Housing costs are your problem, too. The Urbane Franchisor explores affordability
Photo by Nicholas Upton
Many of the most desirable cities have become unaffordable for middle- and lower-income Americans, to the point that it’s time to adjust business plans to reflect the difficulty of doing business in places where employees can’t afford to live anywhere near their jobs.
Recent conversations I’ve had with operators in what I call the “cool kid cities” illustrate the same problems seen in Kiplinger’s list of the most expensive U.S. cities. The rent is too damn high in many of the best urban centers in the country, namely New York, Washington, D.C., Portland, Boston, Los Angeles, San Diego and, of course, the San Francisco Bay Area. This isn’t a “we really should do something about this” problem that can be put off indefinitely, but rather an immediate concern for business owners in these places. A few have told me the lack of affordability has actually risen to the level of an emergency for their operations.
As part of our Kitchen Royalty coverage in this issue, Heidi Gibson, the owner of the newly franchised American Grilled Cheese Kitchen in downtown San Francisco, said something that has stuck in my brain and bears repeating: “It’s not the rent on the restaurant that kills us, it’s the rent that our employees have to pay that kills us.”
For all the hand-wringing about cities needing to invest in affordable housing, there’s only so much government can do when it’s private developers choosing how to spend their own money. Oh yeah, and well-to-do homeowners predictably become enraged when proposals are floated to bring more neighbors into their leafy enclaves. Short of NYC-style rent controls, nothing is moving the affordability needle in the right direction in America’s top cities.
Even though San Francisco is famously dense and well served by transit, housing costs force many service employees to commute in from the far suburbs.
Setting your course
So where are the best opportunities for a franchise looking to grow coast to coast? Begin by seeking out a careful balance of two things: affordability and amenities. Noting that Rustbelt and Sunbelt cities are now attracting increasing numbers of college graduates, urban studies expert Richard Florida said in a recent City Lab story that this deepening geographic inequality is one of the most troubling trends he’s seen over the last decade.
“We may well be seeing the beginnings of a tipping point in the geography of talent as housing prices continue to rise in superstar cities, while metros in once talent-lagging parts of the country capitalize on the significant cost savings and quality of life they have to offer,” he said.
Using data from the U.S. Census American Community Survey, Florida looked at cities where the creative class—knowledge economy workers like those in education, healthcare, arts, science, tech and business—has grown the most during the last 12 years.
Tracking the concentration of creative class jobs has proven to be a very reliable indicator of urban momentum in recent decades, as little galleries, coffee shops and (pre-reno) loft-style apartments all tend to predate glassy high-rises and Whole Foods stores. As millennials and gen Z-ers begin looking to third- and fourth-tier cities to settle down, that secret sauce blends housing affordability with good restaurants, cultural institutions, stores decorated with words on the wall, cideries and, of course, the scooter-to-people ratio. Artists are the inverse of canaries in the coal mile.
Using City Lab’s data, we can compile a list of metros with the fastest growth in the creative population from 2005 to 2017, which illuminates cities one can reasonably expect to be higher on the hog after the next wave of urban growth.
This list is topped by Salt Lake City, followed by Pittsburgh, Cincinnati, Grand Rapids, Michigan, Cleveland, and Richmond, Virginia. A little further down the list ropes in Las Vegas, St. Louis, Baltimore, Providence, Rhode Island, and San Antonio, Texas—as well as a few high-cost burgs like Seattle, San Diego, Washington, D.C., New York and LA.
My own travels have highlighted a few other places that, to this overfed traveler, strike a balance between affordability and desirability: Madison, Wisconsin, Detroit and Ann Arbor, Michigan, Indianapolis, Raleigh, North Carolina, Charleston, South Carolina, and Rochester, Minnesota. In our home city of Minneapolis, $250,000 buys a decent amount of house within close proximity to downtown. I could also envision a terrific life working in downtown Missoula, Montana, Spokane, Washington, or Portland, Maine—writing on the side as I bring home the bacon as a tour guide, restaurant manager or a lobsterman on the high seas. Certainly there are somewhat-hidden gems from your own travels that warrant consideration.
Go for the density
Back in San Francisco, North America’s marquee example of housing prices run amok, my conversation with Gibson shifted to the minimum wage, which just increased to $15.59 an hour. Full time, that’s still less than $33,000 per year—a far cry from the $164,214 that GOBankingRates calculates is needed for a renter to live here “comfortably,” undoubtedly a sliding scale.
“In my personal opinion, minimum wage needs to go up,” she said. “I want to see it go up, it’s fair for everybody that way, but that doesn’t solve the problem here in San Francisco.” She added that her husband, Nate, covers weekday shifts when somebody calls in sick, never a rarity in restaurants and retail. These situations have become even more burdensome after having their first child earlier this year.
After our interview was over and the sun had set, I loaded up my backpack and decided to hoof it on the sidewalk from the Embarcadero back to my hotel in the maximally gentrified Union Square. Avoiding the main drags of Geary and Market, I trailed a crazy-fast garbage collector who wore headphones and was tuned out to his surroundings.
Seeing him work around people sleeping on cardboard was fresh for me, though, with Gucci, Zara and Saks as the awkward backdrop.
What also struck me in San Francisco was the sheer density that extends so far outside the skyscrapers in the heart of downtown. Blocks upon blocks of 6-, 8- and 10-story midrise buildings in nearly every neighborhood made this city feel so much larger than I realized when I last visited a decade ago. With apartments and condos above, almost all had appropriately sized leasable space below, perfect for smaller restaurants or retail spaces, rather than gargantuan, more expensive spaces that often stay vacant for years even in good neighborhoods.
For restaurants, retailers, service providers and hotels, this city presents options in all directions if you can make the numbers work. Again, it’s that balancing act to get close enough to downtown to reap the benefits of this fantastic urban density, but far enough out that employees won’t need to ride an hour and a half on the bus to get to work every day because of the region’s housing economics.
American cities are likely to continue their across-the-board redevelopment and gentrification for many years to come. It’s hard to overlook the opportunities they present, as long as you can find enough workers to keep the gears turning. When a Chicago or Boston or Manhattan location isn’t in the cards, there’s a whole new class of “it” cities on the rise. But it may take a while for popular awareness to grasp that Salt Lake City and Richmond are the new Portlands and Austins.
Because the circle of life marches onward, those truly looking to invest far ahead of the herd should start looking even further down the list of new-age creative meccas. I hear Omaha is gorgeous this time of year.
Tom Kaiser, pictured on opposite page, is senior editor of Franchise Times and writes about urban tales in franchising in each issue. Send story ideas to email@example.com