Urban blight is nothing new. The signature image of plummeting real estate is block after block of properties vacated as businesses move out. Now the high price of real estate in American cities is creating a new phenomenon: In otherwise healthy economic areas, the rents are climbing so high they’re driving businesses away — and no other businesses can afford to move in.
Tim Wu explores the economics behind this creeping problem in the New Yorker. As an example, he uses a neighbourhood which has been praised in the past for preserving its eclectic mix of locally owned businesses: the West Village. We all know that large chains have since infiltrated the Village, but now rents are skyrocketing so high that some of those chains are priced out — even Starbucks is shuttering some Manhattan locations.
The story behind these vacated spaces, as Wu discovers, is kind of depressingly fascinating. Landlords are sitting on their empty properties and raising the rent higher and higher, gambling on the fact that they can eventually entice some business to pay the insanely high rents and make up for all the lost income. It’s hedge-fund urbanism:
There are potentially some tax benefits for the owners of empty storefronts. But the more likely explanation is that landlords are willing to lose a tenant and leave a storefront empty as a form of speculation. They will trade a short-term loss for the chance eventually to land a much richer tenant, like a bank branch or national retail chain, which might pay a different magnitude of rent. If you’re a landlord, why would you keep renting to a local café or restaurant at five thousand or ten thousand dollars a month when you might get twenty thousand or even forty thousand dollars a month from Chase? In addition, if a landlord owns multiple properties, dropping the price on one may bring down the price for others. That suggests waiting for Marc Jacobs instead of renting to Jane Jacobs.
Snap! Jane Jacobs was, of course, the writer who described the economic vibrancy of the West Village and its “footpath ballet” of walkable urbanism as the standard by which great cities should be measured.
But there’s another issue, which is pushing the Marc Jacobs Village even further from the Jane Jacobs Village: Many of the residential properties in the city’s more expensive neighbourhoods are increasingly not owned by people who live or work there. This is a huge concern for some of the residential supertalls being constructed in Manhattan since these absentee owners are only using the apartments part-time, if at all. These also aren’t the people who are likely contributing to that footpath ballet by patronising the local coffee shops and family-owned businesses. Neighbourhoods like the West Village are not as much transforming into havens for the ultrarich as they are becoming empty wastelands.
Like the squatters who would live rent-free in the blighted downtown buildings of the past, there’s a new breed of squatters that are hoarding the most high-priced real estate. The difference is that by actually living there, the old school squatters helped to eventually transform these areas into viable neighbourhoods, while these invisible tenants are slowly turning the best neighbourhoods into ghost towns — with a Chase bank on every corner.
Picture: Stonestreet Properties