Wednesday, May 27th, 2009

Chicago: Preventing the Self-Destruction of Diversity

Chicago’s urban core has boomed in a way that makes most other cities jealous. Every time you turn around, it seems, another gem is added to it. The Renzo Piano designed Modern Wing at the Art Institute recently opened its doors to general, if not universal, acclaim, for example.

But while this boom is to be celebrated, and clearly it has been necessary to sustain the animating life force of the city as a whole, there are long term threats that need to be considered.

The first is that all booms tend to contain within themselves the seeds of their own collapse. We’ve seen that with the dot.com bubble, the real estate bubble, and the finance bubble, the last two of which are really weighing on Chicago. Growth feeds on itself in a type of positive reinforcement loop. If it hits a certain point, it can really take off, as in a typically “hockey stick” diagram. The problem is that some point the trend reaches the point of exhaustion, and the hangover can be a bear. Most stable systems employ negative feedback controls or stabilizers to “take away the punch bowl just as the party is getting started”.

The real challenge, however, is what Jane Jacobs called the “self destruction of diversity”. Thriving urban districts require a mixtures of users and uses acting to mutually sustain and energize a neighborhood. But what has a tendency to happen is that, as an area becomes popular, land values go up and rents go up. There is greater demand for and competition for the space. Because of this, the most economically successful use of the moment tends to become increasingly dominant. This is particularly the case if that use benefits from face to face interactions among multiple players in the space and clustering economics.

Jacobs also talked about the requirement that neighborhoods contain buildings of a mixture of ages, such that they require differing levels of economic rent. New enterprises, particularly in wholly new fields, often require space that is available at low cost. So if there are no low cost buildings in an area, tomorrow’s new industries can’t often get started in a place at all. While she didn’t quite put it this way, this notion is often paraphrased as “new ideas require old buildings”.

The boom in Chicago causes concern on both of these fronts. Firstly, the great Loop area is increasingly dominated by two uses: financial and business services for the global city function of Chicago, and entertainment/tourism. To some extent, the Loop has always had these characteristics as a typical CBD. And in many respects, the streets are far more active today than they were in an era not that long ago when the streets in the Loop really did roll up at 6pm.

The real problem is that the boom in the Loop has generated enormous opportunity for profit in the redevelopment of older buildings. Many older buildings have been demolished completely, or preserved only the form of the “facadectomy”. A number of vintage office skyscrapers have been converted to residential use. The high rent district, which used to apply mostly to the core of Loop, now extends far to the West and South instead of just the traditional north. The number of places where one can obtain low-rent space in the greater Loop area would appear to have declined significantly.

The same forces are operating in residential areas, which are increasingly taking on the cast of New Urbanist suburbs. Housing prices keep out all but the already affluent in many places. Rents have followed suit, leading to a predominance of swanky establishments catering primarily to consumption by the upscale: restaurants, clubs, boutiques, spas, etc. A number of formerly industrial districts have been reborn as more or less single use large format retail strips.

What will the long term affect of this be? I don’t know. I do think it is something worth of consideration. Affordable housing is obviously something that is on the radar of many groups. But the idea of affordable office or industrial space less so. We want the Loop to be successful, but also I think there should be policies developed that are designed to actively sustain its diversity over time.

The danger is that the Loop becomes increasingly concentrated in ever most high value specialized services. (I’ve even suggested how we might encourage this through cross-regional collaboration). This can be good in that it keeps Chicago a player at the pinnacle of the global economy. But it also exposes Chicago to the risk of niche exhaustion. And with the global city functions an artifact of globalization as we know it today, any disruption or further evolution of that model could seriously hit Chicago.

As I’ve long argued, in an ever more rapidly changing, uncertain world, it is critical for cities to have a diversity of strategies and future options for success, and not put all their eggs in one basket. Chicago needs to continue reinforcing its success, but it also needs to look at how to diversify that success so that when, as it inevitably will, economic needs change, Chicago is right there with the next new thing. While picking winners and losers is a problematic concept, at a minimum the city should be looking at how to preserve the conditions necessary for success.

Interestingly, the city has already taken some steps here. It created the concept of a “Planned Manufacturing District” to prevent residential encroachment into surviving manufacturing zones like the Kinzie Corridor. A good move. While mono-use isn’t always a good thing, for a traditionally manufacturing area, I think this is a decent strategy. We should be looking at similar means of preserving the favorable economics for new ideas in the urban core as well.

15 Comments
Topics: Economic Development, Globalization, Public Policy
Cities: Chicago

15 Responses to “Chicago: Preventing the Self-Destruction of Diversity”

  1. Stephen Gross says:

    * I agree that the Loop is too limited in its uses.

    * I visit Chicago often, and always stay at hotels in the Loop. Maybe Chicago needs some hotels elsewhere that are still convenient, near the center of the city, and near a CTA stop?

    * Is the Loop like Manhattan? Is it pricing out everyone but the very wealthy? If so, that’s really too bad. I guess wealth tends to beget wealth in that respect.

    * Cities often have affordable housing requirements, at least for new housing. Is there such a requirement for retail space?

  2. thundermutt says:

    In general, low-rent housing near the core of most cities is considered “blight” to be remedied by renovation and redevelopment. There is an established protocol for preserving some of it as “affordable” (which term carries a specific US HUD definition).

    In general, low-rent commercial and industrial space near the core of most big cities is also considered “blight”. But this type of “blight” carries a whiff of “opportunity” since any space that can be purchased for $50-100/square foot and converted to housing that sells for $200-400/square foot. Or it can be renovated into cool class-A office space and command a higher rent.

    Most community-development corporations focus on affordable-housing redevelopment because that’s where federal grant money exists to pay their overhead costs.

    In order to cover their commercial redevelopment costs, CDCs would have to be active players in redevelopment, which is hard enough to do in normal times. It’s darn near impossible now with limited capital in a high-cost, tight-credit environment.

    The successful CDCs use aggressive strategies based on various tax-credit programs, but those deals require very sophisticated bankers, lawyers, and equity partners; they take a long time to put together; they still need credit-worthy tenants, which most start-ups aren’t.

    In short, doing the thing you’ve identified is a lot like paddling a canoe upstream: it can be done, but only with a lot of concentrated effort. Even then, the current will eventually overwhelm the canoeist.

  3. Anonymous says:

    This might be one of your more short-sighted commentaries, in my opinion.

    The problem of “limited” Loop business types is that if your company produces widgets (i.e. manufacturing), odds are you need space to build (possibly), store, and test those widgets. If your widgets are of any meaningful size, forget about the Loop. Even life sciences need large lab spaces with things like fumehoods, chemical tanks, etc.

    None of those needs outlined above work in a skyscraper. The Kedzie manufacturing district sounds more like a workable idea, no high rises out there.

    So, naturally, why would the middle-class engineer/scientist need to live in the Loop anyway? It happens to work out that the highest earners are executives or in the financial sector, so they can afford to live near work in the Loop. Only the janitors get short-changed in this scheme, really.

    Allow me to apply a hand-waving argument that this could generally apply to all CBD’s which have skyscraper-type density.

  4. Alon Levy says:

    Anon: no, Midtown Manhattan was diverse for quite a long time, and Downtown Manhattan had affordable neighborhoods well into the 1990s. Even now, when Midtown is extremely upscale, it has Koreatown right to its south and Hell’s Kitchen, which has plenty of Dominican immigrants, to its west.

  5. JG says:

    ALON brings up a good point. Often times in a dense area, the look, feel, attitude, and affordability of an particular area can change dramatically from one street to the next. I know this from Manhattan too, but am less familiar with Chicago. Is this possibly the case just outside the loop? What about the area just west and south, are they affordable to the middle 75% of income earners?

    BTW – I do agree with the premise diversity of socioeconomic status makes for a more interesting and sustainable city.

  6. rsolinsk says:

    Manufacturing is just one type of start-up. However, if someone, say, had a good idea for an internet-based business, they would want office space, not warehouse or factory space. For awhile, there were places in downtown Chicago that offered this.

    A good example was Big Idea Productions, the 3d-animation firm behind the VeggieTales cartoons. They saw a business opportunity, and they were able to find low-cost space in the West Loop. Soon, they were priced out and even considered moving into an unused department store in a rundown suburban mall. (they no longer exist)

    Like Big Idea, however, looking at the central city does not tell the whole picture. The Richard Florida mindset that creativity and innovation can only come from inner-cities is seriously flawed, in my opinion, because it ignores the growing trend of the reverse commute.

    Here in Chicago, The endless industrial parks of suburban Elk Grove Village, Itasca, Bedford Park, et al. have many spaces where start-up businesses can locate cheaply.

    The recession has also tempered the hopes of office parks, which hopefully now will seek reasonable if not rock-bottom rents for all of their excess space.

  7. Stephen Gross says:

    (Picking up on a note in the previous comment…)

    I used to be a reverse commuter in Cleveland. Now I’m a reverse commuter in Minneapolis. I know a lot of people in these circumstances.

    So what’s going on? Why are all of us (cool?) 20-to-35-year-olds living in downtowns and commuting to the burbs? Why aren’t there more jobs downtown?

    The only downtown jobs anymore are legal, banking, and government. Anything else–such as software (my field)–is located on the suburban periphery.

    Well, I suppose I know the story… Rents are high, suburbs offer tax incentives for new constructions, commuters find it easier to park off-highway than take a so-so transit system into the center city.

    Still, this is driving me nuts. American cities are going to look really weird in 20 years when we all live in the city but work in the suburbs. Talk about a reversal!

  8. the urban politician says:

    I disagree with whoever said that this is one of Aaron's more short-sighted posts.

    I think he makes a great point, and I have a few comments:

    While Chicago's loop itself is becoming too much of a single-use district, the city is still capable of providing a lot of older, lower rent space as well as a diversity of land uses. A lot of smaller firms are leasing space in loft buildings in the western portion of River North along the river's north branch. Also, the area around Jefferson and Lake still has older building stock for these kinds of businesses. The key is for the city to preserve some of this stock and not allow developers to tear them down for luxury hotels and condo towers in the future.

    Along with the PMD's mentioned by Aaron, lets not forget the Illinois Medical District with all of its land designated for future hospital and research expansion, as well as Northwestern University in Streeterville which (much to my dislike) continues to be on a land grab towards greater expansion, often at the expense of historic buildings, for future health care & research uses.

    IIT at 35th St has been in the process of developing a tech incubator park, which has great transit access. The city has tried to do the same on the west side, but with little success. Finally, there is that old loft building being converted into the Green exchange on the north side of the city. I think when push comes to shove, the city has plenty of building stock, if not downtown, to accommodate new startups if need be.

    What I think is more important for Chicago is to get itself linked to a smaller "boutique" city which can provide the cheaper office space to perform some of the "lower end" functions or even create the cheaper environment needed for startup businesses–this is something that Aaron has discussed at length. Aaron has suggested Indianapolis as a candidate for this, but I think Milwaukee can perform this function perfectly. If core to core train time between MKE and Chi can be brought down to roughly 1 hour with good reliability, I see this being a PERFECT niche for Milwaukee, which has plenty of older building stock.

    Aaron, speaking of Milwaukee, I don't know if you have spent much time there but I urge you to get up there post haste and check that place out. I noticed you haven't done a piece on that city yet in this blog, but it is far and away deserving of one. :)

  9. thundermutt says:

    When this commenter was in that “cool” 20-35 demographic, he also did a reverse commute to a suburban office park from the “old city” limits. He had several friends who did the same thing.

    That was almost 25 years ago.

  10. Alon Levy says:

    Stephen: I see reverse commuting as a symptom of the failure of edge cities to provide mixed-use development. Many edge cities are so exclusively commercial that there is nothing going on in them after 5 or 6. Conversely, they tend to be extremely expensive. Upper middle class workers can live there, but they can also live in the central city, which offers more interesting nightlife.

  11. The Urbanophile says:

    Thanks for all the comments. Appreciate them.

    There may in fact be affordable office and industrial space in outlying areas. This prompts a question: will the locus of vitality switch to those places over time? Or will the future be driven by well-capitalized spin-offs of existing Loop type industries? We’re already seeing the phenomenon of immigrant communities getting pushed to the burbs. What is the long term effect of all this? It is worth pondering.

    Whatever the case, I think there’s value in having a sufficient inventory of Class B and C space in the greater Loop area.

  12. Anonymous says:

    I can assure you that downtown Chicago remains diverse. Just come to Clark St. between Division and North any night and watch the diversity smash car windows up and down the block all night long.

  13. Steve says:

    Reverse commuting: there's an interesting dynamic in SF and Seattle — smaller companies can attract (young, cool?) talent by locating in the core, in part because all the big companies are in the office parks and the kids don't like the reverse commute or the suburbs.

  14. Rich says:

    I think there is something to the argument here…specifically that too much high-end development can force out other uses that helped drive the attractiveness of the area in the first place.

    However, the application of this argument to the Loop in Chicago does not hold water for me. There is an abundance of Class B and C office space in the Loop. Yes, some of that space has, and will continue to be redeveloped into high-end residential development and other exclusive uses. But as that is happening new office space is being built which is causing older office space to struggle with occupancy and become less expensive. There is no shortage of vacant office space in Chicago.

    In addition the characterization of finance/business services and entertainment as the only new activities in the Loop is not correct. The best counter-example is the growth of the student and university community in the loop. Several older office buildings have been converted to educational use and student housing. These are great examples of uses that increase the diversity of activities that go on in the loop.

    I would also caution against equating manufacturing uses with diversity. The era that allowed manufacturing to competitively occur in dense urban environments is long past. The need to compete with production around the world means that the scale and efficiency required for physical production can really only occur in non-core areas. The innovation aspect of manufacturing (e.g. fashion in NYC) can still be present, but the bulk of the production will be elsewhere. To argue that manufacturing should still be a predominate use in an urban core is to tilt at windmills.

  15. The Urbanophile says:

    Rich, thanks for sharing. I should probably be more clear that I think this is something to worry about downstream more than a product of the present. Very good points, however.

    One that I would dispute is the idea that manufacturing doesn't matter. I'm not sure what your definition of the urban core is, but I think we'd definitely want to keep a place for smaller scale, entrepreneurial manufactures. The large scale factories like car assembly plants are headed to the countryside as you note. But craft manufacture and other such uses could still realistically flourish in an urban environment.

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