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What the 1880s tell us about why the rich are moving to cities today

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Wealthy, college-educated residents with the budget to bid up home prices are increasingly turning up in the center of major American cities, driving a generation-long shift in demand for downtown living.

The trend is notable for what preceded it: For decades, until about 1990, people with options largely dodged city centers. But if you look much further back in history, an interesting pattern emerges. More than a century ago, before the rise of electric streetcars, the Model T and modern suburbs, the rich lived in the hearts of cities and the working class farther out.

We are, perhaps, returning to that old pattern. Or, to think of history another way: What made downtowns desirable to the rich more than a century ago may help explain what makes them appealing to this same group again today.

"Obviously 2016 is very different from 1880," says Jeffrey Lin, an economist at the Federal Reserve Bank of Philadelphia. "[Most] people don’t walk to work anymore, and we have all these dramatic changes in technology. So it’s probably not the case that the same factors that initially attracted high-income or high-status status people to downtowns are relevant for the exact same reasons today."

But, he suggests, some important underlying conditions remain. Downtowns — many built before the automobile — are inherently easy to get around on foot and by transit, for people who may be tired of commuting today. They were originally designed with parks and amenities like Philadelphia's Rittenhouse Square, surrounded by the stately buildings that today house hotels, shops and restaurants. Many were built on waterways essential 150 years ago for industry that today make for great repurposed parks. And they are by definition dense, making them the kind of places where it's possible to live and bar-hop and work nearby (as today's high-end apartment listings boast).

Close-in locations were the most coveted in 1880 when getting around was a pain on horse-drawn railways, says urban historian Carl Abbott, and so people with the most money claimed them. That is not so different from the market today where the wealthy can afford to buy the kind of housing that allows them to walk to jobs downtown, and where poverty is increasingly moving to the suburbs.

This chart from Lin's research, which he presented at a recent symposium on gentrification at the Philly Fed, shows that well-off residents lived the closest to the center of American cities back in 1880 (the orange circles at the upper left). The farther from the city center, the lower the socioeconomic status of neighborhoods. In more recent census data over the past 50 years, the opposite trend line has been true:

But if you compare 2010 with 1990, or even 1980, the relative socioeconomic status of those close-in neighborhoods — reflecting both their income and education levels — has been creeping up. (At the very centers of large metros in 2010, for instance, census tracts ranked higher in socioeconomic status than about 40 percent of tracts in the same metropolitan areas).

It remained true, though, in 2010 that the most high-status tracts were the farthest out. Wealthy, educated neighborhoods, with few lower-income households, are still in the exurbs.

"One takeaway is that downtown areas haven’t always been of low status and low income," Lin says. "Another takeaway is that despite recent gentrification in downtown areas, they’re still a long way from being on average rich places."

The idea that downtowns have some enduring, underlying advantages also means, Lin says, that it would only take small changes in the economy or in consumer tastes to explain why these kinds of neighborhoods have tended to gentrify first.

"The tensions around gentrification are symptoms of something that in a broad historical sense is good news," says Ben Grant, the urban design policy director at the San Francisco-based urban advocacy and research group SPUR. "After two-thirds of a century of abandoning central cities in the U.S., cultural tastes have shifted back to the city."

The problem, he says, is that we stopped building more places like this back around 1929 — when the stock market crashed on the eve of the Depression and construction halted with it. By the time we resumed building in America en masse after World War II, we were building places very different from these dense urban neighborhoods with iconic parks and grand architecture.

"We have 80 years of essentially zero production of neighborhoods with these qualities," Grant says. "We’ve spent the last 80 years building car-oriented suburbs. Then when the elites decide they want to go back into the city, there’s not enough city to go around."