This is how the City of Vancouver can save local businesses
This is Part II of two posts focused on small business policies in Vancouver. Part I: “This is how the City of Vancouver is failing local businesses” is here.
After decades of almost no small business advocacy, Vancouver’s City Council recently passed a motion to ask staff to embark on a comprehensive review on small business strategy and strike up a new small business advisory council Though this enlightenment is coming a little too late and any policy recommended is unlikely to go into effect until after the municipal election this fall, we should start collectively thinking about what the City of Vancouver can do to create a better small business-friendly environment. Vancouver has already fallen behind, but we can find inspiration from what other cities are doing to help their small local businesses.
Taxation Alleviation Schemes
Commercial tax alleviation is the most pressing need for small businesses. Many small businesses are on “triple-net leases”, where they are responsible for the commercial lease, maintenance costs and property taxes. Any property tax increases are passed directly to the tenant. BC Assessment assesses property value based on “a property’s highest and best use”, which in many cases mean increased residential-use on the same property. Unfortunately for small businesses, commercial property tax rates (19%) are almost five times higher than residential rates (4.24%) leading to excessive tax rises that do not reflect actual use. Small businesses, Business Improvement Associations and city councillors have been calling on the provincial government to alleviate the tax burden of small businesses with some solutions rolling out this year. Tools include “split assessments”, which allows unbuilt airspace on top of a retail unit to be assessed at the lower residential tax rate instead of the higher commercial rate, and “three or five-year averaging”, which allows tax to be calculated based on the value of the property over a three or five year period. Critics have identified gaps in these solutions as businesses cannot qualify for both tax alleviation schemes and astronomical rises in real estate prices in recent years have cancelled out any benefits offered by the averaging solution.
Outside of adjusting taxation formulas, the City could explore offering tax credits to landlords that commit to affordable leases for their tenants, though this may require a change in the Vancouver Charter.
Empty Stores Tax
Pedestrians walking along Granville, Robson, Kitsilano, Chinatown and other commercial high streets can observe an abundance of empty storefronts with “For Lease” signs that are vacating retail vibrancy from neighbourhoods. Instead of renewing leases with previous tenants, landlords usually convinced by predatory leasing agents, would rather evict and hold out for a tenant that can pay a premium. Not long ago, the City implemented an Empty Homes Tax to unlock underutilized or unused residential units into the low-vacancy housing market by taxing unused units. This same concept can be applied for empty storefronts to encourage landlords to lease out their unused space to create more retail supply and reactivate street-level activity. Berkeley, San Fransisco, and Washington D.C. have implemented or are considering commercial vacancy taxes.
Commercial Tenant Protections
Residential renters are protected under the provincial Residential Tenancy Act, which clearly sets out the relationship between landlord and tenant with avenues for dispute resolution. There is a BC Commercial Tenancy Act, but commercial tenants are have less “rights” than a residential tenant as they are assumed to much more sophisticated and thereby more able to negotiate with a landlord than the average residential renter. The reality is that not all businesses are as well-equipped as assumed, resulting in a power imbalance between landlord and commercial tenants inadequately protected by the law. The Commercial Tenancy Act can be enhanced with more tenant protection measures such as rent control for rent stability, increased eviction protections for tenants, lease negotiation rights for tenants when leases expire, and arbitration mechanisms.
Rent controls for BC were publicly debated in 2003 with no resulting action. Critics argue that rent controls violate the spirit of the free market and should be pre-negotiated within commercial leases between landlord-tenant rather than via government regulation. Spain is a good example of a jurisdiction that has experienced a small business landscape with and without rent controls that were introduced during the Franco era. When commercial rent controls were abolished in 2015, it was estimated that 55,000 of 200,000 small and family-owned businesses would close.
Special Designations
Physical heritage assets have long been protected in Vancouver, but it is worth considering protecting intangible assets like businesses. There are long-time businesses in the city that have become cultural institutions in their own right, such as the late 62-year old Nick’s Spaghetti House. We are quickly and unnaturally losing this important intangible heritage due to real estate pressures. San Francisco and Barcelona have already established various degrees of protection for these “cultural landmarks” from granting programmes to measures that protect facades and interiors. Though the City cannot offer businesses grants unless the Vancouver Charter is revised for this ability, heritage business designation can assist businesses with marketing, tourism and protection from landlord eviction. The City is already investigating the definition of “heritage business” within the context of Chinatown, but we urgently need an action-oriented policy programme for all of Vancouver.
Special designations can also be a tool to recognize businesses with unique and important value to the city outside of cultural heritage, such as social enterprises.
Zoning
Zoning is a key tool that the City has the most control over. The City can place limits on building and retail frontage to encourage the creation of spaces with smaller floorplates. Unfortunately, interior walls can always be knocked down and narrow frontages do not guarantee that its occupants will be small local businesses, so accompanying controls and incentives must be in place to mitigate these undesired outcomes.
The City can also encourage more mixed-use developments and neighbourhoods that mandate ground level retail space for all new developments. Increased retail space supply coupled with anti-vacancy and tax alleviation policies may trigger more competitive commercial lease rates. Mixed-use neighbourhoods are also more walkable and sustainable if neighbourhood-serving businesses are brought closer to their customers.
On the flip side, prioritizing residential densification of high streets with existing affordable commercial space can lead to increases in commercial lease rates and property taxes, gentrification, and displacement of businesses when redevelopment occurs. Therefore, existing high streets must be protected from any or excessive re-development that will create these adverse effects.
Employment intensification through zoning is also another measure to drive traffic for local businesses. The False Creek Flats as a planned “innovation district” is an example of the City’s attempt to use employment intensification on industrial land to drive the creation of small businesses as amenities for the tech and creative “innovation economy.” Yes, the caffeine-fueled employees moving in might create sufficient demand on weekdays for new coffee shops and hipster breweries, but these isolated districts are also known to be dead zones after work hours.
Landlord and Developer Incentives
It is heartbreaking to witness blocks of small businesses displaced by real estate redevelopment. Developers do not usually retain or relocate existing businesses, or curate tenants with neighbourhood-fit in their new developments. Instead, they favour new tenants that can pay higher leases, which are usually chain retailers and gentrifying businesses. To stop this vicious cycle of retail replacement through redevelopment, the City can mandate or offer development incentives for developers to retain and relocate existing businesses, and curate culturally and economically-appropriate businesses in heritage and low-income neighbourhoods.
Retail Curation
Retail mix is key to a neighbourhood high street’s character. High real estate prices create conditions that favour deep-pocketed chain or formula retailers and high-margin businesses. Chain stores, such as Walmart, are shown to be detrimental to surrounding small businesses in a neighbourhood. Over dependence on large retailers can also leave a neighbourhood and city at the mercy of corporate decision-making and therefore less resilient.
Various cities have implemented different store curation policies. In San Francisco, formula retailers wishing to enter a neighbourhood must seek permission from the City and the neighbourhood by going through a process that is similar to the rezoning process at the City of Vancouver. Palm Beach has created “Town-Serving Zones” to curate businesses that are essential to neighbourhoods, such as groceries and hair dressers. These zones were set up to stop the overproliferation of businesses that cater to tourists at the expense of locals. Similar measures have been enacted in tourist-magnate cities, Paris and Barcelona.
Retail curation is most easily done in publicly-owned buildings that the City and partners already control. BC Housing, Vancity Community Foundation, and the City already created a new organization called Community Impact Real Estate Society (CIRES) that aims to manage and curate socially-conscious businesses and organizations to occupy commercial space in almost 60 BC Housing buildings in the Downtown Eastside and Inner City area. The City also has retail complexes and properties that they own, such as Chinatown Plaza, which can be leveraged as opportunities to offer affordable spaces to incubate new independent businesses.
Civic Stewardship
Civic stewardship is the most critical aspect to creating a small business-friendly environment in a city. A small business advisory council and dedicated bureaucratic advocates can keep small business challenges top-of-mind at City Hall. The City can also invest in a comprehensive city-wide small business policy action plan similar to the one in Boston.
Recently, the City has created a Small Business Commercial Renovation Centre to help small businesses navigate its complicated development and renovation process, but more can be done. The City needs to shorten the time it takes for a small businesses to get up and running and be successful. The City can start by finding opportunities for internal operational efficiencies to close the time gap between business application to permit issuance, which can take several weeks to months depending on complexity. Since the City is a necessary party in many facets of a business’ life cycle, it can also help small businesses more easily navigate external resources, such as capital access programmes, mentorship programmes, and space-matching services, by becoming a “one stop shop” similar to NYC’s Small Businesses Services.
Adjacent Policies
Affordability is the key issue facing Vancouver today. It has caused a labour shortage most detrimentally impacting service-based small businesses. In this unaffordable climate where everyone is on survival mode, would-be entrepreneurs are less likely to take the financial and creative risks involved to start a business. Further, if more than a third of personal income is going to housing costs, there is less pocket money available for consumers to shop at local businesses offering non-essential goods and services. Implementing continual measures to address general affordability is good for business.
These are just some of the many small businesses policies entertained and implemented at home and abroad. Vancouver has been slow to take action or even contemplate policies compared to international peers. Some policies suggested here are outside of the City’s jurisdiction, but that should not stop the City from advocating higher levels of government to help create better conditions for small businesses in Vancouver. City council’s motion to investigate policies is a good first start, but the City needs to move a lot quicker and take bold measures to stop the retail blight in Vancouver.
