The Folly of Urban Industrial Set-Asides

Moneybox
A blog about business and economics.
April 3 2012 3:55 PM

The Folly of Urban Industrial Set-Asides

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Once upon a time, many American cities feared that factories were going to intrude into residential neighborhoods, which made sense based on the economics of the time. People had health and safety concerns about this, so industrial uses tended to get boxed into specific corners of cities. Nowadays, of course, nobody wants to use scarce land in major cities to run a factory. But the industrial set-asides persist, leading to a lot of vacant buildings and car repair shops paying sub-market rents. Today New York City is celebrating the transformation of a piece of one of those industrial set-asides in Sunset Park into a car repair place paying sub-market rents.

Specifically Bay Ridge Automotive Corp., a Ford dealer, will now be the proud operator of "a 33,000-square-foot service facility" for which they "will invest $3 million in renovating the space" and "create 25 to 30 jobs" before paying "an annual starting rent of roughly $280,000" until they meet "annual revenue thresholds" at which point "the rent is increased by a certain amount."

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The space in question is on 58th Street between 1st and 2nd Avenues and as you can see on the Trulia image I grabbed above just one block away we have an apartment renting for $1,400 a month. The car repair place, by contrast, will be paying less than $2,400 a month. Obviously $1,400 < $2,400 but I dare say that you could fit more than two New York City apartments into a 33,000 square foot facility, which strongly suggests that the way for the city to maximize its revenue as a landlord would be work out a deal to turn this into an apartment building of some kind. That would leave the city with more cash on hand to use paying for schools and buses and police officers. What's more, it would probably do as much or more for job-creation than opening a car repair facility. That's because at the margin almost all the jobs in any large city simply consist of selling stuff to the other people in the city. More people is more customers for the local stores and restaurants, meaning they'll either need more staff to meet the demand or else whole new places will open up.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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