Search

Tuesday, February 25th, 2014

Supersize Your Development by James Kennedy

[ Last week Jef Nickerson told us about a proposed strip mall development in inner city Providence. This week James Kennedy of the blog Transport Providence pans back the lens to look at the bigger picture around this kind of development – Aaron. ]

The McDonaldization of Society

McDonald’s is no stranger to the love and hatred of people all over the world. It’s most vocal opponents have faulted it for being the robotic extension of a hyper-efficient assembly line. An important urban planning model is getting more and more attention across the country, and its models show not that auto-centric businesses like McDonalds are hyper-efficient, but the opposite. Even successful sprawl is a sinkhole for huge government subsidies, and results are that municipalities seeking new tax revenue from them may be shooting themselves in the foot.

One of the most prominent critique of McDonald’s is George Ritzer’s “The McDonaldization of Society.” Ritzer’s central thesis is that McDonald’s has perfected what Max Weber called “bureaucratic rationalism” in the use of its resources to such an extreme as to have dehumanized the process of eating.

I talked to Ritzer on the phone and by email, finding some of what he has to say about McDonalds interesting. Overall, though, I am a critic of his perspective. A lot of his examples of creeping McDonaldization don’t seem all that troubling to me. Quoting from his book:

  • “The department store obviously is a more efficient place in which to shop than a series of specialty shops dispersed through the city or suburbs. In addition, the shopping mall increases efficiency by bringing a wide range of department stores under one roof.” Certainly the disappearance of Main Street stores from many small towns and cities is something to be concerned about, and especially in its suburban form the shopping mall has meant lots of low-wage, high-turnover jobs that require huge amounts of wasteful driving and land use to produce endless streams of unremarkable places to shop. But what has to be understood is that Ritzer means to go beyond the big box store as an example of one-stop-shopping and criticize the idea of mixing different types of buying at all. In Providence, where we recently struggled over the addition of a new sprawled-out McDonalds and Family Dollar in Olneyville Square, Ritzer’s critique could not only apply to suburban places, but also to the newly-refurbished Arcade in Downtown, or even to the Winter Farmers’ Market in Pawtucket.
  • “Supermarkets have sought to make shopping more efficient by institutionalizing ten-item limit, no-checks-accepted lines for consumers who might otherwise frequent the convenience stores.” To have a more humanized society, shoppers expecting to pick up just a few items should apparently wait in line with people buying hundreds of dollars of items. As someone who values transit and biking, this example particularly irks me, because the ten-items-or-less line is a good demonstration of exactly the advantages brought with transit or bike lanes. I see this example as a huge stretch.
  • “Shopping also offers many examples of imposing work on the customer. The old-time grocery store, where the clerk retrieved the needed items, has been replaced by the supermarket, where a shopper may put in several hours a week ‘working’ as a grocery clerk, seeking out wanted (and unwanted) items during lengthy treks down seemingly interminable aisles. Having obtained the groceries, the shopper then unloads the food at the checkout counter, and in some cases, even bags the groceries.” Ritzer described the problem with imposing work on the customer as its effect on job creation. I personally can’t wrap my mind around why it would be bad for customers to be able to decide they want to order in a line or collect their own napkins and condiments in return for a lower price.

Certainly there are problems with fast food businesses, but I find Ritzer’s explanation of what those problems are to be lacking. I’m actually a very economically liberal person in many ways, but I also value consumer choice, and I feel like the McDonaldization thesis actually is a perfect combination of nanny-state patronization without any deeper analysis of how working class neighborhoods and businesses are fleeced by welfare-queen corporations.


Urban3 believe cities can increase their economic stability and community benefit by analyzing how architecture, planning and policy impact a community’s revenue base. (Image Credit: Urban3)

It’s Not About Fast Food

There’s another way of looking at McDonalds that sheds more light on its problems. The urban design and economics firm Urban3 in Asheville, N.C., uses math that’s receiving a lot of attention from national media. Urban3 asks, should cities be after any kind of economic growth or should they focus instead on how much growth they can squeeze out of an acre of land? The group produces some astounding visual models of what economic output per acre looks like, and its work has helped cities such as Memphis, Tenn., visualize what the balance between land use and economic growth actually looks like.

The firm first noticed the relationship between land use and real value in North Carolina, when staff worked to restore a JC Penney store that had been vacant in Asheville’s downtown for four decades. Made usable again, the property went from being worth $300,000 in 1991 to $11 million in 2012, according to a story about the firm’s work to restore the building, which takes up about a fifth of an acre.

The real insight of Urban3’s logic comes when one contrasts the value of the Walmart just outside of town, valued at almost twice the JC Penney building’s assessment. Emily Badger writes in The Atlantic article:

“Asheville has a Super Walmart about two-and-a-half miles east of downtown. Its tax value is a whopping $20 million. But it sits on 34 acres of land. This means that the Super Walmart yields about $6,500 an acre in property taxes, while that remodeled JCPenney downtown is worth $634,000 in tax revenue per acre. (Add sales tax revenue, and the downtown property is still worth more than six times as much as the Walmart per acre.)”

Urban3 contends that although businesses such as Walmart, which operate in similarly car-centric way to a McDonald’s with a drive-thru, appear to bring far more revenue than other businesses, that when looked at in a broader context are actually very inefficient at producing wealth.

I set out to apply his model to Providence, and found some interesting results.

For example, 235 Thayer St., home to a Chipoltle on the ground floor, carries exactly the kind of fast-food fare that Ritzer derides. Sitting on less than a tenth of an acre, the building is worth $636,100, according to the most recent tax assessment. The Whole Foods Market down the street at 261 Waterman has a small parking lot out front, and is valued at $2,222,300. But taken at a per-acre value, the Chipoltle wins hands down — $7 million an acre to the grocery store’s $1.5 million.

The lesson to draw from this isn’t that grocery stores are a bad investment. Though located in a less-valued neighborhood and worth just a bit more than $400,000, God Is Able African Market, in three-story building at 743 Cranston St., is worth $2 million an acre — half a million more than the Whole Foods. Fertile Underground, at 1577 Westminster St. on the West Side, came in at about $3 million per acre, trouncing a 6-acre Super Stop & Shop on Manton Street, worth more than $6 million, but only $1.1 million per acre.

In Olneyville Square itself, Recycle-A-Bike occupies the bottom floor of a building worth $200,500, but with a land footprint of just one-tenth of an acre, the building is worth 10 times that much on a per-acre basis compared to some other businesses in the area. The nearby Olneyville New York System has a parking lot in back that increases its footprint to a fifth of an acre, making the $272,600 building worth only $1.3 million an acre. The United Way at 50 Valley St. is assessed at nearly $600,000, but with a land footprint of 1.4 acres comes in at $423,000 value per acre.

I asked the city to provide tax information for a number of other businesses, many of which the city was surprisingly unable to locate in its tax records. These included a number of McDonalds restaurants built in suburban styles, a Home Depot which I had intended to contrast with a small neighborhood hardware store, several suburban and urban-style buildings that had Dunkin Donuts—which I figured is the ultimate in low-cost fast food—and a larger Whole Foods grocery store with even more parking which I was interested in contrasting with the smaller footprint one on Waterman Street. There were also several businesses in Olneyville that weren’t located.

Minicozzi emphasizes that it’s not just about how much value is created by an acre of land, but all the many extra costs that low-density development has.

“I think you have to ask yourself, what is the lifecycle cost of the road out front of the business? How much did it take to run sewer service across several acres of land for just one business, instead of connecting it ten feet from the next building over?” he asks. “If you’re in a nice three-story Victorian and someone just plops a gray box next to it, it’s not only about whether you dislike that box. Does that box pay its bills? I think the answer is no.”

Taxes in Providence are based on property values rather than land use, so some of the very small but very efficient businesses we studied pay very high taxes in relationship to the amount of infrastructure they consume.

I spoke with Nina Maxwell and Mike Giroux of Fertile Underground to get a sense of what one high-value-per-acre business pays in taxes. Fertile Underground pays $500 a month in taxes. But the costs to this small business go much further. “We pretty much have a permit for everything. I mean everything. There’s one for selling ice cream, and one for having chairs inside, and yet another for having chairs outside,” Maxwell says. “We had to pay the state a couple thousand dollars to put in bike racks on the sidewalk.”

When the zoning board in Providence approved the development of the McDonalds, alongside a Family Dollar of similarly sprawly style, it put forth the argument that while the businesses weren’t ideal, they were a step forward for a neighborhood with high unemployment. But the pattern of taxation and business-unfriendliness for small startups alongside bad land use and high consumption by sprawl businesses asks questions about whether that small-step-forward approach is exactly backwards. This isn’t helped when many of the officials in charge of directing policy admit to having no understanding of how these things work. Jim Bennett of the city’s economic development office testified at the meeting as follows:

You would think I would be supportive of this project because of the jobs, and there are jobs. I’ve checked it out, they’re accurate. The jobs particularly that are attuned to the minority community where we’re getting crushed.· We have probably the highest minority unemployment in the country; this addresses that issue. That’s not why I’m supporting the project.

You would think I’m supporting it because the property taxes are going to be raised between 5 percent and 10 percent. Several hundred thousand dollars, which could be used for infrastructure, schools. That’s a reason to be supportive of these jobs.

I went by and I got a picture of every building in Olneyville, every one. I looked at them and there’s not one business there that wouldn’t benefit by the increase in traffic. So that’s another reason to support it. However, my reason for being here … is that I do support the councilwoman who works with me at Providence Economic Development Partnership, who helped me get our loan program out of trouble with HUD, who I like to kiddingly call my assistant economic development director, who knows her constituency better than anybody. That’s who I support.

And lastly, and this is very important. Bob Azar, for 13 years he’s been involved with every major project in the city of Providence. The reason why this city is a jewel is because, part and parcel, of Bob and his staff. I have to tell you, I’m the director of economic development. I don’t know the first thing about zoning and planning and all this stuff, nor do I want to, but I’m a business person. I rely on the experts, that’s what I do. A lot of the work that Bob has done for 13 years here is seen around the city.

So Bennett’s points seem to be 1. I don’t know anything about this, but listen to me. 2. Things that expensive and harmful, like highway traffic through a low-car-ownership neighborhood, have only an upside without any counterbalance, and 3. I’m supporting this because my buddy in local government does. Very convincing.

Bennett initially agreed to set up an in-person meeting with me on behalf of ecoRI News to discuss the new development, but the morning of the scheduled meeting his secretary wrote to cancel, citing snow. I offered to do an interview by phone, and sent an e-mail with questions pertaining to the lifecycle costs of things such as Routes 6 and 10, the sewage overflow system that was just installed in Olneyville, the underground water pipes to the site and RIPTA efficiency. Bennett didn’t reply to requests for an e-mail or phone exchange.

At least one Rhode Island city has a different approach. Central Falls, located north of Providence, and itself quite a struggling rust-belt town, but the director of economic development for CF, who is also an Olneyville resident, spoke at the zoning meeting to recommend that the businesses themselves be approved, but only with the zoned urbanism intact. He said that Central Falls had been approached by a Family Dollar for its historic Broad Street and had insisted on no set backs from the sidewalk, and that Family Dollar had complied.

The Central Falls example gives one hope. In a state the size of Rhode Island—a state that also has the highest unemployment in the country, a shrinking population, and lots of unmet road infrastructure obligations around its neck—we should be able to get our heads wrapped around the idea that land is limited and has value that should be protected.

A version of this post originally appeared in a ecoRI on February 21, 2014.

11 Comments
Topics: Economic Development, Historic Preservation, Public Policy
Cities: Providence

11 Responses to “Supersize Your Development by James Kennedy”

  1. John Morris says:

    We really need studies to verify what should be self evident?

  2. John Morris says:

    I might have missed the post, but what exactly drew you to Providence, Aaron? I know it’s a good location for a person who travels and relatively cheap for a very expensive region, I considered it for a day or two, but moved on.

    Perhaps I missed something, but I feel really good about not moving there.

  3. George Mattei says:

    Interesting analysis. I do think that it’s more complicated, though. Density and use in and of themselves only partially determine the value of a building. I see real estate as a wealth “sink”, because it’s essentially a durable good that can be re-used over and over. These types of commodities tend to be valued on two things 1) what they can help produce and 2) the overall level of wealth in a society. This contrasts to say, a loaf of bread. Bread is non-durable-it is consumed, and then a new unit needs to be produced. It has a fixed value that is more tied to the cost to produce a new unit every time you need one.

    So take a bread factory. It produces X breads a year, and it sells them. The bread itself sells based on the price to produce it, plus a mark-up, and of course supply and demand also come into play.

    The factory’s value is partly based on its ability to produce bread, and the value of that bread. It “captures” the value of millions of loafs of bread. However, it also might have a higher use as say a widget factory that would sell widgets for twice as much as a loaf of bread. If the factory could produce the same numbers of widgets in a year, that would impact the value of the building for a widget maker vs. a bread maker. The widget maker might drive the price up to buy the building and realize more profits.

    This demonstrates how the general economy in an area affects real estate price. That’s why home prices for example tend to track very closely to income levels in an area. If the price of a house suddenly becomes 3 or 4X the median income level, instead of 2.2X, you generally have a bubble-which is what we saw in the mid 2000’s.

    Additionally, because real estate is a durable good whose value is based on general wealth in the community, if the wealth goes way down, you will see a “clustering” effect. Let’s say that the value of single family homes in Providence averages $100,000 each. The maintenance costs are $5,000 per year. If a bunch of companies suddenly move out of Providence and the overall wealth level is cut in half (for easy math’s sake), you will NOT see each house suddenly be worth $50,000 on average. Some houses will be worth $75,000, and some will be worth nothing. This is because of the high cost of maintaining a home of $5,000/year. That doesn’t change. No one is going to invest $5,000 a year in homes that won’t be worth much. So wealth will cluster where the market sees more likelihood of long-term value to be sustainable, and that $5,000 a year investment will pay dividends.

    Finally, even in real estate, supply and demand come in. So in real estate constrained markets you will see a different effect. This is why home prices in San Francisco at 3X to 4X median income are more sustainable, and why Phoenix and Las Vegas had huge price crashes that readjusted their prices back down to closer to the historic 2.2 X median income norm.

    Taking all this into account for a location is very important. I think, in light of the above, looking at the value of a Chipotle vs. a Whole Foods is a bit misleading. In real markets, there are dozens of users that might rent that Chipotle space. The average value that those dozens of users can produce (wealth creation) will help determine the value of the land. This is why LOCATION is important-if you are closer to your market, you will have higher sales and therefore more profits.

    Also, if you live in a community where there’s lots of abundant land, the value of each individual piece will be much less. Again, if real estate “stores” wealth, so to speak, then each unit of real estate you add to the market dilutes the wealth somewhat, UNLESS that new unit of real estate creates more wealth (i.e. a new car factory that brings in significant income growth to an area).

    Finally there is the consideration of infrastructure. There is a valid point that the more infrastructure you need to support the same kinds of uses, the more expensive it is to maintain. However, stating that a vacant lot is cheaper to maintain than an active McDonalds seems silly. Maybe over time, if there is a market demand, you can infill those lots to have more uses and therefore generate more value. But a road with nothing on it won’t pay for itself at all, where a road with a McDonalds on it will pay something at least.

    Where you DO run into problems is with specialty buildings. If it’s designed to be only a fast food restaurant, you have an inherent cost penalty to convert it to anything else. Having it be designed as a building that can be converted to something else should McDonalds leaves does make sense, as it won’t fall to the City to demolish the McDonalds to make way for the next use.

    If there is no demand for more intense uses for the site, allowing a McDonalds to come in, given that it’s designed to be re-used (which I’m not sure it was in this case) seems to make sense.

  4. John Morris says:

    George, you are making excuses.

    Most likely, you know that Providence is a city with a very small land area, with a several top liberal arts colleges and old money. $$ is never far away. The way land is used/misused explains a lot of what’s happened in the city.

    The situation here seems really sad in that developers as a whole don’t see much value in making long term investments. My last trip through was in 2003 but one could clearly see a trend of replacing high value property with cheap car oriented junk construction.

  5. John Morris says:

    For context, here is an article about Olneyville from 2006.

    http://thephoenix.com/boston/news/13331-class-warfare-in-olneyville/

    One can see the area was home to a lot of conflict between old time community members, artists & high end developers.

    “There was a time, not that long ago, when the outer slope of Federal Hill basically marked the limits of West Side development. The lack of interest from private capital was just fine with the artists and musicians who populated Fort Thunder, the fabled arts collective that took root, creating a fertile scene with a far-flung reputation, in a forgotten mill building in Eagle Square. Yet even before the epic battle five years ago over Eagle Square’s eventual transformation into a hybrid strip mall, the surrounding area was subject to creeping interest.”

    The Forth Thunder Collective participated in the Whitney Biennial.

  6. John Morris says:

    For context, here is an article about Olneyville from 2006.

    http://thephoenix.com/boston/news/13331-class-warfare-in-olneyville/

    One can see the area was home to a lot of conflict between old time community members, artists & high end developers.

    “There was a time, not that long ago, when the outer slope of Federal Hill basically marked the limits of West Side development. The lack of interest from private capital was just fine with the artists and musicians who populated Fort Thunder, the fabled arts collective that took root, creating a fertile scene with a far-flung reputation, in a forgotten mill building in Eagle Square. Yet even before the epic battle five years ago over Eagle Square’s eventual transformation into a hybrid strip mall, the surrounding area was subject to creeping interest.”

    The Forth Thunder Collective participated in the Whitney Biennial.

  7. Matthew Hall says:

    This is THE issue. If these economics could be allowed to work by governments, all the other issues we discuss on this site would take care of themselves. The problems of most American cities all come from the absence of functioning markets in land, transportation, and real estate, not ‘greedy’ real estate barons and gentrifiers.

  8. John Morris says:

    The weird vibe I get from the 2006 link is that many locals were more OK with replacing historic mills, (Fort Thunder was torn down) than allowing them to attract new people.
    By all rational logic there should have been enough space to go around.

    Providence seems to combine affordable housing shortages, with a weak tax base, high unemployment and social division. Something is seriously screwed up.

  9. “Taking all this into account for a location is very important. I think, in light of the above, looking at the value of a Chipotle vs. a Whole Foods is a bit misleading. In real markets, there are dozens of users that might rent that Chipotle space. The average value that those dozens of users can produce (wealth creation) will help determine the value of the land. This is why LOCATION is important-if you are closer to your market, you will have higher sales and therefore more profits.”

    The location of the Whole Foods is highly valued as well. It’s on the East Side, and near another cluster of markets and homes. All together, while not the kind of land use I’d like, it wouldn’t be taken as the worst example of suburban sprawl possible, considering the present building norms. The Waterman Whole Foods is actually pretty modest compared with its counterpart on N. Main. And the other thing to say is that of course both are nice buildings, in a general sense. The N. Main one, which has a huge parking lot, does have a nice brick facade, is well-shrubbed and so on. So the point being made here is to discuss the fact that even a desirable thing like a Whole Foods may not be using its land effectively, compared to another business.

    “Finally there is the consideration of infrastructure. There is a valid point that the more infrastructure you need to support the same kinds of uses, the more expensive it is to maintain. However, stating that a vacant lot is cheaper to maintain than an active McDonalds seems silly. Maybe over time, if there is a market demand, you can infill those lots to have more uses and therefore generate more value. But a road with nothing on it won’t pay for itself at all, where a road with a McDonalds on it will pay something at least.”

    So, I think the point that the model makes effectively is that the infrastructure ends up outweighing the development. I see what you’re saying as far as having something is better than having nothing, the problem with that is that the business incrementally brings more wear and tear to different parts of infrastructure–e.g., a 60 car lot like the one proposed for this space will be bringing hundreds of cars to the site per week, even assuming a lot of the lot space stays empty. Also, I think you have to consider the counterfactual. The sewer work that was done recently was to prevent sewer overflow, which was a valid need to keep the Narragansett Bay clean. Liberals tended to support that (I’m a liberal, I would). But if you think about that spending as a support structure that makes it possible to have a huge parking lot (“Eh, who cares about overflow, we got that taken care of. . .”) then that spending ended up paving the way (pun intended?) for the McDs. That cost is being put onto the shoulders of businesses that contribute next to nothing in overflow, such that they can’t compete, and that in turn will tend to lead to more McDs-type developments if a building can’t keep itself up and is torn down for sprawl.

    There’s also the creation of a political constituency that will maintain the status quo. The McDs argued that it was unfair to make it conform to basic constraints like having to front to the sidewalk because the Burger King that was there had already been grandfathered in to bad design. To me, that’s an endless regress that will tear apart any policy. Having more businesses of this kind that depend on Routes 6 & 10, roads which are arguably a force for great evil in the neighborhood as a whole, means that when you try to reform transportation spending priorities down the line you have a harder time doing it.

    So I think getting the proper price of things in order is important, and shows that the one-step-forward model doesn’t always make sense.

  10. John Morris says:

    But look at all the social & political dynamics at work in this one small area- preservationists, artists, long time residents, developers …. The bottom line is that dense mixed use development built and adopted over years is messy.

    My feeling is that the path of least resistance in Providence is just to tear things down (or let them fall down) and stick in a big box store.

    Something has gone wrong in Providence in terms of creating communities that work for a broad range of people. For a small city, it seems very complex with many cross currents.

  11. Claude Masse says:

    …and it is the norm in all other city scenes.
    If one thinks Providence is a test tube for all that goes haywire with urbanism?It ‘s a smokescreen.To the drive by critic,you are misinformed.How high is the unemployment per acre?How loyal are the residents to the “blight” of there respective place.Have they formed a close ally with the Mayor’s office or written poetry about it?Maybe they joined a gang and recorded a song to filter through the You Tube landscape.
    No.Providence is by no means a test tube.It is 19 square miles of density.You want thickly settled?Here it is,and has been for many years.I won’t pick out cities around the nation that have boarded up and moved west.There are so many.
    Providence citizens have always loved a good fight,a good debate.Special rooms have been set aside for this.Standing room only in most cases.One of the city’s greatest assets has been the naysayers &the yes men buying drinks for every one afterward.
    What a darling the town is.
    Next up Hartford.

The Urban State of Mind: Meditations on the City is the first Urbanophile e-book, featuring provocative essays on the key issues facing our cities, including innovation, talent attraction and brain drain, global soft power, sustainability, economic development, and localism. Included are 28 carefully curated essays out of nearly 1,200 posts in the first seven years of the Urbanophile, plus 9 original pieces. It's great for anyone who cares about our cities.

Telestrian Data Terminal

about

A production of the Urbanophile, Telestrian is the fastest, easiest, and best way to access public data about cities and regions, with totally unique features like the ability to create thematic maps with no technical knowledge and easy to use place to place migration data. It's a great way to support the Urbanophile, but more importantly it can save you tons of time and deliver huge value and capabilities to you and your organization.

Try It For 30 Days Free!

About the Urbanophile

about

Aaron M. Renn is an opinion-leading urban analyst, consultant, speaker, and writer on a mission to help America’s cities thrive and find sustainable success in the 21st century.

Full Bio

Contact

Please email before connecting with me on LinkedIn if we don't already know each other.

 

Copyright © 2006-2014 Urbanophile, LLC, All Rights Reserved - Copyright Information