Does the evolution of neighborhoods in London, England have lessons for other cities? It might, which is why I found this article from The Economist so interesting.

At issue is the gentrification – or lack of it – in Kentish Town, a neighborhood in north London. Surrounded by areas on all sides that are more manicured and more chic, it has remained a collection of long-in-the-tooth, somewhat run down businesses ranging from pawn brokers to hairdressers to tattoo parlors. At the same time, the neighborhood, which boasts excellent transportation links to the city’s core, has seen housing prices soar, with some homes selling for the equivalent of $3 million U.S. dollars.

Higher end businesses either stay away or do poorly when they try to enter; lower end businesses do well even though the average income in the neighborhood is clearly rising. How to explain the paradox? The Economist comes up with several intriguing reasons for the split.

First, there is the fact that it is the poorer residents who are likely to shop locally because they tend to travel on foot. Richer residents, the ones who have been streaming in, get in their cars and go find grocery stores or whatever elsewhere. Given that there has been some building of low cost units in the area, that has tended to keep the lower cost businesses around. Higher end businesses have had a tougher time.

Although the article does not quite say it, it would also seem that there is a split between rich and poor in the area that is getting wider. At one point, some of the old mansion blocks in the area were split into apartments, which presumably housed the mid market. In many cases, those have been converted back into single-family homes which attract the richest residents.

There are a  few other explanations for the lack of gentrification – a neighborhood association that tries to keep out the chains, the fact that the area has not been particularly diverse which has perhaps made the stores in the area less unique than has been true in other areas –but it is the split incomes argument that I find most compelling, particularly since you can actually see similar examples in other cities. In many neighborhoods in North America, condos have gone up and money has come in, but the neighborhood businesses have languished anyway.

It is a lesson for neighborhood business associations, and for businesses as well. Income and demographics matter when looking at business success, but the right mix of incomes and the right amount of foot traffic also plays a major role.