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O f the several competing theories of gentrification on offer, Neil Smith's rent gap hypothesis has attracted the most attention, probably because it is the most formal and ambitious in its claims. The three key aspects of the theory include: (1) the proposition that gentrification must be preceded by the formation of a rent gap in the inner city property market, (2) the "capital switching" hypothesis, and, (3) the claim that the beginnings of gentrification coincided with a capitalist crisis of overproduction. Each of these propositions is evaluated with data assembled for metropolitan Adelaide, the state capital of South Australia. Shifts in matched land and house price gradients between 1970-85 reveal the existence of a well-formed rent gap in Adelaide by the late 1960s and its steady contraction thereafter. Because of the stratagems adopted by the South Australian and local governments for closing the rent gap, gentrification represented the third-best response so far as capital was concerned. When the flow of housing investment within the urban economy is analyzed, Smith's portrayal of gentrification as a "back to the city movement of capital" receives qualified support. The only incontrovertible evidence for the redeployment of housing investment from the outer t o the inner suburbs relates to a significant change in public housing strategy. While investment in rehabilitation and townhouse production has been mildly countercyclical on at least one occasion during the last twenty years, the postulated connection between gentrification and crisis conditions in the national or regional economy remains in doubt. The purposive intervention by the state government in concert with the city has been a much more potent agent for gentrification.

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This case study updates a long-running investigation into the revitalisation of inner Adelaide previously reported in Urban Studies in 1981 and 1991. Its value is two-fold: first, it provides an opportunity to review critically the fate of gentrification in Australia under economic conditions that others would claim have not always been favourable during the 1990s; and, secondly, it highlights the strategic role of a public housing authority as a lead agency in the process of urban revitalisation. The paper uses data on intercensal change together with an overview of the state government's urban investment policy to argue that the class transformation of inner Adelaide is now effectively complete. During the past decade, there has been a distinct improvement in the fortunes of the inner western suburbs which had previously suffered from long-term decline. The State's Inner Western Program has been instrumental in remediating badly degraded industrial land and rezoning an unused transport corridor through these suburbs and helping to lever private investment in the housing sector. Hence the housing reinvestment and class changeover normally associated with gentrification has proceeded apace right through the 1990s. After 30 years, the circle of regeneration has almost been completed on all four sides of the City of Adelaide.

The contention surrounding the significance of homeownership for social theory is reviewed, after which it is suggested that the conceptualisation of wealth accumulation for homeownership has yet to comprehend fully the ‘generative mechanisms' underlying capital gains or losses. There is a need to advance beyond the rather limited analysis developed by Thorns in 1981, to a consideration of the connections between urban restructuring, the transfer of value, and capital growth within the urban housing market. Trends in Adelaide's separate-housing market, 1968–75, are outlined to provide a context for the central question; that is, what is the relationship between class position and house price inflation? Too much temporal and spatial variability is encountered in a number of estimates of capital growth in the separate-house submarket to sustain the claim that this source of accumulation systematically favours those homeowners with the greatest real investment in housing. Regression analysis is used to demonstrate that at least some of the variability in capital gains or losses can be accounted for by indicators that relate to processes of urban restructuring. Further clarification of the theoretical significance of homeownership for social reconstitution must await a longitudinal study of the passage of households through the domestic property market in the course of a lifetime.