Gentrification & Globalization

How a local Mexico City controversy is a worldwide issue.

Displaced tenants in Colonia Juarez, Mexico City

Assembling the Puzzle Pieces

This is the third part of a series on the controversy around remote-worker gentrification in Mexico City. If you haven’t already, read the first two articles:

In Part 1: Are Gringos Ruining Mexico City? I gave an overview of what is happening.

In Part 2, I shared tips on how foreigners can tread more lightly while visiting Mexico. 

This week, I’d like to zoom out and look at how a local issue in Mexico City is actually just a single puzzle piece in a much broader and more complex global phenomenon.

Today I want to explore the roots of what’s causing people to migrate to Mexico City in the first place- namely, the US housing crisis. 

Leaving California

Few cities are as synonymous with the housing crisis as San Francisco. The causes of the housing crisis are complex but can be broken into two parts - supply and demand. 

On the demand side, as Silicon Valley’s tech industry has enticed hundreds of thousands of highly-skilled workers to relocate to the Bay Area via globally competitive salaries. This created a lot of demand for housing by increasingly wealthy tech workers. Similar dynamics are drawing skilled workers to all major US cities.

Because San Francisco is a peninsula with finite space and countless historically preserved houses, there is little room for new construction, shrinking the supply.

This combination of high demand and low supply causes prices to soar as wealthy buyers outbid each other for a limited supply of homes. New constructions then tend to skew toward higher-end housing to cash in on these bidding wars.

(Which is why there was a spate of suspicious fires in the Mission District that displaced lower-income residents while making room for higher-end developments.)

Ideally, this is where the government would intervene to correct the failures of the free market by building affordable housing to counteract the profit motive towards luxury. But nationwide, there is still a shortage of about 3.8 million homes, setting the stage for a housing crisis in which only the wealthy can afford the homes they want.

This caused San Francisco to morph from a bohemian hippy haven into one of the most elite and expensive places to live on earth, pricing out even many who work in tech and causing a wave of gentrification across the Bay to Oakland and beyond. It has also made the city a poster child for American-style inequality - fabulously profitable tech campuses juxtaposed to jarring levels of homelessness.

This is not just happening in San Francisco and is not caused solely by the tech industry. But until recently, it was largely seen as a problem of liberal US coastal cities. And San Francisco seemed to hold the most glaring contrasts. 

Then came the pandemic.

The Great Reshuffling 

When remote work turned most white-collar workers into digital nomads, many decided to escape increasingly expensive coastal US cities in search of more affordable places to live. Plenty chose Mexico City. But it is just one of the countless cities affected by what’s being called the “Great Reshuffling” of remote workers.

San Francisco led the exodus of workers from dense, expensive cities to warmer, more affordable areas. Nationwide, inner cities emptied out in favor of suburbs about 90 minutes away (i.e. the Hudson Valley, Lake Tahoe, and Joshua Tree). And the recent construction of a billionaire’s beachfront home in Montauk is raising waves locally.

Many went even further. Popular destinations included Houston, Austin, and especially Miami (whose mayor famously courted Silicon Valley emigres via Twitter). But many smaller “Zoom Towns” also saw massive influxes of these remote workers.

Unfortunately, these Zoom Towns were already facing housing shortages before the arrival of wealthier outsiders set off bidding wars for the few homes on the market. And because the pandemic intersects with the Millennial generation’s peak home-buying years, newcomers often come in search of buying more affordable property. Prices rose - and the reputation of Californians fell wherever we priced out locals. 

Boise, Idaho has been one of the more popular Zoom Towns. Cars with California license plates have been vandalized and locals spray-painted “Go Back to Cali” on a freeway overpass. The resort town of Sun Valley was even more affected, with so many billionaires snapping up property that rent went up 50%, pricing out the local workforce. This has also happened in Jackson Hole, Aspen, and Whitefish, MT.

Californians moving to Texas was the largest state-to-state migration during the pandemic, slightly ahead of Californians moving to Washington, Florida, and Virginia. In Austin, Texas, cash-flush Californians are out-bidding local home buyers by offering tens of thousands of dollars over the asking price. 

Interestingly, San Francisco was one of the only cities in which rent actually fell during the pandemic as this concentrated tech wealth became more evenly distributed around the globe - but not enough to bring back the artists it lost to gentrification.

Even Tijuana has been affected as San Diegans who can no longer afford to live in their own city have chosen to live across the border and commute. Many of these Californians moved across the border to pay off debt and save money to buy a home in San Diego, a motive that provides nuance to what’s happening in Mexico City.

Worldwide, this current wave of migrants is largely being pushed from unaffordable cities, creating an effect that resembles a cascading fountain, in which wealthy coastal cities (and their attendant inequality) are the spigot spilling over into the limited housing stock, pushing lower-earning inhabitants into the next place, and so on. 

This shuffle can start with someone deciding to sublet their place in California to rent an Airbnb in Mexico City. They realize they can rent their LA apartment for $4,000 a month and rent a similar-sized place in Mexico City for $1500. They either pocket the difference, pay down debt or increase their quality of life.

Thus the gentrification of Mexico City is really the spillover of a crisis born in US cities and the “bubble” of gringos in Condesa and Roma Norte represents both the diffusion of remote workers across the globe and a hyper-concentration of these workers within small, familiar neighborhoods within their favored destinations. 

And as remote work enables Americans to travel in search of a more affordable lifestyle, this new wave of nomads is inadvertently bringing the housing crisis with it.

Digital Nomad Visas and Golden Passports

Despite the controversy around remote workers in Mexico City, dozens of countries from Barbados to Bali, Indonesia have recently announced Digital Nomad Visas that allow foreigners to live and work with minimal restrictions. Many US cities are offering cash incentives for remote workers to relocate to places like Tulsa, OK ($15,000), Savannah, GA ($10,000), and Montpellier, VT ($7,500). 

For places like Spain and Italy, these new visas are mostly a rebranding of their existing headline-grabbing offers of 1€ houses that have been around for years. After decades of low birth rates and emigration, these countries are full of abandoned villages with dwindling tax bases. They hope foreign investment can breathe new life into their crumbling heartlands while drawing foreigners away from overly-saturated tourist destinations like Venice and Barcelona. 

A more extreme example of this is Portugal’s Golden Visa. During the 2008 financial crisis, the Portuguese government proposed saving the economy by essentially selling citizenship to wealthy foreigners.

The idea was simple: foreigners who bought property in Portugal over a certain value would be fast-tracked for citizenship and, by extension, the right to live within the European Union. There were minimal requirements to reside in the country and even an investment option for those who preferred to just park idle capital in the country rather than purchase actual land. 

I visited Portugal in the fall of 2009 when I was teaching English in one such semi-abandoned Spanish village near the Portuguese border. Portugal had been dubbed one of the “P.I.G.S.” of Europe (along with Italy, Greece, and Spain) for dragging down the Eurozone with low productivity and high debt. Many educated Portuguese had fled to London, Berlin, or New York in search of work. Portugal still has the highest rate of emigration in the EU after Malta. 

Back then, the country felt depopulated. I couch-surfed in an anarchist’s house and he took me dumpster-diving. I distinctly remember struggling to find a coffee that cost more than 1€, the average price in my economically depressed Spanish village. 

Flash forward a decade and the program has been so successful that it’s almost become a victim of its own success. The government has issued 11,000 Golden Visas in exchange for roughly $6 billion in investments, which has sparked a real estate boom and increase in tourism. Over two-thirds of the recipients are Chinese, followed by Brazilians, Turks, South Africans, and Americans.

This investment has certainly contributed to the country’s boom in tourism. When the “troika” imposed austerity measures on the country in 2011, 13% of Portuguese hotels didn’t even have a website. Today, tourism is the largest sector of the economy, accounting for 8% of GDP in 2018. And certainly, we can attribute foreign investment to at least some of this revitalization and new hotel construction.

But foreigners bought up so much land that the government had to remove real estate purchases in Lisbon, Porto, and the Algarve from the Golden Visa program because these areas were becoming unaffordable to locals.

Rent control was also abolished with the Golden Visa program, allowing new owners to raise rent and evict anyone who can’t pay. Rents are already up 50% this year as more apartments are being converted to short-term rentals.

Portugal has experienced the largest increase in housing prices of any country in the Eurozone. Some critics argue that the widening gap between the average salary and house prices has even caused the birthrate to decline, as young families can’t afford to live in major cities and must emigrate elsewhere.

The government has responded by capping the total number of vacation rentals to 25% of all apartments - but this is still a shockingly high percentage.

All of this has created a controversy in Portugal parallel to that of Mexico City, leading many Portuguese to wonder whether the program is still worth the cost.

Globalization or Gentrification?

To bring the conversation back to Mexico City there are a few things we can conclude.

First off, unlike most countries with Digital Nomad visas, Mexico’s popularity is entirely organic. It emerged as a hotspot not because of any government incentives, but in spite of their absence. This speaks to the effortless cool of Mexico City - but it also underlies what locals have at stake. 

The areas being gentrified are not abandoned villages or towns so boring that people must be paid to move there (sorry Tulsa!). They are the most cherished barrios of one of the most vibrant cities in the world where affordable housing is already scarce.

Nobody (foreigners included) wants to see these neighborhoods turned into an enclave of Brooklyn. At the same time, the situation in Mexico City is not the simple black-and-white matter of right versus wrong that some local critics paint it to be.

As journalist Lauren Razavi points point in her new book Digital Natives, digital nomads don’t cause gentrification so much as exacerbate existing dynamics. In the case of Mexico, the gentrification of Roma and Condesa began 20 years ago when Mexican artists, chefs, and innovators moved in after the 1985 earthquake made these once luxurious neighborhoods affordable. Tourists (and digital nomads) followed.

The core issue is how the increased mobility of remote workers allows gentrification not just within cities, but between countries. In the past, at least the gentrifiers were paying into the same tax system responsible for fixing the issue. But most remote workers pay no income tax in Mexico and many are not even legal residents.

Interestingly, the way in which remote workers can move between nations while avoiding paying taxes mirrors the tricky accounting practices of the multi-national corporations that often employ them (i.e. Apple’s ongoing tax dispute with the EU). This undoubtedly fuels the inequality we are seeing play out on the local level.

Furthermore, this increased mobility is not a privilege enjoyed by most Mexicans (or most Earthlings, for that matter). Those lucky enough to be able to take advantage of globalization are seeing their futures diverge from those being left behind.

All this challenges the notions of citizenship, taxation, and fairness in ways that the political framework of the nation-state is unable to address.

Regulation, Incentives, and the Challenges of the Future

On the surface, the lack of affordable housing is the common denominator in all the places being negatively affected by this Great Reshuffling.

Certainly this is the case in Mexico City, where the government’s failure to build affordable housing in the city center made Roma and Condesa a rare bubble of affordability. But this was the unintended consequence of a tragic earthquake - not an adequate substitute for meaningful investment in affordable housing or public transportation. Any lasting solution must address this underlying problem.

Furthermore, Mexico’s notorious corruption makes regulating housing issues even harder than in other cities where Airbnbs and over-tourism have negatively affected local communities, such as the 23 European cities currently pushing for regulating the “commercial gentrification” of short-term rentals.

Combine this with a laissez-faire approach to immigration, and you have a recipe for the issue to get worsened by an unregulated free market.

As long as wealthier foreigners can sublet their apartments in New York, rent a cheaper Airbnb in Mexico City, and reside here on tourist visas, they will keep coming and local landlords will push out tenants to create more profitable Airbnbs.

Understandably, many locals have demanded the government either expel, restrict or tax remote workers. And while new policies certainly must be enacted, demonizing or expelling these nomads will just push them somewhere else - perhaps Medellin or Costa Rica - leaving the damage done and none of the potential upsides realized.

Mexico does have a lot to gain from remote workers. The city’s ability to attract skilled workers and foreign capital is the envy of every place offering visas to digital nomads.

But as the Portuguese example shows, simply attracting wealthy or talented foreigners does not guarantee an equitable or desirable outcome. Smart government policy must attract and retain these workers to channel this wealth into the economy and integrate global talent into society.  

For now, the immediate burden of improving the situation here in Mexico City lies with pandemic migrants learning how to be better guests in their new hometown (read my full article here if you haven’t already). But meaningful solutions are impossible without smart government policy that deals with the challenges of our global century - many of which we still do not fully grasp.

I wonder, if the current wave of migration is the result of a housing crisis, what can we expect when the climate crisis makes cities and states not just unaffordable but unlivable? Will the rich buy up all of New Zealand while the poor flee the sweltering tropics for higher altitudes and latitudes? And how will this dynamic change when the inequities of climate justice are laid on top of those of remote work?

I hope this article has demonstrated how no local issue is truly isolated from the larger challenges facing humanity. To deal with any of these problems effectively, we have to reimagine our very notions of citizenship, mobility, and equity for a global era.

To learn more, I recently interviewed the whip-smart journalist Lauren Razavi, author of the new book Digital Natives: The New Frontier of Work, Travel, and Innovation (click here for 20% off your purchase). I devoured her book in a single sitting - it’s that good!

I instantly recognized a kindred spirit and requested an interview. We discussed the roots and evolution of digital nomadism, the promise and peril of the remote work era, and what this all means for the future of global civil society.

I’ll be publishing our interview next week, but in the meantime, I highly recommend reading her book (click here for a discount) and subscribing to her newsletter.

Thanks for reading. Please comment below or forward this letter to a friend.

Yours,

Marko