From Paul Krugman:
First, when it comes to things that make urban life better or worse, there is absolutely no reason to have faith in the invisible hand of the market. External economies are everywhere in an urban environment. After all, external economies — the perceived payoff to being near other people engaged in activities that generate positive spillovers — is the reason cities exist in the first place. And this in turn means that market values can very easily produce destructive incentives. When, say, a bank branch takes over the space formerly occupied by a beloved neighborhood shop, everyone may be maximizing returns, yet the disappearance of that shop may lead to a decline in foot traffic, contribute to the exodus of a few families and their replacement by young bankers who are never home, and so on in a way that reduces the whole neighborhood’s attractiveness.
On the other hand, however, an influx of well-paid yuppies can help support the essential infrastructure of hipster coffee shops (you can never have too many hipster coffee shops), ethnic restaurants, and dry cleaners, and help make the neighborhood better for everyone.
What does history tell us? Politically, I’d like to say that inequality is bad for urbanism. That’s far from obvious, however. Jane Jacobs wrote The Death and Life of Great American Cities right in the middle of the great postwar expansion, an era of widely shared economic growth, relatively equal income distribution, empowered labor — and collapsing urban life, as white families fled the cities and a combination of highway building and urban renewal destroyed many neighborhoods.
And when a partial urban revival began, it was arguably associated with forces driven by or associated with rising inequality. Affluent types in search of a bit of cool — probably 5 percenters rather than 1 percenters, and more or less David Brooks’s Bobos (bourgeois bohemians) drove gentrification and revival in urban cores; in New York, at least, large number of poorly paid but striving immigrants drove the revival of outer borough neighborhoods like Jackson Heights or Brighton Beach.