Affordable Housing Depends On Small Businesses

For years my pitch on cities was all about compact communities and third places. You don’t need a big house, a yard, and a living room when there are nearby amenities, like bistros, coffee shops, and parks. Living in dense communities might mean smaller space, but that’s more than offset by all the hustle and bustle in a city. But has the Covid-19 pandemic upended that rosy picture of urban housing solutions? In my own neighborhood of Capitol Hill in Seattle, I’ve noticed a disturbing trend; all those third places are opening later and closing earlier. Sometimes cafes that I used to work in no longer exist. Is the problem lack of labor or lack of demand? In either case, what’s driving this trend and what does it mean for housing?

The Puget Sound Business Journal wrote a profile about me years ago headlined, “Seattle’s evangelist of growth: Roger Valdez doesn’t just lobby for urban density — he lives it.” For better or worse, this has been true for most of the last thirty years. My support of density derives from a belief that living close together isn’t just good for the environment and economy, but for people as well. I wrote a post called, “where would Jesus Live?” about the moral dimensions of density. I said then,

“Perhaps, though, Jesus was a density advocate. If we are to love our neighbor as ourselves, it’s awfully hard to do if we have no neighbors. Living in a city means having lots of neighbors and encountering otherness every day. How we deal with otherness, our neighbors, shapes how we deal with issues of public spending, priorities for policy, and how we organize our society. Our tendency can often be to push each other and unpleasant things away. Cities make that harder to do, turning the problems of other people into our problems.”

It’s been distressing, then, to see coffee shops and other small venues, the kinds of places that functioned as a living room for my smaller housing, closing all around me lately. Almost as bad as that, is the phenomenon of these places reducing their hours and days of operations, especially since Covid-19. What’s going on? While many aspects of the urban economy – sports events and live music, for example – have surged back to life, café, restaurant, and bar culture seems to be lagging.

“It’s not just your imagination” says a story from CNBC. “Restaurants aren’t open as long as they used to be.” The story goes on to cite a recent report on this trend.

“Eateries have trimmed their weekly operating hours by 7.5%, or 6.4 hours, compared with pre-pandemic schedules, according to a new report from Datassential.”

The work done by Datassential is worth a closer look. Their study found that there are several reasons for fewer hours and closures.

1. There is still a shortage of labor, which means shorter hours.
2. In some places, there has been a falloff in demand for the services and ambiance of third places since the beginning of the Covid period in 2020. This is true especially in places that had more rigorous rules shutting public places down (think Seattle, San Francisco, and New York).
3. Working from home meant that people were no longer out and about and willing or able to meet and congregate after work; they were already home at the end of the day.
4. Nesting was easier to do, ordering food and booze online meant avoiding having to motivate to go out and to find parking in busy neighborhoods.

This all makes sense to me. I’ve made 8 road trips since late August of 2020, and I found that the interior of the country, especially places like Wyoming and Nebraska, were not as locked down as places like Washington State and California. And it seems intuitive to believe that the novelty of online ordering and not having to travel to shop for food and entertainment would be slow to wear off. It also saved people money and time. But I also have a conjecture: for some reason, the demand was already low or waning in many dense areas like the one I live in, and Covid restrictions allowed a reset. Many establishments cut hours because they were already unprofitable.

One cafe owner I talked to confessed that his business slowed to a standstill after 3PM, even in one of the densest neighborhoods in the Western United States, Capitol Hill in Seattle. The neighborhood has a total population of 32,144 and a density of 20,000 people per square mile. A bar owner not far away said he had to shut down earlier service; people were showing up, ordering one cup of coffee and sitting at their computer for hours. The money generated just wasn’t enough to justify being open. In both cases, there may have been people, but the average transaction cost couldn’t justify the hours, something present before the pandemic. When the pandemic hit, being closed became normalized, so many places seem to have limited hours to the ones with highest demand and most return on the investment of labor costs.

Years ago, another businesses owner who shut down also said that running a business in Seattle was increasingly difficult. Wages were being pushed up by mandates from the City Council as well as more and more regulation and rules that made opening the doors incrementally difficult. The uncertainty of Covid-19 seems to have made labor decisions worse too, making it hard to ramp up commitments from staff for more hours and a reluctance to dial them back if things slow down. My thought has always been that ratio of square footage to labor costs is key; if a space is too big, it means needing more staff and higher costs. Smaller, crowded places with fewer hours seem to do the best and weather ups and downs better.

All of this is a guess on my part. But I do think that more work like the study by Datassential is key to supporting the growth of housing supply in cities. We need to know what factors contribute to the success or failure of the small businesses that make living in smaller space appealing. If regulations and labor costs added by well-meaning officials creates deserts without hospitality businesses, housing units are likely to get bigger and more expensive. What makes smaller, denser, and more affordable units possible is the third place.