London: Startups, the Silent Engine Reshaping the City
In London’s East End, change has not been driven solely by large real estate projects or the arrival of a new underground line. It has advanced quietly, almost imperceptibly: a coworking space opening in a former warehouse, a couple of digital startups renting a floor, a few young engineers or designers starting to stay in bars until late. The rest follows naturally. Within a few years, the faces, businesses, and even restaurant menus change. Above all, house prices change.
A new study by Luisa Gagliardi (Bocconi) and Olav Sorenson (UCLA), Entrepreneurship and Gentrification, shows that every startup that opens in a London neighborhood contributes, on average, to an increase of about 1.2 percentage points in housing prices over the following three years. This effect may seem modest, but since it accumulates, it is a strong factor redefining the social fabric of neighborhoods. And it does so in a different way from traditional gentrification: no longer driven by large developers or public investment, but by the spontaneous dynamics of the entrepreneurial ecosystem.
“We are seeing a different form of gentrification: more spontaneous, less planned, and driven by the arrival of growth-oriented startups,” explains Luisa Gagliardi, Assistant Professor of Management at Bocconi. “Their impact is rapid and far-reaching: they change the faces of those who live in the neighborhood, consumption models, and how much it costs to live there.”
How startups are transforming the urban fabric
The study is based on granular data on Greater London: 6,419 startups founded between 2001 and 2016, restaurant information from Tripadvisor, demographic data from the 2001–2011 censuses, and house prices from the Land Registry. The units of observation are London wards, which often coincide with neighborhoods as perceived and recognized by residents themselves.
The results show a pattern that is recognizable to anyone who has closely observed a neighborhood change. The first sign concerns who lives there. An increase in growth-oriented entrepreneurial activity—even if only by one standard deviation—rapidly changes the social composition of the neighborhood. Between the 2001 Census and the 2011 Census, the proportion of residents employed in white-collar professions grew by 1.5 percentage points, while that of blue-collar workers fell by the same amount; the presence of residents with lower levels of education also decreased by 0.7 points.
Such marked differences cannot be explained solely by the jobs created by new businesses. Rather, they indicate a deeper process of residential selection, fueled both by employment opportunities and by the neighborhood’s overall increased attractiveness. As Gagliardi summarizes it, “Startups bring jobs, of course, but above all, they attract people who stay, consume, create, and end up redesigning neighborhoods.”
The second front of change can be seen in bars, restaurants, and shop windows. The arrival of young workers, often highly educated and with cosmopolitan tastes, is prompting business owners to quickly rethink their offerings or make room for new operators. The data clearly shows this: a one standard deviation increase in the number of start-ups increases the share of mid-to-high-end restaurants by 1.1% over the following three years, while ethnic and diverse cuisines increase by 2.7%.
It is a change that residents perceive immediately, well before house prices begin to rise: the atmosphere changes, meeting places change, the daily experience of the neighborhood changes. It is a tangible, almost sensory sign of entrepreneurial gentrification already underway.
How the entrepreneurial ecosystem affects house prices
The increase in housing prices stems from three intertwining self-perpetuating forces:
- More jobs, closer to home. The presence of new businesses increases local employment: studies cited in the paper show that a 10-minute reduction in commuting time is worth around +4% in house prices.
- More services and a more attractive urban environment. Higher-end restaurants, bars, and shops make the neighborhood more desirable for residents with greater spending power.
- More attention and investment. The concentration of startups sends a clear signal to the market: this is a dynamic area. Investors and real estate operators follow suit, amplifying demand.
The effect is surprisingly localized: price growth is concentrated in a neighborhood where startups are set up and quickly fades beyond its borders.
And not all neighborhoods react in the same way: the impact is particularly strong in neighborhoods that were initially cheaper: in areas that were in the bottom 10% of house prices in 2001, the relationship between an increase in the number of startups and real estate growth is nine times stronger than in more expensive areas. It is in the more affordable neighborhoods that change leaves stronger footprints.
Winners and losers in a changing city
One of the most significant implications of the paper concerns the distribution of economic benefits: in neighborhoods affected by strong entrepreneurial gentrification, long-term residents are not always able to capture real estate gains.
The areas where prices are rising the most are those with low levels of home ownership: in 2001, the average share of homeowning households was around 22%. In these neighborhoods, rents are rising rapidly and long-time residents, not being homeowners, are excluded from capital gains. “It is mainly landlords who benefit from the increase in real estate values,” notes Gagliardi. “Many residents have to leave their neighborhoods just as they become more livable.”
The energy that transforms and how to manage it
The study raises socio-economic implications that cannot be ignored: supporting startup ecosystems accelerates urban growth, but at the same time intensifies housing pressures and can generate new forms of inequality. Evidence shows that growth-oriented entrepreneurship is a powerful driver of urban transformation, but it is far from neutral. This is why it is essential to understand not only how much growth it produces, but also how this growth is distributed and who benefits most from it.
When costs and benefits are not distributed fairly, strong coordination with housing policies is needed, especially in neighborhoods where renters prevail, as well as tools to protect those who already lived in the neighborhood, to prevent regeneration from directly translating into social displacement. It is not a question of curbing growth, but of governing it in a fair and sustainable way. Excessive price increases are not only a mechanism of exclusion in the short term: they can stifle the next generation of entrepreneurs, making the very places where innovation was born inaccessible.
The ‘gentrification of startups’ is a rapid and self-catalysing force, capable of bringing vitality, services and wealth. But without adequate policies, the very energy that renews neighborhoods can become a driving force for the expulsion of those who cannot sustain the new costs and new consumption, creating cities that are more dynamic, but also more fragile and divided. This fragility affects precisely what makes cities hubs of agglomeration: the diversity, openness, and inclusion that attract talent and allow them to fully express their innovative potential.
