms go for $2,060 a month.

Uncle Ike’s wasn’t the first new business in the neighborhood to cater to a largely white crowd—a quaint, quirky bar next door called “The Neighbor Lady”, which a local news report said would “breathe new activity” into “the troubled corner,” preceded the pot shop by two years. But Ike’s opening in 2014 was quickly followed by an influx of new businesses catering to a similar crowd, which converged on the intersection as if summoned by a pot-leaf-shaped bat signal. Today, a strip that once housed a 25-year-old soul food restaurant called Thompson’s Point of View and was notorious for gang-related violence is home to an airy, loft-style coffee shop, a salon/cafe owned by two women who have said they were priced out of a nearby neighborhood known in past decades as a haven for artists and hipsters, a bike shop that sells $3,000 electric bikes, and a doughnut shop specializing in gluten-free mochi doughnuts.

Read the rest of this piece, and Part 2, at Strongtowns.org.

A Conversation With a Neighbor Who Changed His Mind About a Tiny House Village

In case you haven’t noticed, the debate about homelessness in Seattle has gotten a little toxic. At a time when homeowners show up to chant “bullshit!” at public hearings and socialists attempt to drown out city council votes they don’t agree with, it’s rare to hear about anyone actually changing their mind after talking to “the other side.” Which is why I was eager to sit down with a guy I met at a recent public meeting on a new “tiny house” village that’s currently being built in a vacant lot at 18th and Yesler and hear more about how he went from distributing flyers opposing the project to figuring out ways he could support the people living there.

Omeed, who asked me to use his first name only, joined a group called Yesler Neighbors that distributed flyers in the neighborhood around the tiny house village urging neighbors to write and call the city to demand that they put a “pause” on what they described as an “illegal encampment” based on a litany of what they described as land use and public notice violations. (See the full letter here). “We support ending homelessness in our city but believe it should be done in a transparent, legal, and thoughtful manner,” the letter left on neighbors’ doorsteps concluded.

After the meeting at Ernestine Anderson Place on South Jackson Street, which included a Q&A with project sponsors from the Low-Income Housing Institute and New Hope Missionary Baptist Church, I started chatting with Omeed outside. “I’m someone who changed his mind,” he told me—he now supported the encampment, although he still thought neighbors hadn’t received adequate information to form their own views on the project in the first place. For example, he said, he had been unable to determine whether the encampment would be “low-barrier”—that is, whether it would allow residents to consume drugs and alcohol on-site—and how the rules would be enforced. On Monday, Omeed broke ties with Yesler Neighbors to focus on other activist work—namely, electing Democrats to the state legislature through an organization called the Sister District Project, which sends activists into swing districts, like Washington’s 26th and 30th, to support Democratic candidates at the state level.

I sat down with Omeed in Pratt Park, just a few blocks from the tiny house village, which is currently under construction. Omeed, whose parents moved to the United States as refugees during the Iranian revolution, moved to Seattle about six years ago from Washington, D.C.; his wife is a native Seattleite with roots in the city going back 12 generations. They live a few blocks from the new tiny house village at 18th and Yesler.

How did you become aware that this tiny house village was being built in your neighborhood?

We got a flyer on our front door on May 15 or 16, and that same week, or shortly after, gravel started going down [on the lot]. It really did seem abrupt. We’re used to getting a certain amount of notification and time to understand what the project is. That was like—wait a second. But that part didn’t bother me as much as the fact that there were a lot of houses that did not get flyers, and there were houses several blocks further away from it, where it’s not necessarily in view, and they were flyered when I know some of the houses along the fence line never received any notice of it. I got it; some of my neighbors did not.

What did you think when you got the flyer? Were you supportive of the idea?

My initial reaction was like, ‘Cool, let’s save some lives. This might be great.’ My wife’s initial reaction was like, ‘I wonder if I can volunteer and help them with some landscaping stuff’—just do something that’s welcoming. And then we started hearing some other information, and then when you do some Google searches about these villages, Licton Springs [an encampment in North Seattle that allows drugs and alcohol] tends to be the thing that makes it up to the surface, and that was really jarring and it put some guards up. I’m a naturally defensive person. Growing up in a household where your parents are refugees, your mom’s an asylum seeker… siege mentality is a kind of natural thing to have. So my guard just tends to go up really quickly.

What was your concern related to Licton Springs?

Crime stats, the fact that there is open drug use—I don’t know how much is anecdotal or real. I only drove by. On the Aurora Avenue side, it was like, ‘Uh, this is an interesting part of town…’ Then the barbed wire along the top of it, too—it just seemed like that isn’t something that I necessarily want in my neighborhood.

You mentioned when we spoke before that your main concern was whether this tiny house village was going to allow drugs and alcohol. Can you talk more about that concern?

The flyer didn’t indicate if this site was going to be low-barrier. There was no information about it. When we went to the first meeting on the 22nd, I don’t recall that very strong commitment [to a no-drugs-and-alcohol policy] and that gave me kind of a pause. After that first meeting my guard went up a little more. More concerns started to bubble up.

I don’t think addiction is criminal. I can’t say that addicted people mean crime. I would be concerned, though, if there’s other folks that want to come there, [like] dealers. If that gets drawn over to it because they know it’s a low-barrier site where people are going to be allowed to use, that’s just not okay.

What changed your mind about this project?

I went to visit the 22nd and Union village a little while ago, and I talked with those folks, and they were just like normal working people. They’re just having a hard time. [Mayor Jenny] Durkan said in press release that these folks are, in a way, economic refugees. A segment of the population really is. Something like 40 percent, give or take, of the unsheltered population is employed in some capacity, and 20 percent of those are employed full-time. The fact that there isn’t enough housing that those folks can afford is disgusting. It’s a frustration.

I get frustrated when I hear things like Fort Lawton are held up in litigation, which just makes them more expensive to build. We declared a state of emergency a few years back and my understanding of a state of emergency is you suspend some rules and blockers because it’s a state of emergency. So I’m just thinking, what kind of state of emergency is it where things can end up in litigation or get blocked by neighbors because they’d rather have another park? We have lots of great parks. I’m not saying we shouldn’t find more ways to create green space, but this is an emergency.

So how are you feeling about the tiny house village now? Are you planning to volunteer to help them out, or put your efforts into pushing for other housing solutions, now that you know more about the project?

It takes a lot of effort to be in that mindset, to try and fight with the city and fight with this organization and do all those things. What I think might be a better use of my time moving forward, especially if I’m serious about building more housing and finding the funds to pay for it, is to make that call to the county saying, ‘You have nearly $200 million over 20 years to give to a profitable baseball team, yet you have yet to come up with a way to pay for [housing]. It’s there. We don’t have to subsidize these sport teams and these stadiums. We also don’t have to subsidize massive tax breaks to Boeing, the largest defense contractor and one of the largest companies in the world. It’s absurd to say we need to come up with these other revenue streams when the money really is there. It’s not a matter of efficiency in government or ‘audit this’ or ‘make cuts there.’ It’s, stop giving away money to people who already have millions of dollars and we’ll have it.

My wife is setting up the [National Night Out] event for our block and I said, ‘They should be invited.’ I don’t think I have to take anything out on the folks who are going to be living there. My gripes are with the city, the county, and the state—the people who refuse to actually do the things that need to be done to actually deal with this emergency. So I don’t see why I have to turn my back to those folks who otherwise need help.

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Africatown, Forterra Part of Partnership to Redevelop Midtown Center

Midtown Center—the property at 23rd and Union that has been the subject of an on-again, off-again debate about how to provide new housing in the Central District without economically displacing its remaining African American residents—has been sold to Lake Union Partners for $23.25 million. LUP, in turn, will sell 20 percent of the block to the conservation nonprofit Forterra, which will then work with Africatown to transfer the property into a community development partnership.

The Lake Union Partners-owned portion of the property will include between 400 and 420 apartments, including around 125 apartments that will be affordable to people making between 60 and 85 percent of area median income, or about $40,000 to $65,000 a year, under the city’s Multifamily Tax Exemption program, which provides developers a 12-year tax break in exchange for building affordable housing, and the Mandatory Housing Affordability program, which will require that 10 percent of the units be affordable to people making 60 percent or less of the area median. (The city council has not yet approved MHA for the Central District.) The rest of the site will be developed by Forterra and Africatown, and will include between 120 and 135 apartments affordable to people making 40 percent or more of median income, or about $26,880.

As I reported back in March, the original deal for the current owners of the Midtown Center block, the Bangasser family partnership, fell apart after a dispute between the Bangassers and Africatown, which led protests against the family when it changed the locks on a space occupied (though not formally leased) by the business incubator Black Dot and, in a separate action, evicted Omari Tahir Garrett, father of Africatown leader K. Wyking Garrett, from the house where he had been living without paying rent since at least 2012.

The increasingly heated dispute makes it appear highly unlikely that Africatown will be successful in its efforts to partner in the redevelopment of Midtown Center, which requires cooperation from the Bangasser family members who control Midtown Center. (Tom Bangasser was removed as controlling partner on the family partnership last year). The latest clash between the Garretts and the Bangassers comes just two weeks after Africatown and Forterra announced plans to buy the Midtown Center property, and just a month after a deal to redevelop the property involving Africatown, Miami-based multifamily housing developer Lennar Communities, and Regency Centers, which was planning to purchase the property from the Bangassers, fell through.

The original plan for the site would have included 475 apartments, some of them affordable, along space for small retail businesses.

In a statement, Mayor Ed Murray said the development “will ensure that 23rd and Union remains connected to Seattle’s cultural heritage and ongoing struggle for racial justice and equity of opportunity.”

The proposal now enters the long approval process, starting with design review, which will begin this fall.

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