Gated communities: the privatisation of residential areas should be welcomed

Published on the Institute of Economic Affairs blog, September 2008

The aerial photograph on the company’s website shows a small residential area located on a riverbank, surrounded by trees and pastures. But the idyllic impression is deceptive. This estate has sparked huge controversy. Arcadia Potsdam is Germany’s first gated community.

When Arcadia opened in 2006, it provoked sharp media criticism. The Süddeutsche Zeitung daily, for example, spoke of “class-segregation”, “residential disintegration” and the “privatisation of public living space”. The critics argued that gated communities were a symptom of increasing social polarisation and fragmentation.

These critics assumed that gated communities in Western countries would be essentially the same as those in Rio de Janeiro or Johannesburg. But had they examined the well-developed American market for privately-owned residential areas, they might have noticed that people’s motivations to choose this way of living are, in fact, very diverse.

Besides communities focused on security, the US-market has a large number of “lifestyle communities”, catering for golfers, anglers, retirees, young families and nature lovers. They offer a particular set of local amenities and a specific code of conduct, tailored to the preferences of the inhabitants. There are at least two advantages over a “conventional” residential area.

Firstly, the gated community is an elegant way of solving the conflict between users of residential space with different preferences. For example, an area of limited space cannot, at the same time, have strict noise regulations for older people and very permissive ones for families with small children.

Secondly, the capitalised value of a gated community is a function of the residents’ satisfaction. It is thus in the owners’ economic self-interest to find out which local amenities and codes of conduct their residents desire most.

Accordingly, analysis of the American Housing Survey shows that inhabitants of gated communities are more satisfied with their place of domicile and its surroundings than residents of other neighbourhoods. Moreover, gated communities are not enclaves for the rich. Once renters are included, the lowest income quintile displays the greatest proportion of gated-community residents.

The criticisms of gated communities are therefore flawed. The emergence of many more Arcadias in the near future will be of great benefit to those seeking a living environment more closely tailored to their individual tastes.