This report examines what’s causing commercial rents to skyrocket and explores six broad policy strategies that elected officials and community leaders are proposing to address it.
Report: Affordable Space. How Rising Commercial Rents Are Threatening Independent Businesses, and What Cities Are Doing About It. By Olivia LaVecchia and Stacy Mitchell. Institute for Local Self-Reliance, April 2016
We find that the sharp rise in rents isn’t limited to affluent neighborhoods. It’s happening across a range of communities, with some of the most intense pressure falling on businesses in lower income neighborhoods. The problem is especially detrimental to people looking to start new businesses, further raising barriers to entrepreneurship and stunting economic dynamism.
Just as there’s a public stake in the availability of affordable housing, so too is there a public interest in the commercial side of the built environment. Having a healthy independent business sector is closely tied to other municipal policy priorities, including reducing climate emissions, expanding jobs, lessening economic inequality, and strengthening the social fabric of neighborhoods.
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Summary of Policy Recommendations
- STRATEGY 1: Broaden Ownership.
- STRATEGY 2: Reduce the Power Imbalance in Landlord-Tenant Negotiations
- STRATEGY 3: Zone for a Local Business Environment
- STRATEGY 4: Set Aside Space for Local Business in New Development
- STRATEGY 5: Create a Preference for Local Businesses in Publicly Owned Buildings
- STRATEGY 6: Recognize Businesses as Cultural Landmarks.
“This report outlines a range of ideas that elected officials, business owners, and community leaders have come up with for keeping space affordable and ensuring that entrepreneurs continue to thrive:
1. Broaden Ownership
Although not suitable for every small business, owning rather than leasing is one of the best ways to ensure stable occupancy costs. Only a small minority of independent retailers currently own their space. Several cities are exploring programs to increase that share by helping businesses buy their buildings, or buy their spaces as commercial condominiums. Another approach involves expanding community ownership of commercial buildings. Through various structures, such as real estate investment cooperatives, neighbors can invest in commercial buildings and guarantee local businesses long-term stability and reasonable, cost-driven rent increases.
2. Reduce the Power Imbalance in Landlord-Tenant Negotiations
Another set of policy ideas would give small businesses certain rights when it comes time to renew their leases. These protections might include an established timeline for negotiations, an option for a long-term lease, and recourse to arbitration. Cities are also looking at ways to provide property tax credits to landlords who provide affordable leases to locally owned businesses.
3. Zone for a Local Business Environment
Zoning can be a powerful tool for creating a built environment that provides plenty of opportunity for local entrepreneurs. Key strategies include protecting the varied fabric of established commercial districts, ensuring an ample supply of small spaces, and adopting business diversity ordinances that encourage a mix of different types of businesses.
4. Set Aside Space for Local Businesses in New Development
Several cities have required that a portion of the space in select new development projects be set aside for locally owned businesses. These requirements could be codified and applied across all development projects that meet certain size or location thresholds.
5. Create a Preference for Local Businesses in Publicly Owned Buildings
Cities often own and invest in real estate themselves. Some are establishing a preference for leasing spaces in city-owned or -financed buildings to locally owned businesses. In underserved communities, this could include offering space at below-market rates to local, neighborhood-serving businesses.
6. Recognize Businesses as Cultural Landmarks
Following in the footsteps of Rome, Paris, and London, San Francisco has established a program to recognize and support longstanding, culturally significant businesses. The program provides incentives to landlords who agree to 10-year leases, and it could also evolve to help businesses purchase their spaces.
The solution to the problem of affordable living and working in cities has been studied for many generations and the same solution is either found or reinvented each time i.e. French Physiocrats, Thomas Paine, Henry George, Michael Davitt. It is simply to recapture the societal created value that attaches to land – that the landowner steals – and give it directly or indirectly back to the people. Land is a natural monopoly, therefore it is most efficiently and fairly held ‘in common’ and a fee charged for its use otherwise the landowner can levy extortionate rents and purchase costs on everyone else ;- the evidence abounds to support this outcome.
But since freehold ownership is now so well established in the minds of people, a tax on value added by the infrastructure and services provided by the public, might be easier to explain and sell to the public. Obviously the building on the land should not be similarly taxed/charged because the owner invested his own energy and money in its construction and/or maintenance and the building makes a contribution to the community.
Another approach is to gradually assemble land – starting with public land- and put it into a commons trust and a charge a ground rent for its use that is shared within the local and wider community. Further, the freehold of public land including that under public housing should never be sold, but the homes or building on it can be sold without affecting affordability. See http://www.communitylandtrusts.org.uk/. Housing, that is bricks and mortar , can be treated as a commodity — as long the land is kept out of the market!
All the other approaches to making cities affordable for the ordinary people are mere tinkering around the edges or worse, obfuscate the issue and serve to protect the thieves.
“The meek shall inherit the Earth”