As the readers of this blog probably know, I have spent a lot of time and effort on identifying the components of our Central Social Districts and analyzing what makes them succeed or fail. I’ve dug deeply into public spaces, movie theaters, housing, and various other components in cities large and small.
Recently, I was asked for one article that put it all together. I realized that I did not have one, so I consequently set out to write it. That article was recently published in The American Downtown Revitalization Review – The ADRR at https://theadrr.com/
Doing the topic justice meant that it would be long, about 30 pages, and more like a monograph than an article. Readers wanting a quicker take can just focus on the first six pages. However, if you are looking for more guidance about what to do and not do, you will need to dig deeper into the article.
Some of the important things I tried to do are to establish that some components are much easier and cheaper to establish than others, and which work better in different types of downtowns. I also tried to strip away a lot of the advocacy hype about some components that too often hides the challenges involved and obscures how progress needs to be evaluated, e.g., the arts venues, while spotlighting venues whose importance still goes widely unrecognized, e.g., libraries.
Here’s the article’s tease and link:
Strong Central Social Districts: The Keys to Vibrant Downtowns
By N. David Milder
DANTH, Inc.
CSDs and Some of Their Frequent Components. Since antiquity, successful communities have had vibrant central meeting places that bring residents together and facilitate their interactions, such as the Greek agoras and the Roman forums. Our downtowns long have had venues that performed these central meeting place functions, e.g., restaurants, bars, churches, parks and public spaces, museums, theaters, arenas, stadiums, multi-unit housing, etc. The public’s reaction to the social distancing sparked by the Covid19 pandemic, and the closure of so many CSD venues, was a natural experiment that demonstrated how much the public needs and wants these venues. They are the types of venues and functions that make our downtowns vibrant, popular and successful. To read more click here : https://theadrr.com/wp-content/uploads/2021/07/Strong-Central-Socia-LDistricts-__-the-Keys-to-Vibrant-Downtowns__-Part-1-FINAL.pdf
By William F. Ryan, University of Wisconsin – Madison/Extension and N. David Milder, DANTH, Inc.
Introduction
Within the downtown revitalization community a broad consensus has formed around the maxim that the greater the number of people who live in our downtowns, the more likely they are to prosper. These residents help to spark the “activation” of the district, providing the visible evidence of people engaging in a variety of activities, and nurturing the perceived sense of vitality among visitors that makes the area a magnetic place to be. A number of factors can impact this downtown population growth. The real estate market certainly is one. Job growth, especially of creative class employees, is another. One that has gained notice, of late, is the number of people who live and work in their districts, and the live-work environments that emerge to both support them and reflect their attitudes and behaviors.
Most of the attention paid to the live-work engine has focused on our largest cities. After a brief look at those downtowns, this article will look in greater depth at the numbers, behaviors and impacts of live-workers on suburban and independent cities with populations between 25,000 and 75,000 .1 Suburban cities are located in a metro area in which there is a large center city. They usually serve more as bedroom and leisure communities than employment centers. Independent cities are more geographically isolated and may be the cores of a small metropolitan/micropolitan area. They serve as employment and commercial centers as well as bedroom and leisure communities. They are often also government centers (e.g., county seats). They are more multi-functional than the suburban downtowns.
Live-work Environments as a Growth Engine in Our Largest Employment Nodes.
Job growth alone often has had mixed impacts on a downtown’s vitality and attractiveness in our larger cities. In the 1980s, for example, office development – with its large numbers of white collar workers — was seen as THE downtown redevelopment strategy, but it produced a large number of disappointing projects in dull and perceived unsafe downtowns. Many of them had to be “redone.”2 In office dominated districts, there were too many fortress-like office towers, and they lacked the multifunctionality and pedestrian activity that are critical for downtown vibrancy. Though somewhat active weekdays from about 11:00 a.m. to about 2:00 p.m., the downtowns were deader than doornails at other times. There were too few people around once the offices closed.
Since the early 2000s, and especially after a major paper by Eugenie Birch in 2005, observers noted that our larger downtowns in the 1990s had been attracting significantly more residents.3 In the years since, housing development has become increasingly seen as the secret revitalization sauce for a large number of downtowns, including those in numerous suburbs, and almost all of our largest cities. These new residents help activate their downtowns after 5:00 pm on weekdays and over the entire weekend.
However, not all downtowns experience household growth. For example, Birch found that about 27% of the downtowns she studied had declining numbers of households.
Downtown housing growth and district activation is thought to be strongest when downtowns have attracted large numbers of “live-workers. They are there after 5:00 p.m. and on weekends. They don’t spend much time in vehicles commuting, but often will walk to and from work, or make short trips on public transit. For example, in several zip codes in Manhattan over 50% of the residents who are in the labor force walk to work. The live-workers very often are also creatives with high salaries.
In a seminal monograph published in 2017, Paul Levy and Lauren Gilchrist researched the percentage of live-workers (those who both live and work in a district) in 231 major employment centers located in the nation’s 150 largest cities and within a one-mile radius that surrounds each of these centers. 4 Their work is important because it:
Demonstrates how downtowns are intractably inter-related with their immediately surrounding neighborhoods.
Showed that a significant number of the downtowns in the nation had very significant levels of live-workers of 40.7% to 55.9%, especially those in superstar cities. (See the above table). The authors did not overtly make that claim, but, several of the high performing downtowns they listed are what Aaron Renn has termed as superstar cities: “These “superstar cities”—New York, Los Angeles, the San Francisco Bay Area, Boston, Washington, and Seattle—are among America’s largest, most productive urban regions. They have well-above-average per-capita GDP and incomes and serve as the home bases of high-value sectors like finance (New York) and high tech (San Francisco)”. 5
However, the vast majority of our largest employment nodes had considerably lower levels of live-workers: 60% had fewer than 20% of their workforce being live-workers, with 42% in the 10%-19% range. 6
Live-workers in Independent and Suburban Cities.
The authors utilized a data set compiled by William Ryan, of the University of Wisconsin -Madison/Extension , and Prof. Michael Burayidi, of Ball State University, that covers 259 downtowns in cities with populations between 25,000 and 75,000 in Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin. The dataset contained valuable information about the sizes of these downtown populations and their growth or decline. Using the Census Bureau’s On-the-Map online database, two variables were added to the original dataset: the number of people who both lived and worked in the city (N Live-workers in City) and the percentage of people participating the nation’s workforce and living in the city who also worked there (% Live-workers in City). The limitation of these added data is that they are characteristics of the whole city and not just the downtown and its immediately surrounding areas. The reasoning for using these data is that the two live-work variables can be seen as indicators of a proclivity to live-work within a city and the analysis can be framed by looking at the impact of that proclivity on the size of these downtown populations and rates of population growth/decline.
A closer look at downtown live-work situations is also presented below. However, because of resource constraints, it is confined to 10 cities in this population range. Five are independents and five are suburban. Several of these downtowns are not in the Ryan-Burayidi dataset.
Downtown Population Growth and Decline. These downtowns do not appear to be having the impressive level of population growth that is to be found in our larger cities, and this is especially the case for the independent cities that are not part of a large metro area.
The suburbs averaged downtown populations that were about as large, 3,089, as the independents, 3,294, but had a slightly larger maximum and a lower minimum. The suburban downtowns captured only a slightly lower proportion of their city’s population, with a median of 7.6%, than the independents did, with a median of 9.2%. Their highest proportions were close, too, 28.4% among the suburbs and 27.3% among the independents.
However, the suburban downtowns had an average growth rate between 2010 and 2018 estimated at 5% compared to just 0.53% for the independents. Both growth rates were far below the two digit growth rates many of our larger downtowns have been experiencing. Unexpected is the large percentage of these downtowns with negative growth rates, 36%. One might think that we were back in the 1960s or 1970s. In this regard again, the comparative strength of the suburbs stood out: while 31% of the suburban cities were dealing with declines in their downtown’s population, 46% of the independents experienced such decline. The suburbs also showed much more variation in their growth, with a low of -57.2% and a high of 140.2% compared to the -11.6% and 17.9% for the independent cities.
Many of these downtowns could benefit from a strategy that can increase their downtown populations.
An important factor in the different downtown population growth rates of the suburban and independent cities is their current economic growth potentials. Recent studies by Brookings and AEI have noted that economic development these days is stronger in communities that are attached, in a metro area, to a large city that has a population above 250,000.7 Many of the suburban cities in the Ryan- Burayidi dataset are attached to such cities (e.g., Chicago, Minneapolis, Columbus). In contrast, the independents, all under 75,000, probably are not, and instead are themselves the core cities of smaller and weaker metro areas.
Levels of Citywide Live-Work. Again, because of their very natures, these two types of cities display quite different levels of live-workers at the city level. In the more geographically and economically isolated independent cities, half of them have over 33% of their residents who also work in the city, with 10% having between about 54.7% to 67.7% of their residents being live-workers. Those numbers, though at the city level, compare favorably with the percentages of liveworkers in and near our big city downtowns identified by Levy & Gilchrist. In contrast, the suburbs, being integrated into an economic region with lots of jobs, have many fewer live-workers at the city level. Half of the suburban cities have less than about 9.9% of their residents also working in their cities, with the highest percentage being 36%, about half that of the independent cities.
A Pearson Correlation analysis showed that both live-work variables have very weak relationships with downtown population size in both independent and suburban communities, with no r exceeding .166 or being statistically significant. These findings support the conclusion that the proclivity for live-working in both types of cities probably has little impact on the downtown’s population size. People who live close to where they work are not clustered in and near their downtowns in these 259 cities.
However, there was a positive r of .249 significant at the .05 level between the number of live-workers in the independent cities and their downtowns’ rates of growth/decline. This does suggest that the proclivity to live-working can have some positive association with downtown population growth in these communities when they are growing. That may point to the additional availability of new downtown housing units that facilitate live-working.
A Case Study of a Creatives’ Suburb. Looking at the nature of the live-work environment in one of the suburban cities in our dataset, Dublin, OH, provides an interesting case study. Dublin is the nation’s 13th strongest creative class city, according to Richard Florida. 8 For a suburb (of Columbus) , it also has a large number of people who hold jobs in the city, about 42,249 in 2017. (See the above table). Given the propensity for creatives to prefer hip urban areas, one might expect a high number of live-workers in this downtown. However, the number of live-workers within a half-mile of the downtown’s center point in 2017 is a miniscule five. In 2017 live-workers represented just 0.18% of the downtown’s workforce and 1.2% of its residents who are in the labor force. They also represented just 0.48% of the downtown’s 1,024 residents (includes those not in the labor force). Those five live-workers accounted for 0.2% of the 3,184 live-workers in the whole city. Live-workers seem, if anything, to be avoiding the downtown.
The number of people who are in the labor force and live in the 0.5 mile had dropped slightly, by 19, from 2007. Most notably, the absolute numbers of live-workers and their percentages of the relevant area’s workforce and residents increased with their distance from the downtown. Moreover, the number of live-workers in the city increased by 408, while the increase within the 1-mile ring was just 44, or about 9% of the city’s total increase. This is consistent with the hypothesis that the local residents and workers have little interest in living in urbanized environments, or at least the type offered in downtown Dublin. The downtown might not be seen as hip. It is very small. This should not be surprising in a town that is such a strong exemplar of a successful suburban city. Here is how Google describes the city:
“Dublin Ohio is a long standing community and is probably best known for being the home of Jack Nicklaus’ Country Club at Muirfield Village”.
“Dublin is in Franklin County and is one of the best places to live in Ohio. Living in Dublin offers residents a sparse suburban feel and most residents own their homes (italics added). In Dublin there are a lot of bars, restaurants, coffee shops, and parks. … The public schools in Dublin are highly rated.” 9
In 2014, a survey by Trulia found that 53% of the 2,008 respondents lived in a suburb and that about 93% of them preferred living in suburban locations. 10 That suggests a high probability that a strong majority of the residents in towns like Dublin might not be looking to live in a dense downtown location in a multi-unit structure. The situation in Dublin signals that many creatives may be among them.
Dublin recently undertook a massive new project, the Bridge District to strengthen the downtown. It will be interesting in a few years to see how that changes how many people live in its downtown and how many are live-workers. 11
An In-Depth Look At Working Populations, Jobs and Live-Workers in 10 Selected Downtowns.
The authors selected 10 downtowns they have visited and researched with populations in the 25,000 to 75,000 range (with the exception of Morristown, NJ) to look at their live-work rates, if these rates grew or declined between 2007 -2017, the size of their working populations (residents in the labor force), their number of jobs and how they also may have changed between 2007-2017. The data were downloaded from the Census Bureau’s On-the-Map online database using 0.5mile and 1.0 mile radii centered on the key intersection in each district. The assembled data are displayed in the two tables presented below. The analysis of such a small sample has obvious statistical limitations. In the natural sciences, e.g., astronomy, however, analogs are often treated as outliers that bring an existing theory or paradigm into question or suggests a need for their amendment. Our findings are presented as being directional, not conclusive, and sometimes as signaling that attention should be paid to them because they do not fit with the accepted professional wisdom.
For the downtowns in the cities in the 25,000 to 75,000 population range, the 0.5 mile ring will cover most or all of their district. It also represents an area that the average pedestrian can cover in about a 10-minute walk from the downtown’s center. It is also often used to define the boundaries of transit-oriented development districts. The 1 mile ring defines and area that is about 4.13 times larger than that of the .5 mile ring, and the average pedestrian would have to walk for about 20 minutes to go from the downtown’s center to the ring’s boundary. Such a walk is still doable for many, but its difficulty is sufficient to probably make others use some form of transportation or simply not make the trip. The .5 mile to 1 mile donut probably represents the nearby neighborhoods that are so crucial to the success of our downtowns.
Residents in the Labor Force. As can be seen in the above table, the number of people who live in the 1-mile ring and are in the labor force (labor force pop), for the most part, is far from negligible. (Note, they do not necessarily work in or near the downtown). The most are in two suburbs, Cranford, 8,817, and Morristown, 8,728, both in NJ. However, the average for the 5 independent downtowns’ 1 mile rings, 6,566, is about 10% higher than that of the five suburban cities, 5,977.
A far larger disparity appears when we look at the data for .5 mile rings: the average number of ring residents who are in the labor force is 1,776 for the five suburban city downtowns, but 307% larger at 5,455 for the independent city downtowns. This probably reflects key differences in their basic characteristics: the independents probably are larger and have traditional, more densely developed downtowns, with more housing units and more jobs, while the suburban downtowns are less densely developed and less multi-functional. However, within the suburban group, Cranford, Morristown and Downers Grove all have many more of these residents than the other two downtowns. Notably all three had completed a number of downtown housing projects in the 2007 to 2017 timeframe. Also, Morristown is both a suburb in the NY-NJ-CT Metropolitan Region, and a county seat and regional commercial center. Notably, it and Garden City have more people working in the city than residents. Starting out as bedroom communities has not stopped them from also becoming office employment centers.
The table also provides ring ratio values that are created by dividing a variable’s value for the 1 mile ring by its value for the .5 mile ring. This sheds light on where the weight of the geographic distribution is between the two rings. Here we are looking at the ring ratio for residents who are in the labor force. A value of 4.1 would indicate an evenly balanced distribution. Values below 4.1 mean the distribution is weighted to the .5 mile ring, and the lower the ratio’s value, the more heavily the distribution is weighted. Conversely, values above 4.1 indicate the degree the distribution is weighted to the 1 mile ring. While the ring ratio for the suburban cities, 3.4, and the independents, 1.2, indicate the weight of the distribution is toward the downtown, it is much stronger for the independent downtowns.
Live-Workers. When it comes to live-workers, the differences between the independent and suburban cities are even more striking. In the .5 mile ring the suburbs range between an unimpressive 5 and 216 live-workers, with an average of 80. On average, live-workers account for just 4.5% of the residents in that ring who are in the labor force. If we look at the suburbs’ 1 mile rings, the numbers rise, but they still are relatively small. Their live-workers range between 169 and 1,146,, with an average of 521. The live- workers in that ring, on average, represent just 8.7% of its residents who are in the labor force. These findings are consistent with the conclusion that the vast majority of the people who live in and near suburban downtowns do not do so because their jobs are also there, though some may be employed elsewhere in their cities. Other factors are leading these residents to select residences in and near their suburban downtowns. Such factors might include the convenience, transportation assets (e.g., commuter rail), and the attractive central social district functions these downtowns offer.
Live-workers have a stronger presence in the independent cities, especially in the 1-mile ring around their downtown’s central location. The range from 181 to 328 in the .5 mile ring, with and average of 231 and from 959 to 1,459 in the 1 mile ring, with and average of 1,212. On average the live workers are 7.7% of the residents in the .5 mile ring who are in the labor force , but 19.9% of those residents in the 1 mile ring. Moreover, Laramie and Rutland have much more impressive levels of live workers, 39.5% and 29.3% respectively. These are levels comparable to large numbers of our largest downtowns. One explanatory hypothesis is that live-working is likely to flourish in the core cities of a metro area, be it large or small, but not in suburban cities.
The ring ratio of suburban cities for the live-workers is 6.5, and for the independents it’s 5,2, indicating their distributions are weighted significantly toward the 1 mile ring, in the .5 mile to 1 mile donuts where residents are likely to find walking to the town’s center not really easy and liable to need/use some transport to get there. This also supports the conclusion that while live-workers may be great for downtown activation and success, downtowns often may not be where people who want to live-work will decide to reside. Being near, but not in the downtown may allow them to enjoy both the assets of the downtown and a suburban home and lifestyle. This may be a reflection of the local cultural where single family residences and traveling by car still are highly valued. While this may be more apparent in suburban cities, these cultural preferences can also be found the independent cities that are so often cities in the midst of a rural area.
Influence of Jobs. Levy and Gilchrist argue that job growth and density are major reasons why live-work levels get very high in our most successful downtowns.
Looking at suburban cities in the bottom half of the above table, one might note that three of them have relatively large numbers of jobs in their 1 mile rings: Garden City 31,309, Morristown 23,431, and Dublin 16,529. They are in the large NY-NJ and Columbus metro areas. Indeed, the five suburban 1-mile rings average 16,890 jobs In contrast, the average job count in the 1-mile rings of the independent cities is just 6,566, with the highest being Rutland’s 7,659.
However, when we look at the percentage of jobs being held by live-workers in both the .5 and 1 mile rings, the averages for the suburban cities are just 1.5% and 3.1% respectively. Despite their high job numbers, the percentages of Garden City, Morristown and Dublin in the 1 mile ring are just 1.5%, 4.9% and 1.0% respectively. The connection between jobs and the emergence of a large number of live-workers seems to be barely existent in these suburban communities, even in those that are prosperous and have lots of jobs.
Live-workers have a more significant presence in the independent cities, especially in their 1-mile rings. The average percentage of jobs held by live-workers in the .5 mile rings is 12.2% and 19.1% in the one mile rings.
However, many of these cities have been struggling. As noted above, 46% of the 91 midwestern independent cities in the Ryan-Burayidi database had declining downtown populations. Auburn, Laramie and Rutland had job losses in their .5 mile ring of -25.6%, -17.8% and -17.8% respectively between 2007 and 2017 and declines in the number of live-workers of -25.6%, -24.9% and -24.2% respectively (see table below). Still, in all five independent cities there is total agreement in all 10 rings between the directions of job growth/decline and live-work growth/decline. That certainly signals a meaningful association between the two.
The opposite is the case with the suburban cities. In seven of their 10 rings there is disagreement in the directions of job growth/ decline and live-working.
Also worthy of note is that between 2007 and 1017 the number of live-workers declined in six of the independent city ring areas and in eight of the suburban ring areas. While live-work may have been growing in our larger cities, these 10 cities suggest that it may have been struggling in our medium sized cities.
The ring ratios for the suburban cities, 3.2, and the independents, 2.7, both indicate the geographic weighting of jobs is toward the downtown. This is again the opposite direction of the live-worker ring ratios. Jobs may be going to the downtown core, but live workers are going to the close-in neighborhoods surrounding the downtown or at its periphery.
Conclusions and Implications
Many of These Downtowns Are Struggling. This is strongly evidenced by the analysis of the 259 cities in the Midwest with populations between 25,000 to 75,000. Many of their downtown populations are declining, not growing. The problem is 48% greater in the independent cities than in the suburban cities that are often attached to fairly large and more prosperous metro areas. That Laramie and Rutland are also having downtown problems suggests that such weakness is not confined to the Midwest, but probably national in scope.
The success of our superstar cities and downtowns should not cloud our awareness of the challenges many of our other downtowns are still facing.
That Said, Their Downtown Populations Are Not Insignificant. The average downtown populations of the 91 independent cities, 3,294, and the 168 suburban cities, 3,089, are similar. Downtown populations of that size can have over $150 million in total annual consumer spending. If they just make one trip daily outside their homes that totals over 6,000 potential in-out pedestrian trips. Those are not negligible numbers.
Live-Working in These Cities Is Struggling, Too. While live-work may have been growing in our larger cities, in the 10 cities given a close look in this study, the numbers of live-workers declined between 2007 and 2017 in all of them. In the suburban downtowns live-work was not significant to begin with. That suggests live-work may have limited potential in many suburban downtowns and that it is struggling in a large number of our medium-sized independent cities nationally.
The Job Growth/Decline – Live-Work Growth/Decline Connection Does Not Work in Suburban Downtowns. Even when they have tens of thousands of jobs, the suburban .5 and 1 mile rings have very low percentages of live-workers. Conversely, the independent cities, that are often the core cities of small metro areas and have denser and more multi-functional downtowns than the suburban cities, can have significant levels of live-workers. In them, the connection between jobs and live-workers seems to be meaningful. However, the data on these five independents indicate that this can be a double-edged sword. When jobs grow, so can the live-workers, but, when jobs decline, so will the number of live-workers, and many of these downtowns are in stressed regional economies. One explanatory hypothesis is that live-working is likely to flourish in the core cities of a metro area, be it large or small, but not in suburban cities.
Is Job Growth Really the Primary Engine of Downtown Population Growth? The average downtown populations of the 91 independent cities and the 168 suburban cities are similar, but they differ in what attracts these residents. While proximity to jobs might draw a significant number of residents to locate in independent city downtowns, that is not the case with the suburban downtowns. Indeed, even most of the residents in the independent downtowns probably are not drawn there by the proximity to their jobs. If that holds nationally, then the argument for jobs being a primary engine of downtown population growth needs to be amended. Moreover, the reverse commuters in our superstar cities, such as those riding Google buses from their San Francisco homes to their Mountainview jobs, suggest national applicability.
The question then becomes, what other factors can be attracting downtown residents? Since our data did not cover this question, we can only hypothesize based on the accepted conventional wisdom in the downtown revitalization field the following:
The downtown’s multi-functionality, that there are so many diverse needs and wants that can be met in a downtown.
The attraction of the downtown’s central social district assets: its housing, restaurants, bars, public spaces, cultural and entertainment venues, senior and childcare centers, places of worship, pamper niche venues, etc.
The convenience of being able to walk to all of these venues and engage in all of the activities in a compact and visually attractive and humanly scaled area.
In the suburbs, the housing units proximity to a commuter rail or an express bus station.
If this hold water, then these downtowns should pursue revitalization strategies that reflect those points.
The Signals of Important Cultural Preferences. It’s important to keep in mind that the vast majority of the cities analyzed in this study are either suburban or medium-sized cities in rural areas. Very high proportions of the people who live in these areas prefer living in such communities. Their cultural preferences are for single family homes, high car use, and a selective tolerance of dense clusters of people. Living in multi-unit buildings situated in or near a walkable commercial district may only be valued by a limited number of niche market segments, such as empty nesters, commuter rail users, and young adults who need to share residency costs.
Looking at the 10 cities spotlighted in this study: while the weight of the geographic distributions of the labor force population and jobs tilt toward the .5 mile ring, it tilts strongly to the donut area between the two ring boundaries for the live-workers. This suggests that there may be some important differences between the live- workers residing in the donut and those people who live in the core downtown area. One might conjecture that since it is likely that the housing available in the donut will not be as dense as it is in the downtown core, and also more likely to be single-family dwellings, that this signals an important lifestyle preference. This, in turn, may correlate with higher income households who can afford to buy houses going to the donut.
Moreover, as we noted about Dublin, OH, even though the town has a ton load of creatives working there, where its residents have chosen to live suggests a high probability that a strong majority of them are not looking to live in a dense downtown location in a multi-unit structure.
Would An Infusion of Creatives Alter These Cultural Preferences and Increase Live-Working? Creatives are often seen as the strategic solution to many downtown challenges. Would and infusion of them counter a culture’s existing preference for a dispersed lifestyle? Research by David A. McGranahan and Timothy R. Wojan found that in metropolitan counties about 30.9% of the workforce were in creative class occupations, while in rural counties it was just 19.4%. 12 One might reasonably deduce that the cities analyzed in this study have creatives that probably account for between 20% to 30% of their workforces. Creatives are famous for living where they will find the lifestyles they prefer, so the fact that they live in these suburban and rural cities can be taken as a fairly strong sign that they like living in these kinds of communities. That, in turn, suggest that they may have adopted many of the cultural values of their larger community. Moreover, whatever impact they might have already is reflected in the current situation in these cities and their downtowns. Also, given their education, income and employment, creatives also can be expected to have had an above average level of influence in the community.
One possible influence for change might be creatives who move into these communities. Will they bring in a more cosmopolitan worldview? There has been some research on the people who are moving back to small towns and rural areas that shows many are in creative occupations and that they move back to be closer to their families, to enjoy a slower pace of life, and to live in a place where social ties and engagement are more important. 13 They maybe bringing their creative and entrepreneurial talents into their suburban and rural cities, but they are not there to create a mini Midtown Manhattan or a mini downtown San Francisco.
On the other hand, if the incoming creatives are largely young, not nested adults, then there might well be a demand for apartment units. However, brain gain when it emerges in these cities, to date, has brought in more families than singles.
ENDNOTES
1) These cities were selected based on data from: U.S. Census Bureau, Governments Division, Government Organization, Table 7: Subcounty General-Purpose Governments by Population-Size Group and State. Census of Governments (2007).
2) Two of the most successful “redos” are Uptown Charlotte and the Lower Manhattan CBD.
3) Eugenie Birch, “Who lives downtown”, Washington, DC: The Brookings Institution, Metropolitan Policy Program, November 2005, pp 20.
4) Paul R. Levy and Lauren M. Gilchrist, “Downtown Rebirth: Documenting the Live-Work Dynamic in 21st Century U.S. Cities.” Prepared for the International Downtown Association By the Philadelphia Center City District, pp.57
5) Aaron Renn, “SCALING UP: How Superstar Cities Can Grow to New Heights”, Manhattan Institute, Report January 2020, pp. 16, p.1
11) Thanks to Aaron Renn for bringing this to our attention.
12) David A. McGranahan and Timothy R. Wojan, “Recasting the Creative Class to Examine Growth Processes in Rural and Urban Counties”. USDA. https://naldc.nal.usda.gov/download/41989/PDF
Contact: N. David Milder, Editor The ADRR — The American Downtown Revitalization Review 718-805-9507 [email protected]
THE CREATION OF THE AMERICAN DOWNTOWN REVITALIZATION REVIEW (THE ADRR)
There currently is no real professional journal for the downtown revitalization field. For many years, that has been strongly lamented by many of the field’s best thinkers. To remedy that situation, a band of accomplished downtown revitalization professionals are creating The ADRR. It will be a free online publication, appearing four times each year. The target date for the debut issue is now set for the June 1-15, 2020 timeframe, with the second issue aimed for the Sept 7-14, 2020 timeframe.
This ADRR is intended to be a lean and mean operation, based totally on the availability of free online resources and the time, energy and elan contributed by its authors, advisory and editorial board members, and its editor.
How to Subscribe to The ADRR
Those interested can now visit The ADRR’s website, www.theadrr.com , where, on the home page, they can sign up to become subscribers. This enrollment places the subscriber on a MailChimp mailing list so that they can receive New Issue Alerts (see below).
How Issues of The ADRR Will Be Distributed.
New Issue Alerts, containing the Tables of Contents of issues and links to their downloadable pdfs of articles are sent to subscribers via a MailChimp email blast and posted to the ADRR’s website. Each issue’s pdf files initially will be stored in a folder in ND Milder’s Dropbox account from which they can be downloaded. Subscribers can download only those articles they want to read and whenever they want to read them. The ADRR also can be found via Google searches.
The Content We Are Aiming For. Only manuscripts about major downtown needs, issues and trends will be considered for publication. They will be thought pieces and not just reports about a downtown’s programs and policies that its leaders want to brag about. Articles must have broad salience and their recommendations broad applicability within the field. The “voice” of The ADRR will be anti-puff, and very factual, evidence driven, though not dully academic. Discussions of problems and failures will be considered as relevant as success stories if, as so often is the case, something substantial can be learned from them. The ADRR will not avoid controversial issues.
Also, the focus of The ADRR will not be overwhelmingly on our largest most urban downtowns, but also provide a lot of content and relevant assistance to those in our small and medium sized communities, be they in suburban or rural areas.
Who Will Write the Articles?
Hopefully, they will be from people in a broad range of occupations – downtown managers and leaders, municipal officials, academics, developers, landlords, businesspeople, consultants, etc. — who have significant downtown related knowledge and experience.
Curated Articles and Wildflowers. Initially, the ADRR will solicit articles to prime the content pump. Once The ADRR is up and running some articles will continue to be solicited on topics deemed a high priority by the editorial board members. Each board member can select a topic to curate an article on and seek the author(s) to write them. However, there still will be a continual traditional general call for submissions (wildflowers) focused on subjects selected by their authors. All submissions, curated or wildflower, must demonstrate sufficient merit to warrant publication in The ADRR. All submitted articles will be reviewed by board members. We hope to see many submissions!
Article Length and Author Responsibilities.
There will be short reads and long reads. Articles of 1,500 to 5,000 words will be considered. Multi-part articles of exceptional merit and salience will also be considered. What counts is their quality, not their length. Authors must have their articles thoroughly proofread prior to submission. Poorly proofed manuscripts will be rejected. Guidelines for submissions may be found on The ADRR website.
Publication Schedule:
Published four times per year, with a minimum of 5 articles in each issue. Given that this is an online publication, from a production perspective, the number and length of the articles is not a particular problem. However, from an editorial and content management perspective, the number of articles and their lengths can quickly become burdensome.
How It Will Be Organized.
The ADRR will be published by an informal group for its first year, with no person or group having ownership.
Editor. During the ADRR’s first year, N. David Milder has volunteered to serve as its editor.
The Advisory/Editorial Board :
Jerome Barth, Fifth Avenue Association
Michael J Berne, MJB Consulting
Laurel Brown, UpIncoming Ventures
Katherine Correll, Downtown Colorado, Inc.
Dave Feehan, Civitas Consulting
Bob Goldsmith, Downtown NJ, and Greenbaum Rowe
Stephen Goldsmith, Center for the Living City
Nicholas Kalogeresis, The Lakota Group
Kris Larson, Hollywood Property Owners Alliance.
Paul R. Levy, Center City District, Philadelphia
Beth Anne Macdonald, Commercial District Services
Andrew M. Manshel, author
N. David Milder, DANTH, Inc
John Shapiro, Pratt Institute
Norman Walzer, Northern Illinois University
Articles in our first issue that will be published in June 2020
Michael Berne, MJB Consulting, Working Title, ” Bringing Downtown Retail Back After COVID-19”
Roberta Brandes Gratz, “Malls of Culture.”
Andrew M. Manshel, “Is ED Really a Problem?”
N. David Milder, DANTH, Inc., “Developing a New Approach to Downtown Market Research Projects – Part 1.”
Aaron M. Renn, Heartland Intelligence, “Bus vs. Light Rail.”
Michael Stumpf, Place Dynamics, “Using Cellphone Data to Identify Downtown User Sheds”.
The Spotlight: “Keeping Our Small Merchants Open Through the COVID-19 Crisis”
Katherine Correll, Downtown Colorado, Inc.
David Feehan, Civitas Consulting
Isaac Kremer, Metuchen Downtown Alliance
Errin Welty, Wisconsin Economic Development Corporation.
Many of our most successful large cities are also ailing and
fragile in very essential ways, whether or not their leaders and stakeholders are
open to acknowledging that reality.
Yes, by many economic measures, lots of our major cities
such as NYC, San Francisco, Seattle and Washington, DC,, and especially their
CBDs, are more successful than ever. The value of their real estate continues
to soar. As do their employment levels and their ability to attract large
numbers of the creative/knowledge workers that are so essential to economic
growth and success. Affluent people are eager to live in and near their
flourishing downtowns. Pedestrian flows are strong. Tourist are flocking to
their arts, entertainment and cultural venues as well as their hotels,
restaurants and shops. Their streets are active at least 18 hours a day.
Yet, in 2017, Richard Florida published a book with a very
revealing title: ” The New Urban Crisis: How Our Cities Are Increasing Inequality,
Deepening Segregation, and Failing the Middle Class—and What We Can Do about It.” Increasingly, the core areas of our major
cities have become places where only the very wealthy can live and play. The
middle class can still work there, but even those with $1 million to spend on
housing too often cannot find desirable units.
Affordable housing is a major issue in these cities. Dinners for two in
their restaurants can easily cost hundreds of dollars. While movie tickets may
cost about $9 to $13, admission at their museums can run about $25, and tickets
to prime arts event venues can run over $125 in the primary market, and over a thousand
in the secondary market. Their downtowns are no longer everyone’s neighborhood,
but devoted to very wealthy locals and affluent tourists. If NYC is any
indicator, half of the most expensive new residential units are unsold, and the
other half of the units are occupied by part-time residents, and usually vacant.1 For
most city residents, their city’s downtown is no longer really theirs.
Added to the financial and spatial equity issues are the very significant return of problems of public disorder, such as homeless vagrancy and aggressive panhandling. The situation in downtown San Francisco has grown quite out of hand, with many sidewalks being blocked and pedestrians forced to run a narrow gauntlet of aggressive panhandlers, reclining/sitting vagrants, litter and human feces.2 Similar, if less egregious situations can be found in several other large West Coast cities. Closer to home, one BID manager in Manhattan recently told me that dealing with problems of disorder was now his organization’s highest priority and that this also is the case with many other BIDs in the borough. Center City in Philadelphia is also making a renewed effort to deal with the problems of disorder.3 Those of us who were around to see how the problems of disorder strangled downtowns during the 1970s and 1980s are very concerned about these flare ups of the problems of disorder. Will their resurgence strengthen? Have the tools we used to successfully cope with them in the recent past now lost their efficacy? Do local politicians and public at large have the required political will to do what must be done?
Also, the very success of our downtowns is
causing several other problems. One that goes unnoticed until it isn’t, is that
our pedestrian densities often have reached such high levels that they have
significant adverse impacts on the pleasure of walking, i.e., they diminish an
area’s walkability. Measures to relieve auto congestion have in some places,
e.g., Midtown Manhattan, provided some pedestrian decompression by converting
traffic lanes to pedestrian use. The potentially disruptive impacts of small
vehicles – e-scooters, e-bikes, delivery robots, etc. — and AVs are on a rapidly closing-in
horizon. For all their wealth, many downtown retail corridors in these
superstar downtowns have surprisingly high vacancy rates reaching sometimes
over 30%.
Creative Job Growth and Affordable Housing.
For some time now, economic development professionals have known that affordable housing is a serious and growing problem, especially those active in our large and successful cities – see table above.
Nationally, the relationship between the strong growth of high paying
high tech employment and the seriousness of the affordable housing problem was
also well-known. Large increases in highly paid creative workers leads to
rising housing prices. The new housing products sparked by that increased demand
will be largely upscale market rate. The emergence of the affordability issue
suggests that one way or another the demand of upscale creatives is pushing up
the costs of housing in what were middle income units.
The situation in San Francisco has already reached such severity that $1 million might buy you a home constructed from a former cargo shipping crate. An attempt even was made to smother office growth in the city in order to shift more resources to housing development. Several high tech firms have committed billions to solving this problem: Google will invest $1billion, as will Facebook, and Apple recently said it would commit $2.5 billion to the issue.4 I doubt they would be making these investments if the problem was not very serious.
Seattle shows what can happen to the housing market when there is a very large infusion of creative jobs by just one firm. By 2017 Amazon had eight million square feet of office space, occupying 19% of Seattle’s office space, and tens of thousands of office workers. While other major national high tech firms were also adding employees, an article by Mike Rosenberg and Ángel González in the Settle Times proclaimed: “Thanks to Amazon, Seattle is now America’s biggest company town.”5 It’s huge presence and growing workforce had fostered the following conditions:
By 2017, apartment rents were 63 percent higher
than in 2010, and Seattle became the
fastest-growing city in the country.
Home costs rose faster in Seattle than anywhere
in the nation, doubling in five years, and pushing the middle class to
surrounding, less expensive towns.
Seattle had the nation’s third-highest
concentration of mega-commuters — people traveling at least 90 minutes each way
to work. Their numbers grew 72 percent
in five years.
Buses were more packed than ever, and lines running
along the Amazon campus often were standing-room-only during rush hour. Metro
drivers at times have to leave commuters waiting outside an Amazon office
because their buses were full. Local officials even added buses to accommodate
the crush of Amazon interns that arrived during the summer.6
Even the mere announcement of a big development project that will bring
thousands of new creative workers into an area can raise prices by attracting real
estate speculators and convincing homeowners to keep their homes off of the
market so they can benefit more fully from the rising values of their homes.
For example, Amazon’s impact on the housing market in and around Arlington, VA,
it’s remaining HQ2 town, was swift, starting with the announcement of the deal.
A
year after the deal, with no construction completed and much not even started, Redfin
reported home prices in Arlington were up nearly 18% year-over-year. That far
outpaced the 2.7% price change in the D.C. metro area.7
Will New Expensive Housing for the New Creative Workers Help Make Housing More Affordable for Middle and Lower Income Households? One possible counter argument that has been offered by some colleagues is that the expensive new housing triggered by the new creative job holders will increase overall supply and thus help lower housing costs throughout the city. That has the prima facie validity of reflecting very basic economic principles, and there are some recent economic studies that at first blush seem to support that argument. However, I think that when you look more closely at their analyses and conclusions, their ability to really support this top down path to housing affordability becomes far less certain.
Evan Mast, in an interesting recent study using migration data found
that:
Migrants “to new central city multifamily
buildings come from neighborhoods with slightly lower incomes, and migrants
into these neighborhoods come from areas with still lower incomes, and so
forth.”
“Using a simulation model, (he found) that 100
new market-rate units ultimately create 70 vacancies in middle-income
neighborhoods. New construction opens the housing market in low-income areas by
reducing demand. A simulation model suggests that building 100 new market-rate
units sparks a chain of moves that eventually leads 70 people to move out of
neighborhoods from the bottom half of the income distribution, and 39 people to
move out of neighborhoods from the bottom fifth. This effect should occur
within five years of the new units’ completion.
These openings should lower prices, but the
effect may be small in the least expensive areas where prices are close to the
marginal cost of providing housing” (Italics added).8
Looking at Mast’s findings from the perspective of cities with severe
housing affordability problems, the issue of the marginal cost of providing
housing raises questions. In these cities the problem is precisely that the
marginal cost of providing housing is beyond what middle income households can
afford, not just the lowest income households. Moreover, the new units are not just
market rate, but relatively high market rate. Consequently, one might reasonably ask if these cities were
looked at separately, would “the effect” also be found weaker further up on the
income scale? My reasoning suggests the answer is very probably yes.
In another very interesting recent study, Liyi Liu, Doug McManus, and
Elias Yannopoulos at Freddie Mac looked at filtering, “the process by which properties, as they age,
depreciate in quality and hence price and thus tend to be purchased by
lower-income households. This is the primary mechanism by which competitive
markets supply low-income housing.”9 They found
that:
“(T)here is a wide range of filtering rates both
across and within metropolitan statistical areas (MSAs) for owner-occupied properties.
Notably, in some markets, properties ‘filter up’ to higher-income households”
“After 40 years, average real incomes increased
by 12% for Washington, DC (implying an average annual increase of 0.28%) and by
14.5% for Los Angeles (implying an average annual increase of 0.34%). Thus,
properties in these markets were filtering up to higher- income households as
homes aged. It is not surprising that these markets are ones with affordable
housing challenges (italics added). In contrast, Detroit and Chicago show
rapid downward filtering rates. For Detroit, the income index level drops 34.5%
over 40 years (implying a rate of filtering of -1.1% per year). In Chicago the
income index level drops by 23.7% over 40 years (implying a rate of filtering
of -0.67% per year).” 10
These findings suggest the dynamics of residential real estate in
markets with affordable housing challenges diverge from what basic economic
theory might suggest. The size of the upper income housing deficit then is an important
determinant of the degree to which new upscale housing just goes to upscale
residents or does add to units filtering down to less affluent households. If
the deficit is large, then there are more units filtering up, not down. If the
deficit is small, and more easily met by new construction, additional units can
filter down. Reducing large deficits require comparably large amounts of appropriate
new housing, and until that is achieved, unit filtration will be upward in
direction. It is reasonable to conclude that the entry of
25,000 new high income workers into an area probably will significantly increase
the upscale housing deficit. It is sort of like a garter snake trying to
swallow a bullfrog – it can be digwested, but the snake is literally stretched to
the breaking point and very exposed to its predators. What happened in Seattle
and Arlington provides some evidence to support that conclusion. In Arlington.
just Amazon’s announcement significantly raised housing prices and reduced the
number of units for sale.
Another more general relevant national trend is the fact that while
the number of middle-income households has shrunk over the past decade, the
number of more affluent households has increased (the number of low income
households also increased).
To my mind, the above suggests that in our cities where affordability
is a serious problem, a very large amount of new upscale housing is needed for
them to reduce price pressures in less expensive areas and reduce the upward
filtration of units. Moreover, the constant recruitment/creation of new highly
paid creative workers only adds to the amount of new upscale housing that must
be built in order to foster general housing affordability. Large upscale
housing deficits, by reversing the normal downward filtration of units, creates a significant demand for the construction
of so-called “affordable” units. That demand is real and felt, and politically
can take on a life if its own. Local citizens may not want to wait, at best,
five years for affordability to trickle down from the top, or even much longer
when the upscale housing deficit is large and not quickly being reduced.
Billionaire Row type housing projects that are at the top of the price
ladder with units that are either largely unsold or usually unoccupied do not
help reduce the upscale housing deficit. They are not targeted to be purchased
by the creative/knowledge workers. To the contrary, they make it more difficult
by absorbing desirable development sites and diverting investment funds and
entrepreneurial talents from the construction of the more needed “normal”
upscale units.
The situation in Seattle suggests there is some merit to my analysis. After
Amazon shifted its office growth to Bellevue, 15,000 new jobs, the growth of
housing costs in the city plateaued, though costs did not decline. Successful
downtowns and their nearby neighborhoods may need to be sure that they, like
the snake eating the bullfrog, have fully digested any large influx of highly
paid workers so they can move on again to ingest more creative/knowledge
workers.
Furthermore, this is perhaps the regional creative job growth path
that other ailing successful cities should follow until their upscale housing
deficits are sufficiently reduced.
Also, while the top down, trickle down approach may sound good to
economic theorists, from a politician’s point of view it’s probably useless. It
has no immediate concrete visibility. It’s more like mumbo jumbo economics for a
whole lot of their voters. It takes too much time to produce real, observable affordable
housing units on a sufficient scale.
Part 2of the A Closer Look at Some Strategic Challenges Generated by the New Normal for Our Downtowns Series of Articles
By N. David Milder
Introduction.
There are a number of issues that involve questions about who will visit, live, work and play in our downtowns and how all stakeholders – be they those who live, work and play there or those who own properties and businesses – can share in their successes. The term “equity” seems to fit all of these issues. Their emergence has been relatively recent, and their full dimensions are probably yet to be grasped. As a result, most are not on the radar screens of many downtown leaders, save in those cities where the problems have already become very acute and/or nationally visible, e.g., affordable housing in San Francisco and the entire Bay region.
The core equity issues are essentially about what our values and preferences are and how they will be applied to many of the component parts of these successful downtowns. Decades ago, at their nadir, downtowns had a different set of users and, often, different stakeholders. Strong concerns about equity were not really salient since there were so few goodies to distribute and so few people who wanted either a psychological or legal stake in these districts. These days, that has all changed. The equity issues are generated by downtown and community successes, sometimes huge ones, not their failures!
Way back when, it may have been from one of Jane Jacobs’s books, I learned two axioms about downtowns that have stayed with me ever since:
A downtown needs its community’s residents to take psychological ownership of it. It must become “my downtown” in their guts. When that happens, they will not only use it, but also politically defend it, and support efforts to improve it. Psychologically, they become stakeholders.
A downtown should be everyone’s place. It should have attractions suitable for large swathes of the community. It also should be the community’s central gathering place. Anyone acting in an orderly manner should be welcome.
During the decades when downtowns were in decline, it seemed as if few people within their communities wanted to take psychological possession of them. Today’s successful downtowns show a marked ability to attract many more people, many of whom are affluent and well-educated, to live, work and play in them. In some, where the median price of a residential unit exceeds $1m and where the price of a ticket to a show or ballgame can exceed $1,000 in secondary markets, many local residents may wonder what’s there in the downtown for them?
Who Can Afford to Live Downtown?
Downtown experts agree that more residents in the downtown and in neighborhoods within reasonable walking distances of it have been the strongest engine for downtown revitalization. Yet, more housing in those places is proving to be a double-edged sword and concerns about middle income and “workforce housing” are popping up across the nation. The situation in San Francisco has attracted a lot of national attention and demonstrates many aspects of this problem. Nearby Silicon Valley has had a famed economic success and many of its relatively well-paid workers seek housing in San Francisco. For example, Google-owned buses haul hordes of them to and fro daily. The result has been a very expensive housing market in the entire Bay area. It’s become very difficult for these relatively affluent workers to find affordable housing and those pressures are also impacting other types of workers. One response is to accept smaller and/or unusual types of dwellings. Here’s a recent headline in the New York Times: “Dorm Living for Professionals Comes to San Francisco” (1). The article goes on to detail that: “In search of reasonable rent, the middle-class backbone of San Francisco — maître d’s, teachers, bookstore managers, lounge musicians, copywriters and merchandise planners — are engaging in an unusual experiment in communal living: They are moving into dorms.”
Dorms and other “co-living” arrangements are just one solution path San Franciscans have followed to cope with their region’s skyrocketing housing costs. For example, Business Insider even headlined that: “A 23-year-old Google employee lives in a truck in the company’s parking lot and saves 90% of his income” (2).
A Cargo Container Converted into a Small House in San Franciso.
The Tiny House movement has even penetrated the San Francisco area as evidenced by the photo above taken from an article in Business Insider (3). In this instance, a cargo shipping container was converted into the wee home. Some more affluent San Franciscans have spent $1m+ to purchase and renovate “earthquake shacks,” or are living on boats in the bay. Still others are squeezing together with a large number of roommates into an apartment or house (4).
High housing costs are not confined to San Francisco. As can be seen in the above table, in all 10 of these highly successful major cities, the ratio of median home prices to median household incomes exceed the 5.1 level deemed to indicate serious unaffordability.
An important question: are the housing costs in smaller communities than our major cities also skyrocketing and having adverse impacts? Probably yes, if they are located in a region, such as the San Francisco Bay Area, where the whole area is thriving economically. For example, the communities where the Jobs, Zuckerbergs, Pages, and Ellisons live are small and hyper expensive. In less economically robust regions, one might expect a more complicated picture. My hypothesis is that higher housing prices are an inevitable result of a downtown and its community becoming successful, desirable places to live, work and play. So, where that has happened, the prices will very likely be higher. For instance, in districts that have recently experienced a significant revitalization that was propelled by mix-use, residential anchored projects. This has happened in a number of suburban communities around our major cities, especially those served by commuter rail. Otherwise, in smaller towns and cities, housing prices probably have not skyrocketed. For some smaller towns, their lower housing costs when combined with strong quality-of-life assets, and decent broadband and transportation access, might give them a meaningful competitive edge in attracting new residents and businesses.
“Micro-living,” i.e. living in units of 300 to 400 SF or less is a growing phenomenon in cities across the globe where their economic success has pushed housing prices well beyond what middle-income and even upper-middle-income persons/households can afford. In the U.S. they can be found in many of our largest cities — e.g., Boston, Chicago, and NYC – but especially in cities such as Atlanta, Cincinnati, Denver, Pittsburgh, Seattle, St. Louis and Washington D.C., where the share of single person households exceeds 40%. The mini apartments also are not unusual in Tokyo and many European cities (5).
To provide some perspective on these 300 SF to 400 SF units, consider that in the recent past many of their occupants would have rented studio apartments. Their average size in NYC, San Francisco, and Oakland are 550, SF 514 SF and 531 SF respectively. The micro-living units are 20%+ to 40%+ smaller than the studios. Also, consider that in the 20 most populous metro areas there is a distinct trend toward smaller units – though all still average above 854 SF (see the above table). The decreases in size have been smallest is in the metro area that have very high costs and low costs and highest in the high cost and moderate cost markets.
The small units, such as those in dorm or co-living buildings, often have desirable social/communal advantages that attract their inhabitants. Whether a true equity issue exists for these residents under these conditions depends on whether the inhabitants really want to live in such units or are occupying them because they are the best of the bad options available to them.
This discussion would also be more informed if there was some research establishing that humans need abodes that have XYZ square feet of living space. My memory says that HUD somewhere at some time established that dwellings were overcrowded if a unit’s occupants have less than 188 SF each. I have not found any research that supports a number like that. Moreover, it is highly probable that the personal space needs vary culturally. For example, NYC subways certainly get crowded, but I doubt that their riders would accpt either the level of crowdedness found in the Tokyo subways or their use of car packers to assure that the subway cars are maximally stuffed with riders. Moreover, there are many people in neighborhoods in the Borough of Queens in NYC, such Kew Gardens, Forest Hills, Bayside, who use the l far more expensive Long Island Rail Road rather than experiencing the crowded subways.
Many San Franciscans and residents of other high price communities have responded to the housing equity issue with their feet. A recent report notes that: “San Francisco lost more residents than any other city in the US in the last quarter of 2017…. San Francisco lost net 15,489 residents; about 24% more than the next-highest loser on the list, New York City” (6). This behavior pattern probably results in area firms losing a lot of talented employees. Of course, very high housing prices probably will also dissuade a significant number of talented people from taking jobs located in a community.
Tourists and Tight Housing Markets. City leaders, their economic development officials and local business operators often brag about how many tourists and second homeowners they have and all the revenues and jobs that means for their local economies. However, the residents of many of these communities may tell a different story. They may note that the retail developed for tourist shoppers really does not provide the types of merchandise and services they need or want and often creates seasonal traffic nightmares on local streets. In many communities, large and small, tourists also have impacted negatively on the housing market from the perspective of the needs of local residents.
Moses Gates, in a study by Regional Plan Association (RPA), noted that: “54,764 apartments in New York City … are vacant, according to the 2014 Housing and Vacancy Survey – but not really. These are apartments used for ‘seasonal, occasional, or recreational use’ – i.e., pieds-à-terre or second homes” (7). He went on to state that:
“We also need to better leverage our housing inventory, especially in places where land is scarce and building new homes is difficult. One way to do that is through policies like a tax surcharge on second homes in the New York City (or a pied-à-terre tax) designed to get mostly unused apartments back on the housing market.”
It should also be noted that strong suspicions have been raised about many of these pieds-à-terre in some of our biggest and most tourist-popular cities (e.g., NYC, Miami, etc.) being money-laundering operations for their wealthy and unknown foreign owners.
Many of these units are vacant for most of the year. They thus do not contribute the pedestrian traffic to the sidewalks below nor the expenditures in the city’s shops, restaurants and entertainment venues that one might reasonably expect – nor the sales taxes on those expenditures.
Are these second homeowners to be treated differently from a downtown’s normal stakeholders? Laws probably protect them in many ways, but I am certain that many local residents would say there is something unjust stirring here that must be fixed.
Airbnb has seemed to be looking for trouble in a host of cities, quickly getting into conflict with city governments because of its alleged flaunting of local laws and putative negative impacts on the availability of affordable housing. As a recent study published in the APA Journal noted, Airbnb had been criticized for enabling:
“…tourism accommodations to penetrate residential neighborhoods, which creates conflicts between visitors and residents, displacing permanent accommodations in high-demand cities and exacerbating affordability pressures for low-income groups (8).
Governments, at all levels, have for decades often mounted programs to cope with the affordable housing issue, though they almost always targeted low-income and impoverished households. Also, the units produced by those programs usually were placed in poor neighborhoods or in those very out of the way, e.g. Far Rockaway here in NYC. The downtown housing equity issue differs in that the targeted population is middle or even upper-middle-income households and that the units produced for them should be at least within a very reasonable travel time of the downtown. It would also probably be a good idea to have representatives of these residents and their employers extensively involved in the development of the needed housing units.
Downtown Success Encourages Landlords to Ask Independent Retailers for Unaffordable Rents
This problem is made more complicated by the fact that to properly understand it one must break it down analytically into three constituent parts: fairness to the merchants, impacts on vacancies, and the impacts of the loss of popular, able merchants. In many discussions of the affordable retail rent problem, things get murky as attention quickly shifts from one of these sub-issues to another. My objective here is not to provide definitive solutions, but to help illuminate the problem and to suggest some solution paths that may be worth exploring.
The Problem Is Not New. Unaffordable retail rents are an issue that long predates the Great Recession. For example, back in the late 1970s, when I surveyed street-level merchants in Charlotte’s CBD about how they were impacted by an off-street, internal shopping network that was created by overstreet bridges connecting a number of new buildings, they replied that it took traffic from the sidewalks and led to hard to afford rent increases. In the two districts I managed, I never met a small merchant who did not have something negative to say about their rent increases.
Generally, when downtowns or neighborhoods become observably successful, they not only attract retail chains, but also tend to attract many other types of businesses, such as personal, professional and financial service operations. A very high percentage of these operations can afford higher retail rents than the average independent retailer. Some, such as the banks, are willing and able to spend a lot more on rents than even the well-heeled retail chains. As one observer noted: “Banks frequently overpay by 15% to 20% or more on average for real estate compared to other retailers for comparable space. Over 10 or 20 years we’re talking a lot of money!” (9).
I put together the above table for an article I wrote back in 2010. It shows how much space a merchant could afford to lease if 15% of his or her annual sales were devoted to paying rent (10). The 15% figure makes the analysis somewhat conservative, as a more accurate number would the 8% to 12% range for downtown merchants and about 10% for restaurants. Small merchants just cannot afford a whole lot of space in any successful district unless they have very significant annual sales.
Small retailers have not been the only group impacted on. Jeremiah Moss, in his book Vanishing New York, describes how bohemian artistic live-work areas, such as the East Village, were erased by major retail chains coming in.
Why Do Landlords Ask for Unreasonable Rents? Landlords are not necessarily being venal or thoughtless if they sign these higher paying tenants when they appear on their doorsteps. They are simply responding rationally to proven market demand. Of course, even then, they must decide, perhaps just implicitly, that these non-retail uses will ultimately generate more value than if a current small retail tenant was retained. However, one might ask if they considered how that tenant might affect nearby businesses and buildings or if they just considered their own bottom lines. Obviously, another important question is if considering the impacts of a potential tenant on the district should be obligatory in some way, shape or form? This problem would ease if a landlord or an accomplished EDO owned a lot of downtown properties with retail tenants and managed them like a mall, but that is an unlikely outcome.
Here are some other patterns that I have found in the ways landlords establish their rent increases
Some increases are based on a reasonably accurate assessment of local rising property values and dominant asking rents. Both of these may already reflect the district’s growing success. These landlords tend to avoid asking for the highest rents. Among them, are a number of experienced professionals who see the landlord function as having strong stewardship aspects and consider what is good not only for their properties but also for those that are near them. I fear that they are a dying breed. How instead can we develop more of them?
Some small landlords I’ve spoken to simply could not explain the reasons for their very high rent increases, save to say they were products of their best judgments. Among those that I have met, many were new to the U.S. and new to local property and retail markets. A number of them would stubbornly maintain unreasonable asking rents for a year or more. These landlords do not typically care who their tenant is as long as they pay the asked for rent. Here the high rents and vacancies are being sustained by landlord ignorance and management ineptitude. Newness to the area is another factor.
Other increases are based on hopes, often wishful, that a national chain or other higher paying tenants can be attracted that will pay much higher rents and have a better credit rating than those of the current independent retail tenant. An analysis of the local retail market is either perfunctorily done or simply missing. An example of this is Wong Kee, located in Manhattan’s Chinatown. It recently “succumbed to a new landlord and rising rents.” It was in Chinatown for nearly 30 years. Its lease was not renewed. by the landlord. The landlord wants to build a pharmacy in its place, though there are already several pharmacies nearby (11). This type of landlord needs to learn what is really feasible from a business recruitment perspective.
A few other landlords – usually those unfamiliar with the downtown, retailing or even property ownership – will ask for very large increases because they paid way too much for their newly purchased building. Their huge rent increases are what they need to financially stay whole. This may be because their bank loan agreement probably stipulated a formula for determining what the rents should be. There was little room for them to consider local market factors, even if they wanted to — and too many didn’t care anyway. According to Jerimiah Moss, banks will devalue a property if it has a small business tenant but increase it for a retail chain tenant. “There’s benefit to waiting for chain stores. If you are a hedge fund manager running a portfolio you leave it empty and take a write-off” (12). In other words, such landlords have tax incentives that encourage them to demand very high rents and tolerate long-term vacancies. They also seem absolutely oblivious about how a vibrant district will increase their local property values and bottom lines.
The Fairness Issue. Local residents and civic leaders may feel that some of the merchants facing unaffordable rent increases are being unfairly treated. This issue is implicitly present in most usages of the phrase “unaffordable rents” where unaffordable is really seen as a synonym for unfair. Should such an equivalence be accepted? Moreover, why should any government entity or nonprofit help those facing unaffordable rents? Market forces are freely at work and, to quote Barzini in the Godfather, “After all, we are not a bunch of communists.” I would argue that it is not the unfairness of the unaffordable rents that justifies remedial action, but their most important impacts: long-term and multiple vacancies and the loss of many popular, high-quality merchants.
Vacancies. First, let’s establish that a certain level of vacancies is necessary for a downtown to work correctly and prevent ossification. Downtowns need some churn to recruit new, attractive merchants and to get rid of the dregs. I think it’s generally accepted that a vacancy rate below 5% suppresses the desired level of churn while one above around 10% can have bad effects on the district. Many consultants, downtown leaders and, perhaps more frequently, elected officials, believe that vacancies can be an unattractive creeping plague. However, the real problem about vacancies may not be the emptiness of the storefront, but the absence of an accomplish operator to occupy it. Let me anticipate those who will claim that a cluster of empty storefronts is visually an eyesore for the district, diminishes its walkability and a puts a blemish on its reputation, by asking: Is the district really any better when the vacancies are filled by unpopular, inept operations? Bad operators can repel customers and downtown visitors even more than empty storefronts.
It is also important to realize that any valid explanation of today’s retail vacancies must take a multi-causal approach that includes far more cautious consumer behavior, the rise of Millennials who prefer experiences over things, significantly reduced demand by retail chains in terms of both the number and size of their new locations, and affordable rents. The reduced retail demand is especially relevant because many of the landlords that were pushing out independents were doing so in hopes of recruiting the very chains that were hardest hit by reduced consumer favor and demand, such as the apparel specialty retailers.
It is also important to consider that reducing landlord asking rents is not the only way of reducing vacancies. As Andy Manshel reminded me, good results can be achieved by “animating vacant storefronts with temporary art or high-quality other pop up uses.” He also suggested that vacancies could be taxed, motivating landlords to sign leases.
Generally, it can be reasonably argued that concern about vacancies is a misunderstanding of the essential core problem.
The Loss of Popular, High-Quality Merchants. That core problem is not the emptiness of the vacancies, but that ill-informed landlord rent increases can result in the closings of independent merchants who are well-loved in the community. They are real losses for their customers, nearby business owners, and their district. Additionally, it usually is very hard to replace them.
However, it must be understood, that by definition, about half of a downtown’s merchants will be below average in their performance, including their ability to satisfy local customers. Are the potential closings of poorly performing, unpopular merchants the type of losses that are worthy of preventive actions by an EDO or municipal interventions? Some, who are ideologically committed to small businesses, may say yes, believing every small firm by definition is worth retaining or saving. Yet, many savvy downtown managers and civic leaders see a prime result of their revitalization efforts being the replacement of their poor-quality merchants, not necessarily with bigger operators or chains, but with higher quality operations.
Who Should Receive Help? One might cogently argue that the harm done to the public and/or district that would result from the closing of a popular and able merchant might justify an EDO or municipal intervention, but how much sway should the “fairness” of the rent increase have? For example, should an unpopular or incompetent merchant who gets an unaffordable rent increase be helped? That would imply that the fairness issue carries the day. Or will assistance only go to merchants who are able and/or popular? Is the fairness issue unrelated to the issue of the merchant’s value to the community or district? I would suggest that the fairness issue only becomes relevant when the merchant’s community value criterion is satisfied.
My observations suggest that the merchant’s value to the community is very likely to be considered when one specific business favored by an important segment of the community announces that it will soon need to move or close – whatever the cause, e.g., poor sales, increased competition, workforce problems, high operating costs (including costs of space) etc. In contrast, because of the sheer number of businesses involved, municipal attempts to remediate unaffordable rents cannot logistically evaluate each of the benefiting firms and it would probably be a political nightmare to do so anyway. As a result, the fairness issue seems to prevail when municipal actions are taken. For example, here in NYC, the City Council has passed a bill that reduces the Commercial Rent Tax that businesses have to pay if they are located in Manhattan below 96th Street, pay $250,000+ annually in rent, and that have annual revenues under $5m (13).
In several large cities across the nation — NYC being one of them — proposals also have appeared for rent control laws that cover properties with retail uses.
What Kind of Programs Do We Need to Cope with the Unaffordable Rents Problem? Municipal actions tend to treat quality merchants and underachievers in the same way, probably out of necessity. Moreover, both the retail rent control and merchant tax abatements seem to be rather shotgun approaches aimed at helping broad classes of small merchants. The key actors, whose behaviors need to be altered, are the landlords, not the merchants. The retail rent control approach carries with it great potential dangers and certain resistance from the entire real estate community. Yes, the tax abatement helps some worthy merchants, but it also helps make the unaffordable rent increases more bearable. In that way, it implies the increases are justified.
Downtown EDOs may be in a far better position to mount more effective programs to influence landlord behavior. Many of the landlords are probably on their boards and many others have engaged in their programs. Anyone who wants to educate or convince landlords has to have won their esteem, trust, and confidence. The goal of such an educational effort cannot unrealistically be to convince large numbers of landlords. Instead, it should be, to convince a savvy few among them who can lead by example and thereby also exert some market pressures for others to follow.
Probably the best solution to the affordable retail rents problem is to help able merchants buy the spaces they need to do business. They might do this alone or as a group. Buying a single storefront space is unlikely unless it is from some kind of retail coop or condo. In many suburban towns and cities with populations under around 100,000, I’ve encountered retailers who own the entire buildings in which their stores are located. In big, high rent districts with stores located in big expensive buildings that is not likely
It might be possible for buildings that have multiple storefronts to lease, that a partnership of some kind might buy either the entire building if it is cheap enough or just the retail spaces in the larger more expensive buildings. These groups of retailer property buyers most likely will not emerge organically from the merchants themselves. Probably, they will need the catalytic interventions of teams lead by the downtown EDO that has strong active support from the municipal government and a civic-minded developer.
Local governments can do a lot to assist the development of the retailer-owned co-op or condo buildings:
Provide low-cost land or a low-cost building.
PILOTS just as developers are ordinarily given.
Other abatements such as on NYC Commercial Rent Taxes.
The EDO might also help the buyers connect to financial organizations that will provide them with loans that have reasonable terms.
If helping able retailers purchase their spaces is not viable, here are some other actions that might be tried to assist these merchants. Their effectiveness is far from assured. To influence landlords, local governments might consider:
Using zoning and tax incentives to reduce spaces so that they are smaller than what chain stores would want, perhaps around 1,500 SF to 2,000 SF. Landlord blowback can be expected. Also, quality independent merchants might find such spaces too small and a few chains now might still find them suitable.
Use zoning to limit where chain stores can go. This has been done for personal service operations and big boxes. Various legal and political problems can be expected. Landlord blowback can be expected.
Use their own legislative powers to change its tax code to erase any incentives for landlords to demand higher rents and tolerate long vacancies. Also, vacancies might be taxed as if they were occupied.
Use their external political influence to change the state’s tax code to erase any incentives for landlords to demand higher rents and tolerate long vacancies
If the retailer space purchasing option is not viable, to influence landlords, downtown EDOs might consider:
Creating either a formula that landlords can use to calculate an appropriate affordable rent for their retail spaces or to identify the steps in an analytical process that can help landlords make a well-reasoned decision about rent increases.
Educating landlords about the importance of taking into consideration district benefits and harms in their recruitment decisions.
Make a special effort that targets landlords new to the district, retailing or property ownership.
Jawbone banks about the value of small merchants to properties and downtown.
Issue a brief annual report that identifies the most “recruitable” types of businesses to the district and the types of spaces they will want.
Publicly praise and disseminate information about what landlords who are effectively dealing with the rent increase issue are doing.
To help high value, threatened merchants, downtown EDOs should assist them to:
Find new locations. Deft use of the Internet can help many independent retailers thrive in locations previously deemed less than optimum.
Find financing for the move.
Publicize their new location to let current and potential customers know where they now are.
Who Can Play Downtown?
As Central Social District (CSD) functions and venues have become of growing importance to the vibrancy and success of our downtowns, this basic question has become correspondingly important.
A few years ago, I put together the above table to demonstrate the user frictions that five specific CSD venues and two types of CSD venues have here in NYC. The specific venues were Bryant Park, Lincoln Center (LCPA), Madison Square Garden (MSG), The Museum of Modern Art, and The Metropolitan Museum of Art. The types of venues were movie theaters and Broadway theaters. The user frictions I looked at were:
When the venues were open.
Their admission fees.
Whether the user’s schedule could drive a visit or does the user have to conform to what is available on the venue’s schedule of performances.
Can the venue be used for visits that last 45 minutes or less? Lots of downtown visitors have holes in their schedules of that length and districts that have venues that can entertainingly plug those holes will be much stronger than those that cannot.
From the perspective of when the venues are open for people to use them, hands down Bryant Park has the most hours open, followed by the movie theaters. LCPA and MSG are basically closed during most days, while the two museums are closed 5 nights a week. If you work or go to school, these results mean that some venues are much harder to use than others.
Another key friction is how much it costs to be admitted to these venues and here is where many downtown users are simply priced out. Again, Bryant Park followed by movie theaters are the most affordable – and in many instances by gargantuan amounts of dollars:
Bryant Park is free to enter and the fees for using some of its attractions, such as riding the carousel or ice skating, are reasonable. It and other parks in the city cost the least to use.
At the time I did the research, my check of cinemas in Manhattan showed the average price for a ticket was about $13. Nationally, at the time it was about $8. I would argue that movie house ticket prices should be the benchmark of affordability because so many people still go to the movies.
MoMA and the Metropolitan Museum of Art rank next in lowest general admission prices. The Met “asks” for a $25 donation; MoMA requires it. The Met request is based on the deal the city made when giving land for the museum that gives NYC residents free admission. Residents can pay what they want or nothing at all. A $25 fee/donation to these museums would be 1.9 times more than the average cost of a movie ticket in Manhattan.
The prices at Lincoln Center are pricey. An average ticket to the opera costs $156. That’s 12 times more than going to a movie and taking a four-member family could cost a real bundle. If you want to accept alpine, nose-bleed seats you can get a ticket to a NY Philharmonic concert for about $29. But prices go up to about $112/concert if you are a subscriber to a series. That’s 8.6 times more than a movie ticket. Tickets to the opera and philharmonic concerts can be even higher than those cited if they are purchased on the secondary market and there is strong demand for them. But, given that their audiences have weakened in recent years, the markups are not as large as for Broadway shows or Madison Square Garden events. Perhaps in recognition of its high admission prices as well as its mission to serve a broad public, the Philharmonic does give a lot of free concerts on the LCPA’s campus as well as in the boroughs outside Manhattan. It also has a significant educational program in NYC’s schools.
In 2013, the average price for a ticket to a Broadway show was $98.64. Back in 1955, for her birthday, I took my girlfriend to see Mr. Wonderful on Broadway. We had dinner before at a steakhouse, Gallagher’s and to get to and from I hired a limo. It was a very memorable evening. The whole thing cost under $70, with the fifth-row center seats costing about $8.50 each. Adjusting for inflation, the price of those tickets would be $73.91 in 2013 dollars, substantially less than the actual $98.64. The difference is probably substantially accounted for by higher costs, such as for labor, talent, marketing, and equipment, etc. The biggest problems with today’s Broadway theater ticket prices is that so many of the tickets are bought by dealers who then resell them at substantial markups and that some hot plays are asking for $500 a ticket. Paying $1,000+ per ticket for hot shows.in the secondary market is far from uncommon.
The average ticket to a Knicks game at Madison Square Garden, in 2013, cost $125, while a ticket to a Rangers was $78. A ticket to a Billy Joel concert at the Garden could range from from $64 to $124. However, here too, a significant percentage of the tickets are captured by dealers in the secondary market and prices for a very popular game or concert can go above $1,000. Joe Six-Pack fans are unlikely to have the financial resources to attend with any regularity the basketball and hockey games of their favorite teams. Their attendance is more likely confined to special occasions for which they either plan early and save or are gifted. For these fans, downtown sports bars may be one way to deliver the more affordable TV access to these games in an arena-like, fan-filled setting.
Parks, other public spaces, and movie theaters are entertainment venues that help make a downtown everyone’s neighborhood. They are the most easily accessible and the least expensive to visit. Consequently, they provide reasons for most of a community’s population to take psychological possession of their downtown. Where they are absent or weak, the downtown will be lacking very important support mechanisms. On the other hand, attendance at the events of many high culture performing arts venues, popular concerts, and professional sports events can only be afforded by those with above-average amounts of discretionary dollars to spend. These folks, too, are assets for their downtowns, assets that downtown leaders only dreamed of attracting in years past.
The Impact of Tourism. The table above was generated from data published online by the Broadway League. It shows just how much the attendance at Broadway shows is dominated by out-of-towners. Just 22% of the ticket holders are NYC residents. Another 18% come from the surrounding suburbs. Most, 61%, are tourists, with about 46% coming from other parts of the USA and about 15% from other countries.
Strong tourism can have important impacts on a local economy. For example, here in NYC, we have about 60 million tourist visitors annually and their direct spending in 2016 amounted to about $64.8 billion (14). About 6.45 billion went to firms in the recreation and entertainment industries. Without tourist expenditures for Broadway tickets, the relatively high ticket prices probably would not have been reached or maintained. One may wonder if a lower flow of tourists would have resulted in lower Broadway theater ticket prices that would have attracted more buyers from NYC residents and from folks in the surrounding suburbs.
As is happening in many entertainment niches (defined to include cultural/arts venues) across the nation, tourism now accounts for very high percentages of the attendance at many of NYC’s major entertainment venues. This is particularly true for our most prestigious museums, where tourists account for 75% or more of their attendance (see table above). These institutions aspire to be and are world-class venues. That means that though they are located in NYC, for New Yorkers, they are no longer just theirs. Some psychological adjustments may be needed. As I write this I remember many years ago, when my neighbors and shopkeepers in Paris warned me in the late spring, that soon “your Americans and the Germans would come” and Paris would not be the same until the fall. They were absolutely right. The buildings, the Seine, the Metro, the museums were all the same, but Paris in the summer was very different. My French friends explained that they felt during the summertime as if their beloved city is taken over by foreigners. It’s really not theirs during those months. Things may have changed in Paris since my student days there, but that sense of tourists taking over is one I’ve encountered in several other communities here in the USA
Tourism can be boon for many downtowns, but it also often is a two-edged sword, that brings a number of problems with it. Some of these problems are obvious, such as how tourism can impact housing and retail, while others may be quite subtle, such as residents psychologically feeling dispossessed in their own communities. Part of the New Normal, as more and more downtowns become adept at attracting tourists, will also be the emergence of these problems.
13. Sarah Maslin Nir. “Tax Break Could Help Small Shops Survive Manhattan’s Rising Rents.” New York Times. Nov. 28, 2017. https://www.nytimes.com/2017/11/28/nyregion/rent-tax-manhattan-local-shops.html
14. Tourism Economics. “The Economic Impact of Tourism in New York.” https://www.governor.ny.gov/sites/governor.ny.gov/files/atoms/files/NYS_Tourism_Impact_2016.pdf