I recently published an article that explored some of the ways regulations make it difficult for small businesses to get off the ground and function. Among the examples I used from around the country was Bank Suey in Hamtramck, Michigan. My story was subsequently reposted on various other sites which the owner, Alissa Shelton, read and objected to. She felt I hadn’t accurately described her experience as a business owner and that I didn’t present her town in the right light. Her critique can be found in the comments section of the old post.
She’s a smart, dynamic, capable young woman who’s committed to building up her community and I owe it to her to get this right. We need more people like her in all our towns. I’ve also had people write stories about me where they got the details wrong, so I understand her position. But I honestly don’t think we’re disagreeing. It’s more a matter of subtle interpretations viewed from slightly different perspectives.
I’ll start by saying that I enjoyed my time in Hamtramck and would be happy to live there. I’ve highlighted the town before on a couple of occasions, always as an example of a place that worked really well in the past and has all the right ingredients to continue to thrive.
Hamtramck’s Polish history is still well in evidence. Polish food, Catholic services, and cultural events persist, although in somewhat reduced form. Poles have largely dispersed over multiple generations and filtered out across the country by now.
The void left behind by departing Poles has been filled by new immigrants from Somalia, Iraq, Pakistan, and Bangladesh. Without them many more storefronts and homes would be vacant and in decline.
One of the things I love about Hamtramck is the availability of good quality food and groceries that aren’t always available at national chain stores. The fact that ethnic mom and pop shops exist within walking distance of most families is very appealing and is reminiscent of my own neighborhood in San Francisco. And as Ms. Shelton states with some pride, it’s possible to eat at a different restaurant every day of the month in Hamtramck and enjoy every kind of cuisine from Lebanese to Chinese to Italian.
So… Now that I’ve clarified my position and reinforced my appreciation of Hamtramck as a pleasant and viable town I can get on with the finer points of regulation as it relates to small scale situations – which was the primary subject of my older post.
A significant amount of the properties in Hamtramck – like many many similar Main Streets all across the country – are vacant and unused for any productive purpose. Is this simply because regulations are preventing new businesses from opening? Yes and no…
Ever since World War II all our national economic policies have heavily favored and seriously subsidized a particular kind of growth involving mergers and acquisitions, vertical integration, and ever larger economies of scale. The demise of mom and pop shops in our traditional downtowns was a consequence of this intentional long term economic strategy. And it worked perfectly for those enterprises that could effectively scale up and take advantage of the tax code and institutional financing. I’ve described what this does to our towns in previous posts here, here and here.
The relatively small local supermarket chains of the 1960s were replaced by larger regional chains by the 1980s and then by even larger national big box stores by the 1990s. Today we’re seeing a rapid shift toward even more consolidation with on-demand shopping via the interwebs. Giant distribution systems eliminate physical retail altogether in favor of home delivery. So we now have a trail of tears as more and more redundant commercial properties rot – not just downtown, but all up and down our suburban arterials.
This isn’t simply a result of consumer preferences or entrepreneurial best practices. The transfer of wealth from small family operators to huge consolidated multinationals is a structural choice we as a society have made. It’s great if you want really cheap cases of toilet paper and increased shareholder value. But our traditional towns have been hollowed out as a direct consequence – and the suburbs are next.
One of the few niche markets to persist on Main Street are places that sell specialty items like traditional Polish pierogi or halal meat which are unlikely to be carried at the Dollar Tree or 99¢ Store. But there are only so many of these places to fill the void.
So when Ms. Shelton says local regulations aren’t preventing her from opening a new retail enterprise in her building she’s right, but only if national tax and investment frameworks are ignored. You can listen to an interview with Catherine Fitts for one interpretation of the macro situation.
Hamtramck is working passionately to fill empty storefronts with anything that will activate the space and keep the lights on. Art installations, community groups… That’s all well and good. But there’s a limit to what this approach can provide. It’s a necessary stop gap, but toward what? Which takes me back to local regulations.
These old retail buildings are zoned for commercial use. Market demand for commercial property is essentially zero and the corresponding property value is in keeping with that reality. There’s just too much of it everywhere and the situation is likely to get worse nationwide. The obvious parallel is the glut of warehouse and industrial space that emerged when a previous generation of commercial buildings were abandoned during the national transition away from manufacturing. The best case scenario for these places is that they get used for something other than retail or office space.
I’ll use this building as an example because I like the location near the grocery store and other functioning shops and restaurants. It’s a solid 1920s brick structure with what looks to be about 2,500 square feet of space and a nice big flat sunny roof that could be pressed in to service as an urban garden. And it’s magnificently cheap so I could pay cash and skip the whole mortgage debt thing. Would I legally be allowed to use this building as a primary residence? And since there’s more space than I need and there are already two front doors… could I use this space as a legal duplex and rent one half to some likeminded individuals? I’m truly ignorant of the answers to these questions in Hamtramck. But every other place I’ve ever been all around the country has always said, “NO!!!!!!!!!”
Here’s where zoning regulations, building codes, and most importantly cultural norms and expectations kick in. “People living in storefronts will lower the tone of the neighborhood.” (Lower than vacant spaces that have remained dark for years with plywood on the windows?) “People living in such places will be low class. They’ll deal drugs and contribute to crime and delinquency. Empty buildings are better than buildings harboring unsavory individuals.” (Anyone who has ever been in a basement rumpus room in a wealthy white suburb with bored teenagers can tell you drugs and delinquency spring up in all kinds of places.) “If people live in shops it will cause a fire safety problem.” (A brick building with a domestic kitchen stove is more of a hazard than a restaurant or bakery?) “What this town really needs is more tax revenue and employment, not more residents who require more municipal services.” (Try bulldozing the old buildings to make way for a new subsidized casino, convention center, sports hall of fame, auto dealership, aquarium, or premium outlet mall. Works every time!)
This takes me back to scale and the larger regulatory framework. If a large production builder arrived in town and announced plans to redevelop a chunk of Hamtramck as a lifestyle center with new condos and apartments, would the rules be different for them? A 200 unit complex with five stories of structured parking would be “transformational” and “catalytic.” Institutional money would be combined with pro-business government incentives and tax breaks. That’s my point.
Scarcely a month later, not Hamtramck, but its one neighboring exclave of Detroit — the city of Highland Park — has asked real estate firms to present it their qualifications to redevelop a thousand parcels of land there:
https://www.freep.com/story/news/local/michigan/wayne/2018/01/08/highland-park-michigan-land-bank-wayne-county-land-bank-city-revitalization-highland-park/1012883001/
The thing about all the redevelopment initiatives is that they need to be really big to pencil out for all the agencies and corporations that get involved. Anything small is crushed early in the game.
Kind of unrelated to this post but I only recently discovered your blog, so…
I’ve noticed you write about New Jersey a lot and I’m wondering if you’ve visited Red Bank lately? 15 years ago they were calling the town “Dead Bank” and now it’s not unusual to see a Lamborghini parked on a downtown street. You can’t get a table at a restaurant there on a Saturday night.
A couple of years ago they put up one of those giant, mixed use apartment buildings you’ve talked about, right across from the train station, replete with giant pictures of pretty single women on the outside.
I spent considerable time in Red Bank when I lived in Jersey. I had friends in The Highlands just above Sandy Hook. As a much younger person I imagined myself living in one of the grand apartments above the shops on Broad Street. Those old brick buildings with the classical touches were so solid and beautiful. And yes, Red Bank’s downtown was in fact dead back then. This would have been the late 80s and early 90s. All the money was in the leafy suburbs around Rumson and Tinton Falls.
The towns that most agressively embraced “urban removal” when suburbia was in full blossom (and turned their historic downtowns into a collection of parking lots) are the hardest to repair now. The ones that quietly let things slide from benign neglect and the ones that have a good chance to come back strong.
I’ve been howling about big local government for years, but it occurs to me that if “decentralized” tyrants in local governments and even small business are all making the SAME sort of rules, then there might be broader more “centralized” cultural, political, or Wall Street pressures on them to do so.
Always great observations. You’re both right. Everywhere in the US has the same set of ridiculous social & regulatory rules that essentially mean if you’re just a typical private citizen, don’t even think about changing the form or function of building. The BIG difference in Rust Belt is just that there’s so much under-utilized property that regular middle class folks can get into a pretty much any property-type serving their intended purpose today at a reasonable price point. Plus, the region has the nation’s largest concentration of walkable urbanism – which has been more or less outlawed since WWII. So, if your dream is to have a neighborhood tavern or a main street store, there’s no place in the US with lower barriers to entry. However, that cool riverfront machine shop that’s been boarded up since 1929 won’t be bootstrapped into the average person’s law office with an auxiliary apartment in the back. However, if we beg hard enough megacorp might turn it into a “catalytic” mixed use development with just a few million in historic preservation & affordable housing grants, and then rent it as a law office with an apartment in the back. It just is what it is.
Yep.
So in a nutshell, if I read you correctly, the disease that is rotting the US is that it has become corporatized to death: it’s not “We the people” anymore but “We the incorporated”.
I have a less conspiratorial interpretation than the straight up “crony capitalism” folks. Our situation is more subtle than that.
As the US economy grew and our influence around the world increased everything got bigger decade after decade including our corporations and government agencies. We needed these larger institutions to manage the ever expanding complexity and scale.
Our national quandary now is that growth is essentially over and we need to scale back down. The hangover is huge and no one wants to give up whatever position they currently enjoy and rely upon. We’re going to struggle with too many middlemen and administrators hovering over too little productive activity. So everyone is going to get squeezed really hard.
Everyone insists that growth is strong, but it’s all just paper and electrons pretending to be real economic activity. The trajectory of the US for the next few decades will involve unwinding a mountain of bad debt (both public and private) and learning to live with a lot less of everything. The end of the dollar as the global reserve currency will be the definitive moment when we realize the true condition of our domestic affairs.
This won’t be the end of the world. We’ll all still be able to live relatively comfortable lives. But the political and social stress of contraction might make it feel like the Apocalypse.
I think your take on growth is wrong. The economy can grow without things getting bigger. For example, someone could get out and sweep the streets in America.
I wonder if the decline of prior empires (especially British) could provide a preview. But there doesn’t seem to be another superpower to step in afterwards. Maybe a less conflicted world due to reduced military adventuring?
Corporate decline evidenced by asset stripping management. Too much innovation is incremental, or for trivial instead of important problems; partly why I see tech deflating to some extent.
Japan has suffered overhang over two decades, although they seem to have handled the social aspect much better. China looks precariously close to falling into similar trap. While Russia fell far in and can’t get out.
The Housing Elements to some communities’ General Plans put great emphasis on meeting their future housing needs through granny units. I tend to be cynical enough to think that the planners who draft this nonsense are sophisticated enough to know that few will ever be built and that that is really the intent. In addition to the cost of building them, how many homeowners really want to be a landlord with their tenants right next to them? Mortgage costs and the potential income may make some consider this (as evidenced by the number of people who take in AirBnB visitors), but it’s still a minority who would even consider this, and most of them will be put off by the costs of actually building such a unit.
As for Hamtramck, I find it doubtful that in a locale with low housing costs a developer would find it financially viable to build a 200 unit lifestyle condo project. Most people, especially if they have young families, would probably rather have a house. A lot would depend on Detroit’s recovery, job growth, population increases, and whether that eventually results in even more restrictive building codes that push people into condos. That might be a generation away at least.
Personally I prefer living as close to my tenants as possible. We tend to have good relations. And for many people with granny flats or duplexes the folks they house are relatives. Hence the term… granny.
It’s true that people who love cities often obsess over walkable mixed use neighborhoods and downplay the larger trend toward fully detached single family homes in suburbia. Then again, people with an obsession for single family homes on cul-de-sacs suitable for children are often oblivious to the pent up demand for urban living even in otherwise funky places like Detroit.
A significant number of large condo and apartment complexes are currently being built in downtown Detroit. I’ll be blogging about that situation soon. I’ve got photos. There’s a profitable market for such places in the urban core for young professionals and empty nesters even in metro areas with a glut of cheap housing. People aren’t necessarily interested in living in all parts of Detroit, but the particular neighborhoods that are doing well are thriving.
Developers have figured out that in select locations there’s pent up demand for in-town living. Building new units in a cluster that includes some refurbished historic properties with urban amenities (restaurants, cafes, sports, theater, etc.) pencils out economically. And don’t forget the endless subsidies and tax breaks that sweeten the deal. That process could easily occur in a place like Hamtramck. Or not…
You make some fair points, but bear in mind that many of the millennials are now passed 30, marrying and having families. So, while there is still a flow of youthful millennials about to finish high school and become young adults, many of whom will love city living (I did when young) for a while, there is also a baby bust going on that is especially acute in the northern states. You’re right about the incentives. You can certainly force Bay Area builders to build a lot of apartments – they’re sprouting like mushrooms after a rain on the peninsula, but I have a hard time seeing it in a place like Detroit.
By the way. Good web site. Having played a bit in the real estate game, you hit upon a number of subjects I find interesting. Semi-retired now, though, and still recovering from the wounds.
Many of the infill projects I see around the country cater to aging Boomers as much as Millennials. I’ll be blogging about this soon. Small low maintenance apartments in amenity rich neighborhoods appeal to the bar bell demographics at both ends of the chart.
A significant number of older suburban NIMBYs will eventually be living in some of the same quasi urban infill complexes in their own neighborhoods that they fought against. They just don’t know it yet. Most of it will be “density without urbanism” with apartments on the side on a bland eight lane arterial in what was a dead mall. But it will be “good enough.”
I was tempted to comment, “Perhaps if you opened a small business in the store front and lived in the back…..” OR ” …or two…”. But I’ve read many of your previous posts, only starting recently. I practiced your under the radar methods for many years successfully and aliken it to the Supreme Court guy who said to “arranging your affairs in such a way to pay the least tax possible” is AOK.
As a property manager in a small downtown district in the E. Bay Area for the last 20 years, you put a foundation under my disparate thoughts regarding govt and progress and community. Thanks.
On a separate note, perhaps you might see a chink in the armor with the new granny unit decree by Gov Brown to localities. While we are obsessed with vacation rentals here in San Diego currently, the layout of the city with its alleys and multiunit housing culture appears to be ripe for helping the city solve its housing crisis. Hah!
Personally, I’m no longer interested in attempting to do much of anything that isn’t plain vanilla legal as-of-right. If you have to go begging for permission… I’m out.
Alissa at Bank Suey is smart enough to keep out of debt and take things one step at a time without rocking the boat. I admire her. But I stand by my initial assertion. Hamtramck is going to scrape by at its current low level until large scale developers come in and do the heavy lifting with special government incentives. Nothing else is legal. After a dozen 200 unit condo complexes go up in Hamtramck Alissa will be well positioned to leverage her property. If the big stuff never happens she won’t lose anything and can carry on at a moderate pace in a town that’s not bad as it is. It actually reminds me of the Mission here in San Francisco when I first arrived a long time ago.
As for Governor Brown’s granny flat decree – Meh. The cost of building anything in coastal California is off the charts. Have you priced lumber and such lately? Have you tried to find a competent contractor in recent years? It’s tight out there. Regardless of the regulatory patches only fairly expensive projects will be built and only relatively high rents will be sufficient to service the associated construction loans. $400 a square foot is the absolute minimum price these days for a nothing special stucco box. So a 500 square foot granny cottage would be $200,000 even before associated permits and the blah, blah, blah. Is that really an affordable housing option for the people who need it the most?
The people best positioned to take advantage of the new granny flat option are institutional investors who partner with established construction firms to buy and build out dozens or hundreds of properties with an economy of scale. That’s probably not the mom and pop situation the law was attempting to foster. Again, Meh.
Basic construction doesn’t cost $400 per square foot, even in California. In outlying areas where land isn’t so expensive you can find new homes at less than $150 per square foot. It’s not going to cost much more to plop down a small one-story cottage in some capacious back yard in your typical California suburb.
The first movers will be landlords renting out houses and there are a lot of those. There’s going to be at least one more round of state legislation first though, because the municipalities will figure out some underhanded way to block the granny flats and the state will have to forbid whatever it is.
I’m not going to argue numbers here. I’m sure there are new homes being offered at $150 per square foot in fresh subdivisions in the Antelope Valley, Riverside, Modesto, or wherever. I know people who work for the companies that build them. But the cost of extruding 200 stucco boxes on a greenfield site on the edge of the metroplex is an entirely different animal than building a one off backyard cottage.
A neighbor directly across the street in Sonoma is in the process of putting a 1,000 square foot plain old addition on to his modest existing home and it’s supposed to cost $400,000. Have you ever known such a project to come in on budget?
Agreed. It is very expensive to dig up streets or alleys or driveways to make new water/sewer connections (and in most places it’s illegal to piggyback from one “primary” structure” to a “secondary” (granny flat) unless they are fully attached.
Mobilizing a (name your trade) contractor costs the same whether they are wiring 10 2500 sf stucco boxes or one 500 sf apartment-over-garage (often referred to as carriage houses in older Eastern/Midwestern cities). A furnace and AC system doesn’t cost 1/5 for the 500sf apartment. A 100-amp electrical panel costs the same. Having the (electric, gas, water) utility drop service and install a meter costs the same.
It is not at all surprising that in a place where greenfield construction costs $150/sf that a granny flat would cost 2-3x that.
It really doesn’t matter if it is $150 a sq ft or upwards of that, the point is there are limited numbers of people who own lots where such a building could be built, who want to, and then who have the money to do so. It’s not really even a partial housing solution for any city in the US. The numbers of them that will be built per year per city are almost completely inconsequential.
Look… a hundred years ago the absolutely normal thing that occurred everywhere as-of-right without anyone thinking twice about it was for a small cottage to be build on a scrap of land in a growing town. Some years later when the family had a bit more money the house was added on to. Then it was added on to again. And again. And all along the way the house was being used not just as a single family residence, but a home business, a place that rented out spare rooms, a small productive garden with chickens and such… This is what every Main Street town was like.
And when the family had enough money or property values rose high enough the whole thing was pulled down and replaced by something new and bigger – typically with ground floor shops with apartments above and a smaller building in the back if there was room.
Our current culture will not tolerate any of this. It’s not how we do things anymore. It’s not what most people want to see happen next door. And our existing spread out development pattern doesn’t readily support it. So we have insoluble problems that we can’t and won’t fix. Instead we’ll continue to struggle with the consequences.
When those consequences only affected poor people that society never cared about anyway it didn’t matter. But as the former middle class contracts more and more people are finding themselves living with reduced circumstances in a landscape they can no longer afford. They’re angry about their lost status. But we collectively won’t embrace the older traditional living arrangements because it’s considered low class and beneath our dignity. Shrug.