De-romanticising mom and pop

One response to Yglesias' post The Tragic Inelasticity of Bar Supply points to the great virtue of the growth model: 

It's not just bar owners and land-owners that make good money if a sport-bar becomes popular. Workers benefit to. People will probably leave bigger tips if the drinks are more expensive. And if an entrepeneur wants to keep his bar high-profile he will need to invest in hiring the best workers possible. (They might have to offer better pay then a generic fast-food chain: if you pay good money for your drink, you expect good service) Those workers will spend their extra money on all kind's of stuff which will benefit the economy.

but another posted the inevitable response: 

Nobody goes there anymore. It's too crowded. - Yogi Berra

My favorite responses to Yglesias' post: 

Learn to love chains? The chains that tend to pay as little as possible, use the cheapest products possible and charge the maximum price possible in order to increase margins and make their shareholders happy rather than the customers? No thanks!

and

Why learn to love chains? Why not just encourage more lovable local dives to start up? Aren't we better served by true small, personal businesses than big corporate impersonal monopolies?

This is a bit unfair to chains, since small businesses have to keep costs down too, including labor costs. But the old-style mom and pop bore that burden entirely on themselves and their kids. However, increasingly small businesses are not mom and pops -- they are small entrepreneurs starting up, hiring employees and even managers to handle the day-to-day.

There are still true mom and pops in the LES: shoe repair, printing/copying, bike repair, a couple of bakeries and butchers, locksmiths, a drugstore here and there, hardware, an exterminator (he keeps a tank full of a hissing Madagascar cockroaches). Most of those cannot be replaced with on-line services. It would be shame to see them replaced with chains.

Popularity or stability

Matt Yglesias pointed out on his blog yesterday that when your favorite bar or restaurant becomes popular, it typically raises its price points since it can't expand. When a chain store becomes popular, it expands into new locations, retaining its relative price. 

He's assuming that expansion is limited to individual corporations, ignoring the character of the nightlife strip: when a destination becomes popular, competitors arrive to cash in. 

He also ignores the long-term consequence of the chain: a cheap pizza chain opens next to your favorite pizza parlor either driving it out of business or driving it to produce a cheaper-quality pizza. Chains produce a race to the bottom. 

Popularity is the key here. Local-serving stores -- the so-called mom and pop -- do not draw to popularity, but to local needs. Popularity is a kind of upscale phenomenon of disposable income searching for the latest titillatory entertainment. The prototype is the roving bands of young singles flocking to a newly 'discovered' slum site cum nightlife strip. 

The invasion of the slum site is not the opportunism of development or gentrification, it's more like thrill-seeking; development will follow that disposable income, not lead it. You can see it in Chinatown, where Apotheke and Capitale opened without any gentrification. They opened because there was no gentrification. 

The success of the chain store isn't always its popularity. Sometimes it's just its price. Pinkberry, the Gap, Urban Outfitters and Red Mango belong in a different category from Costco, Ikea, Kmart and Walmart. Disposable income seeks the one, constrained income the other. 

Yglesias' observation reveals the future of commerce. The local-serving store that doesn't depend on non-local sources of demand isn't even on his youthful, upscale, trend-seeking radar. His notion of commerce is all about growth, not about community or stability. 

No escape from luxury

Btw, this is the article that Yglesias was responding to:

http://www.forbes.com/sites/stephensmith/2011/09/29/does-urban-growth-have-to-mean-gentrification/

Smith doesn't assume an upper limit on luxury demand, he thinks the upper limit is reached when overdevelopment begins to lose its attraction. It's a scary thought: the rich lose interest in bland elevator buildings, so they raid the neighborhoods without them. Their presence attract their elevator-addicted friends, so developers construct for them and transform the neighborhood, driving the upscale to seek a hipper slum to raid. It's already happened here -- the Schwimmer Manse. 

Where to apply the Yglesias solution

Matt Yglesias has been arguing to remove zoning restrictions that prevent residential development and increase rents. It's the obvious answer to the misguided view that rent regulations raise market-rate rents. 

Adding supply lowers demand and price, but evicting regulated renters don't add supply since the evicted tenants remain in the renting pool (the piece I did for Met Council's Tenant/Inquilino explains this in more detail), so they just raise rents wherever they go in the locality. The only available means of adding supply, short of killing renters, is construction. As it happens, rent regulations are one of the very few incentives to construct housing: new housing, unless it's subsidized, is unregulated. 

Yglesias also points out correctly that if cities don't construct, a tight housing market gentrifies their older, lower-income neighborhoods, displacing whole communities. 

But what happens when the city constructs at a scale commensurate with its demand? Yglesias seems to assume there is a limit to demand. That might appear to be necessarily true, since there's a limit to global population. But one person can rent more than one unit, so any limit has to be found in the aggregate funds available for rents, and there's no reason to assume that that's necessarily limited, especially where there's fiat money, and that holds of just about every nation across the globe, even Europe if considered as a whole.

In most urban markets, the limit is reached through preference and employment opportunity. More people want to live in L.A. than in Detroit, and in particular, more people with more money want to live there, for a variety of reasons. Supply that preference demand, rents should decline, or should they? 

But not all markets have a limit. Some actually create more demand the more it is supplied. Bars are a perfect example. One or two local bars may suffice for a neighborhood. But if the neighborhood boasts many lively bars, it becomes a nightlife strip attracting non locals. The more the bars, the more attractive the strip to non local consumers. More supply=more demand.

Some cities have this attraction too. The more you construct, the more people live in the city, the more people want to be where those people are. People are themselves an attraction, especially among young singles actively seeking. So if New York abandoned its zoning regulations and constructed wildly, would market rents decline? Would the upscale leave older neighborhoods to themselves? Or would New York just grow, continuing to spread upscale development everywhere? 

If that's so, then the Yglesias recommendation won't help New York, unless other cities become more attractive and cheaper than NYC. The only hope I see to prevent gentrification of the entirety of this city, is recommending the Yglesias solution to other cities.