Fixing retail with land value capture
This article dissects the urban paradox where thriving retail enriches property owners, not the businesses creating the vibrancy, leading to a "leaky value capture" problem. It proposes innovative solutions like unified ownership and hyperlocal taxes to ensure retailers can sustain themselves and foster community "third spaces." On Hacker News, discussions range from the practical implications of land value taxes to the political feasibility of such interventions, alongside broader critiques of urban planning and landlord-tenant dynamics.
The Lowdown
The article "Fixing retail with land value capture" from Works in Progress Magazine addresses a core urban economic paradox: vibrant retail establishments, while contributing significantly to a city's appeal and property values, frequently struggle to capture the financial value they generate. Author Phil Levin argues that this "leaky value capture" mechanism undermines the sustainability of unique shops, cafes, and restaurants, leading to empty storefronts despite booming surrounding real estate markets.
- The Value Leak: Retailers invest in creating attractive spaces and experiences, which subsequently drives up the value of nearby commercial and residential properties. However, these rising land values primarily benefit property owners, not the retailers themselves, who then face escalating rents and operational costs.
- Examples of Disconnect: The article highlights areas like San Francisco's Hayes Valley, where unique retail thrives yet businesses turn over constantly, and public infrastructure projects like Caltrain, where the immense public investment primarily enriches a few property owners near stations rather than the transit system itself.
- Unified Ownership as a Solution: One proposed solution involves "internal cross-subsidization" through unified ownership, a model where a single entity controls and develops both retail and residential properties (e.g., shopping malls, planned communities like Culdesac, or Hong Kong's rail-plus-property model). This allows the developer to capture and reinvest value generated by the retail.
- Hyperlocal Taxes and Authorities: Another approach involves creating hyperlocal taxing authorities or institutions, such as enhanced Business Improvement Districts (BIDs) or special purpose bonds, that can levy taxes on increased land value and direct these funds to support local retail or amenities.
- Shifting Retail Paradigm: The article predicts a future where retail increasingly functions as "commons" or "third spaces" rather than solely for selling goods, suggesting that effective value capture models are crucial to support this evolution and provide directly what communities want.
Ultimately, the piece advocates for innovative economic and urban planning models that acknowledge and internalize the positive externalities generated by retail, ensuring that the entities creating urban vibrancy are also able to sustain themselves, thereby preserving the character and liveability of cities.
The Gossip
Retailer's Rent Reckoning
Many commenters echoed the article's central premise that successful retailers, through their efforts, generate community value that disproportionately benefits landlords and property owners via increased rents and property values. This creates a cycle where thriving businesses are ultimately priced out, and local character is lost. The discussion highlights the inherent imbalance in value capture, where risk and effort are borne by retailers, while passive ownership reaps significant rewards. Some suggested that retailers should aim to own their properties to avoid this trap, or that the rise of online shopping might be a natural market adjustment.
Land Value Taxation: Panacea or Problem?
The concept of a Land Value Tax (LVT) as a mechanism for value capture was a prominent point of discussion. Supporters view it as an elegant solution to the problem of unearned land value appreciation, potentially encouraging development and discouraging speculation. Critics raised concerns about its practical implementation, pointing out political barriers (e.g., Prop 13 in California), its potential to disproportionately burden tenants under existing lease structures (like triple net leases), and questioning whether it truly addresses the root cause or simply shifts complexity.
Urban Planning & Intervention Doubts
A segment of the discussion questioned the fundamental approach of "fixing" cities through various government or regulatory interventions. Some commenters argued that such ad-hoc solutions are akin to "plugging holes in a dike," leading to further complexities like needing subsidies for essential workers or services. Others expressed a general distrust of government and taxation as value-destroying, suggesting that market signals should be respected, or that underlying issues like restrictive zoning (or lack of density) are the real problems in urban development. Counter-arguments highlighted the essential value provided by government services.