Collective Action
- Posted by ryan on February 19th, 2008 filed in Cities
The Post discusses the disappearance of grocery stores in New York City:
Soaring real estate values are prompting property owners throughout the city to shutter grocery stores and sell to developers, according to city officials, supermarket owners and industry analysts. In the process, another of the essential services that make New York livable is pushed further away, replaced by glittering condos and more banks.
As the story notes, this is becoming a problem in Washington, too, though not specifically with groceries. Banks, however, are expanding all over the place, reducing retail diversity in developing neighborhoods.
The problem is this: no one developer has an incentive to reduce the profit potential of his property by making room for a grocery store, but if no developers include such stores, the neighborhood as a whole suffers (including the developers, whose properties are worth less due to the inconvenience). Alternatively, the developers will make their properties convenient to grocery stores by including parking for very unit, so that owners can drive to where the food is.
In planned mixed-use communities, where the whole tract is controlled by one developer, you never run into this problem. The developer is interested in maximizing the value of the whole community rather than just one piece of land, so he ensures that value-increasing retail options, like grocery stores, are present, often by heavily subsidizing retail. A neighborhood with a nice, diverse, and convenient retail mix will be highly desirable, and the gains in residential property values easily make up for the money spent on retail subsidies.
So New York and Washington should do one of two things. Either: 1) they should directly subsidize neighborhood-serving retail, in the knowledge that tax revenues will then increase due to higher property values, or 2) they should foster the creation of neighborhood organizations empowered to do the same thing on a local level. What they should NOT do is pretend this is some wholesome market outcome that doesn’t need addressing. Neighborhoods prosper when needs are recognized, analyzed, and addressed, not when the prerogatives of developers are allowed to fully determine the shape of the place.
February 19th, 2008 at 2:32 pm
I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.
Eric Hundin
February 19th, 2008 at 2:35 pm
Define “neighborhood serving retail.” Coffee shops? Used bookstores? Upscale dining? Corner bodegas? Like commercial developers, local governments want to generate maximum tax revenue per square foot. Hence the office block canyons downtown with zero ground floor retail, outside of a 9-5 coffee and newspaper stand. With property tax rates doubling, tripling, and quadrupling, owners (and tenants) have to upscale their businesses or face evictions. So the hipster coffee shops fold and the wine, tapas, and belgian frites joints take over. So we have to ask: who defines which businesses get subsidies and which don’t? And why?
I don’t know if this can even be addressed by subsidies, but cutting small business taxes are a necessity, if you don’t want downtown to look like a goddamned chain stripmall. Hell it’s probably too late for Shaw, but there’s still hope for H Street. Changes in zoning laws would help here, too.
February 19th, 2008 at 6:09 pm
I noticed grocery stores are an issue here in DC, but it seems like CVS outlets pop up much more frequently.
February 20th, 2008 at 10:32 am
So New York and Washington should do one of two things. Either: 1) they should directly subsidize neighborhood-serving retail
I don’t know about “directly subsidize,” but Washington already provides extensive tax and licensing fee breaks for supermarkets, including a ten year exemption from property taxes. (See 47 D.C. Code 3802).
February 20th, 2008 at 3:25 pm
Ryan —
I’m not sure about D.C. but my guess (based purely on anecdotal evidence) is that part of the fall-off in grocery stores in New York is driven by the success of e-tailers like Fresh Direct and the introduction (for the first time) of national high-end food chains like Whole Foods and Trader Joe’s (both of which are relatively new to NYC).
If I’m right, this is a largely efficient change that may have non-salutary equity effects. Until recently, supermarketing in NYC was a great business — stores could have unbelievably bad selection/service but still charge supracompetitive prices because the stores had localized monopolies (Have you ever shopped in a D’Agostino’s? It’s probably the worst supermarket I’ve ever been in). The localized monopolies (blocks and blocks with only one store) were partially the result of excessively strict zoning rules but were also an effect of a highly pedestrianized city — the ability to get from one store to another in the suburbs keeps prices down, whereas you can’t carry your groceries far distances (Do you remember how expensive groceries were in London? Same thing). It’s the same force that keeps over-priced bodegas in business — no one can travel too far to get groceries and hence there is no comparison shopping (and the limits to entry stop competition from eating away the supra-competitive prices).
The introduction of Fresh Direct undercut these monopolies, and changes in zoning rules permitted both high end and mass retailers into super-block sized stores. This is an efficiency gain, but these stores skim off a number of attractive types of consumers (those who shop enough to make fresh direct efficient, those rich enough to cart groceries from a Trader Joe’s by car, those interested in shopping at whole foods). The result is that there is less demand for local supermarkets, and lower-end grocery shoppers who don’t have as much mobility, computer access or ability to stay home and wait for delivery, lose access.
If I’m right, then subsidies are the wrong answer. The right answer would be the same as the stories you tell about everything else — increase mobility and computer access in inner-city (and other) areas, through mass transit and other policies (like those cars-to-the-poor proposals to increase labor mobility) and the problem goes away.
That’s the best story I can spin…
February 21st, 2008 at 12:40 am
“So we have to ask: who defines which businesses get subsidies and which don’t? And why?”
Monkey’s got a good point. If maintaining extant retail is the sole objective, then Metro Center would still be full of wig stores and tschotsky shops.
Neighborhoods are always changing. It’s a little tricky to say that one moment in the neighborhood’s development is somehow the “prime” moment that needs to be preserved.
But I agree with your general collective-action/tragedy-of-the-commons point.
February 21st, 2008 at 10:44 am
I don’t know that Fresh Direct is the triumph of efficiency some make it out to be. They don’t pay rent for urban retail space because they take up the public streets instead, often contributing to congestion and causing traffic hazards with their double-parked delivery trucks. In effect, they enjoy a public subsidy that brick-and-mortar groceries do not.
February 21st, 2008 at 11:49 am
Schleicher - That’s an interesting take. I hadn’t considered that, and I think you’re on to something. But while I agree with you (and Yglesias) that zoning is an issue, the chain nature of grocery stores also has an impact. Chains are unwilling, in most cases, to go small footprint. They want to be big, and they want to sell to a large area. This, like the zoning rules, limits store frequency and competition.
Indie stores don’t mind going smaller, and so in dense neighborhoods you might get several of them, enhancing competition. Of course, that competition often manifests itself as improved selection and better service, rather than cheaper prices.
Reid and monkey - One would hope that the local government would be able to distinguish between neighborhood retail corridors and destination retail areas. Metro Center and Gallery Place are obviously the latter, and should be expected to have a different retail mix. Similarly, in Columbia Heights, 14th Street has become destination retail, while 11th is neighborhood serving.
I think monkey’s right that the first thing DC should do is eliminate punitive taxation on small businesses. And I think it’s ok to target subsidies on a limited, as-needed basis, provided there’s oversight (to prevent shadiness in the deals).