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City Regulatory Hurdles Favor Big Developers, Not the Little Guy

When it comes to land use policy, we have a collection of rules, regulations, social expectations, and a cost structure that reinforces and mandates a very specific set of arrangements.

Here’s one example of how these things shape our lives. A family in a town I visited bought an old fire station a few years ago with the intention of turning it into a Portuguese bakery and brewpub. They thought they’d have to retrofit the interior of the building to meet health and safety standards for such an establishment. Turns out the cost of bringing the landscape around the outside of the building up to code was their primary impediment.

Mandatory parking requirements, sidewalks, curb cuts, fire lanes, on-site stormwater management, handicapped accessibility, drought-tolerant native plantings…it’s a very long list that totaled $340,000 worth of work. They only paid $245,000 for the entire property. And that’s before they even started bringing the building itself up to code for their intended use. Guess what? They decided not to open the bakery or brewery. Big surprise.

I’ve heard many officials and professionals get very derisive in their assessment of such efforts: “Oh, they were idiots. They didn’t do their homework before they started their project. What? They thought they could just do whatever they want with the place? There are rules you know.” These are precisely the same individuals who butter their bread each day with impact fees and billable hours. They have no skin in the game.

Meanwhile, the space has been pressed in to service as a printing shop for the family’s specialty advertising business. It’s a productive and profitable use of the existing space that doesn’t require structural changes or special regulatory approval. But it’s significantly lower down on the economic food chain, creates less taxable revenue, employs far fewer people, and does nothing to activate the town’s social or cultural life. And if anything were to happen to the building it wouldn’t be cost effective to rebuild so the lot would most likely remain vacant. There are plenty of empty parcels all around that attest to this reality.

Here’s an example of the kinds of things that are now required in order to open a new business. Each element of the design is based on an accumulation of amendments to the code over many decades. Individually it’s impossible to argue against each of the particulars. Do you really want to deprive people in wheelchairs of the basic civil right of public accommodation? Do you really want the place to catch fire and burn? Do you want a barren landscape that’s bereft of vegetation?

Consider the example of the gas station and an automated car wash pictured above.

And here’s the larger context. Can you spot the human? Look closely. She’s there. All our collective legislation to make individual establishments achieve specific goals are in direct conflict with the larger development pattern, which is also institutionally mandated. There is zero chance that any of these laws and procedures will be changed in my lifetime. However, it’s highly likely that before I die this gas station will close and the property will work its way down to a series of lesser uses until it remains vacant. After fifteen years the building will be fully amortized for tax purposes and the corporation that operates it will probably move on. That’s just good business. And before I shuffle off this mortal coil the cost of maintaining the road and associated sewer and water infrastructure will outstrip this town’s tax revenue—especially after the disposable chain businesses close down.

I was in Hamtramck, Michigan a couple of years ago to participate in a seminar about reactivating neighborhoods through incremental small-scale development. A young woman had just bought a century-old bank building for $50,000. It was a Roman temple made of carved stone, elegant wood, stained glass windows, and beautiful tile work. The place was enormous. But it had worked its way down the value chain for decades as Detroit declined.

While the event was underway the fire marshal happened to drive by and noticed there were people—a few dozen actual humans—occupying a commercial building in broad daylight. In a town that has seen decades of depopulation and disinvestment, this was an odd sight. And he was worried. Do people have permission for this kind of activity? Had there been an inspection? Was a permit issued? Is everything insured? He called one of his superiors to see if he should shut things down in the name of public safety. Fortunately, the woman he called was in the meeting at the time and talked him down.

One of the side conversations included an exploration of how to activate the space without doing the kinds of things the building code required. There was already a kitchen in the back of the building from when the place had been a Chinese restaurant. But the current rules required a long list of upgrades, including a $20,000 fire-suppressing hood for the stove and new ADA-compliant bathrooms. It could all be done, but at a price point that would grossly exceed both the purchase price of the building and any conceivable cash flow the business might generate.

One workaround was to have a certified and inspected food truck park in the back alley and deliver food into the building for temporary events. ADA portable toilets could be rented as needed. The building—now called Bank Suey [1]—has continued along these lines as a rental hall for pop-up events while the owner waits for the value of the neighborhood to increase enough to justify the required investment in physical upgrades. It’s not a bad plan, but it’s going to be awhile, folks.

I noticed an array of cell phone antennas on the roof of a nearby building. Rent on those things generates serious revenue—far more than what these empty buildings are likely to collect from commercial or residential tenants. Too bad Bank Suey isn’t taller.

On a walking tour of town officials and development consultants pointed to empty buildings and described all the things that could be done to bring them back to productive activity: open up the blank walls and re-install windows, incubate all kinds of new businesses, paint, outdoor seating. I rolled my eyes. None of those things make any economic sense given the regulatory hurdles involved and the likely negative return on the upfront investment. I’ve seen this scenario play out many times before.

The buildings that most appeal to me are the anonymous blank inscrutable structures that could quietly contain storage facilities or a non-retail live/work space under the radar without attracting the attention of officialdom. If the inhabitants were really discrete they might be able to carry on unmolested for a number of years. Meanwhile, the usual big-money developers might buy enough of the neighboring buildings and vacant land—with the accompanying subsidies and tax breaks—to rapidly transform Main Street at a much higher economic level. There’s no in-between. You either get permanent stagnation or massive redevelopment. Baby steps are essentially illegal. “Hold, wait, and do nothing” works for the little guy.

The same officials who decry this kind of obstructionist “land-banking” that gums up the works of their revitalization dreams do exactly nothing for small-scale operators who run straight into the buzz saw of multiple opaque unresponsive bureaucracies and inspectors hungry for violations. The only tool they have to offer is loans to bring things up to code. That’s a great plan if you want to go into a huge amount of debt and declare bankruptcy in a couple of years. No thanks.

There are all sorts of things individuals can and should do at a low price point without much debt to build up their personal household economies and contribute to a better community. But this ain’t it. Mind the gap.

John Sanphillippo is an amateur architecture buff with a passionate interest in where and how we all live and occupy the landscape. He blogs at Granola Shotgun, [2] where this post originally appeared. 

10 Comments (Open | Close)

10 Comments To "City Regulatory Hurdles Favor Big Developers, Not the Little Guy"

#1 Comment By Clint On December 3, 2017 @ 10:09 pm

It’s effectively impossible to build anything for the non wealthy these days.
Land density restrictions ensure that only the highest margin housing gets built. If you can only build 10 houses you will obviously build the most bang for your buck. And apt description would be if we limited the amount of new cars that could be sold in the US. If only 20k cars could be sold then only 20k of the highest margin cars would be built, ie Ferrari, Mercedes-Benz etc etc.

That’s before we even get to the other absurd regulations like a 20k fire suppression hood stove, like business owners are so nonchalant about losing their entire livelihood in a kitchen fire.

But that’s what the ruling class wants. It’s why in major Urban centers the only people who can afford to live there are the ultra rich and the ultra poor who serve them, in the form of housing subsidies.

We wouldn’t want a situation where the poor/middle class actually own property. They might start getting uppity and forget their place in society.

#2 Comment By Cash On December 3, 2017 @ 10:28 pm

Don’t leave us hanging, John. What’s the solution to make small-dollar renovation possible in blighted neighborhoods?

#3 Comment By Nelson On December 4, 2017 @ 1:44 am

Mandatory parking requirements

This one is especially counterproductive. Parking requirements, and the car culture in general, prevent cities from growing denser. Density is the most efficient path to economic vitality.

#4 Comment By Frank On December 4, 2017 @ 8:18 am

Wow, you mean local politicians side with local rich people over those less connected? And they use local ordinances to accomplish this by gaming the system?
And water is wet.

#5 Comment By Brian Villanueva On December 4, 2017 @ 10:33 am

I served on the Planning Commission in my hometown of about about 150,000 people in California for 7 years. What the author describes here is exactly what I saw every meeting.

Oak tree removal abatement fees, parking requirements, ADA upgrades, sidewalk and road widening rules, fire sprinklers, etc… Each of them worthwhile on their own, but together they choke the re-developmental potential out of an area.

We have 1000 page environmental impact reports telling us about some tadpole that lives in a puddle three times a year and must be moved to a new habitat at a cost of $300,000 to the owner.

And God help you if a bald eagle or red tail hawk makes a nest in one of your trees. I’ve had multiple farmers tell me they’ve quietly shot red tail hawks out of fear that their presence would destroy their ability to farm.

Newt Gingrich gave a speech years ago in which he said the following:

“December 7th 1941 to August 14th, 1945 is less than 4 years. In less than 4 years, we defeated Nazi Germany, Fascist Italy, and Imperial Japan. Today it takes 23 years to add a 5th runway to the Atlanta airport. We are simply not prepared, today, to be a serious country.”

That was in 2008, and it hasn’t gotten any better.

#6 Comment By Tyro On December 4, 2017 @ 1:08 pm

It’s almost as thought what people do affects the lives of everyone around them!

Outside of parking requirements, most of these regulations are essentially necessary. If you don’t want tax dollars building infrastructure, then the private developers need to create it as a requirement before they can build. Otherwise you have overflowing sewage and fire trucks that can’t access the building during and emergency.

Conservatism has divided loyalties in terms of demanding everyone adhere to norms of behavior because of their claimed community consequences while also getting angry that private businesspeople must pitch in to mitigate the public consequences of their own decisions.

#7 Comment By Dave Skerry On December 4, 2017 @ 4:09 pm

Shocking. Shocking. Round-up the usual money guys!

#8 Comment By bt On December 5, 2017 @ 5:35 pm

The problem with most of the rules is that voters have asked for and support most of these rules.

And it’s mostly true that wealthy areas have more of these rules than less well off. The wealthiest areas are usually incredibly difficult, with design boards and landscape committees and all sorts of things that are in place to keep the values high and the riff raff out – The lawyers are often waiting in the wings if projects get approved that don’t meet with the approval of the surrounding landowners.

Here is the heart of the problem, the people who ask for and support these things have for the most part never had to endure the process of trying to build something. It’s an endeavor that only a small minority will undertake. And when the do try, the are shocked, shocked shocked that it’s so hard and why are there so many rules and what do you mean they are making me do this and that and oh my gosh how dare they tell me what I can do with my land.

It’s not an easy thing to solve. Politicians campaign all over the place in red and blue zones by adding all of these rules, and they absolutely do get elected on it.

#9 Comment By Alissa Shelton On December 6, 2017 @ 1:34 pm

Hi, this is Alissa Shelton, I’m the owner & operator of Bank Suey. I already emailed and commented on this when it appeared in Granola Shotgun that I take an issue with Bank Suey (& Hamtramck( being used as an example of regulatory hurdles limiting development. I see there have been no adjustments or changes despite my contacting him.

I agree the concept that in general “We have a collection of rules, regulations, social expectations, and a cost structure that reinforces and mandates a very specific set of arrangements.” However, I think what Johnny is digging into, governmental regulations, is a misdiagnosis regarding our community and there are specific errors regarding our project. I think that Johnny has twisted our project to use as fuel for his argument, when really it doesn’t fit.

First off, several important philosophically and factually errors in this sentence. Johnny cites that “The building—now called Bank Suey—has continued along these lines as a rental hall for pop-up events while the owner waits for the value of the neighborhood to increase enough to justify the required investment in physical upgrades.”

The reason we haven’t made upgrades has nothing to do with waiting for the neighborhood value to increase to justify them. We have always kept costs low so we wouldn’t be burdened with debt that would end up dictating what programming we host in the building. The rotational pop-up programming isn’t a temporary thing, and we don’t actually function as a rental hall. We carefully curate and work with like minded partners to present programming we think is valuable for our neighbors. So in a way the way we function is more like a gallery or museum, instead of exhibitions (although sometimes we have exhibitions) we’re curating workshops and lectures. Just like at a big museum, these are either partially supported by the partner organization or sometimes underwritten by another organization or foundation.

In many ways the mandate or social expectation we are avoiding is that of a 1:1 building and tenant, or that of a rental hall available to anyone willing to pay the right fee. By keeping our costs low we have the ability to experiment a lot more and not have to push to make the numbers work by hosting big events like weddings or private parties, instead we can host programming that hopefully adds to our community.

I never bought this building as an investment property, it’s a few blocks from where I live and I deeply believe in our community, nothing has been done solely by the numbers (even though my numbers do work!) This is probably one of the biggest criticisms I get, I was evenly jokingly teased that I “need to get my capitalism right” recently. Not a month goes by that someone doesn’t stop in and ask me “How do you make money though?”.

To be clear, in the current market with conservative estimates we could easily support large renovations if we wanted to just plug in tenants in both the lower and upper spaces. We aren’t hindered by the market or requirements from the city, we want to operate in a way that supports projects and programming that don’t traditionally fill storefronts.

I also have to mention that the current rules for the kitchen don’t require the upgrades mentioned, those we speculated on my Daniel Hintz. Though switching use would require new ADA compliant bathrooms.

It’s also important to note that we are operating with a certificate of occupancy and are a registered businesses. The work-arounds suggested are fine, but we haven’t done either in the 60+ programs we’ve hosted. We have a CofO and did not have to upgrade to ADA toilets because we did not switch uses according to the code, so we’ve never rent any sort of portable toilets. And one of our bathrooms is just one inch shy of ADA anyways, and we have hosted folks who needed this accessibility. As for the food-trucks, we go with the less sexy approach of “catering,” food entrepreneurs prep at the commercial kitchen that’s 2 blocks away or one just over woodward still within a mile. Or we partner with one of the many local restaurants.

I would also like to add that while there are certainly regulatory hurdles, there are constantly new businesses opening in Hamtramck, more than I can keep count of. However on the block just north of me, two opened over the weekend. An eyebrow salon and a Yemeni restaurant. I would also encourage you all to look at this article that pre-dates Johnny’s visit by 2 or 3 months, highlighting the many developments happening in Hamtramck: [3]

I actually think the big problem Johnny mentions, that baby steps are illegal, is not true in Hamtramck. Yes, all first time businesses have issues working through the building department and sometimes things are costly when it seems they shouldn’t be, but we also have lots of folks doing their own building rehab that don’t require massive renovations or changes. We have 4 commercial corridors of nearly entirely locally owned property and businesses. I think the photos are fairly misleading, because we have MANY occupied structures as well. However our city (largely 1920s) was built dense, and the commercial density isn’t needed at this point. We just don’t need more than 3 record shops, or more than 4 coffee shops, or more than 55 grocery stores for our little 2 square miles. My corner has a walk-score of 95, a “walkers paradise” as we have so many local businesses.

Being “over-stored” is a national problem, not a Hamtramck problem. A piece in today’s Detroit Freep talks more about this “over-stored”, and explores what big box stores could be used for. Online retailers like Bonobos have “guideshops” where you try on clothes but “walk out hands-free.” Nordstroms is experimenting with storefronts that offer an experience, but don’t stock any of the clothes they sell onsite.

I think while I would encourage a re-writing of codes and regulations that encourage and make small scale locally driven development *easier*, it is not strangling our downtown. The empty storefronts you see are much more largely representative of a shifting world than they are of a city that’s making development illegal for the small guy.

#10 Comment By John On December 6, 2017 @ 4:59 pm

Response to Cash:

Changing the rules and regulations isn’t an option. It’s just too difficult. So building new things or modifying historic buildings will continue to be the province of larger more capital intensive operations rather than mom and pop shops.

On the other hand, most corporate chain establishments are only built to last for fifteen years since that’s how long it takes for new construction to become fully amortized for tax purposes. After that the buildings tend to enter the long march toward lower value uses. Meanwhile, new chain stores are built five miles farther out along the highway where the shiny new subdivisions are going up.

The forty year old drive-thru burger joint or national pancake outlet is typically occupied by a family owned ethnic restaurant. The heavy lifting of fire lanes, handicap accessibility, on site storm water management, etc. is already in place.

Of course these buildings aren’t really designed to last that long so maintenance costs are pretty high. And the surrounding neighborhoods often lose value along with the glut of declining strip development on the side of the highway… That translates to a contracting tax base at the same time legacy infrastructure costs kick in at the municipal level. That’s how slums evolve from once middle class towns.

The solution that tax starved municipal governments and large developers reach for is simple. Scrape the old buildings and put up 200 unit condo complexes with five stories of structured parking. I call this “density without urbanism.” It’s not a traditional suburb, but it’s not a great Main Street town either. But that strategy only works in places where land values are high enough to justify that level of investment and market demand exists for that product.