Combating the Displacement of Small Businesses
by Prince Osemwengie
About this Blog:
This blog kicks off Inclusive Action’s Economic Justice & Small Business Series which will highlight economic justice-rooted anti-displacement programs and financial products to address the needs of small businesses in rapidly gentrifying neighborhoods.
Introduction: Affordability Crisis & Economic Justice
It’s no secret Los Angeles is in the midst of a housing affordability crisis. Market speculation, coupled with high demand and scarcity of land, has fueled a seller's market, empowering property owners to demand high rent and even higher sale prices. What’s often less talked about is the crisis’ impact on small business owners seeking to lease or purchase commercial property at affordable rates. Select neighborhoods within Los Angeles County sit among the top ten most expensive real estate markets for residential and commercial properties in the country. Similarly, neighborhoods such as South LA, Boyle Heights, and Echo Park are also becoming increasingly less affordable to local residents and businesses. In gentrifying neighborhoods such as Crenshaw, the prices per square foot (PSF) soared in relatively short time frames; from 2018 - 2020 the asking rent PSF spiked 41% and the sale price PSF of commercial properties spiked 26%, according to CoStar. While higher land cost generates higher tax revenues for cities, the rapid rise in rent and property values negatively impacts local small businesses. If left unchecked, exorbitant market-rate rents and property costs can accelerate the displacement of existing local businesses and hinder new local business development.
Unlike residential tenants that have regulatory protections such as rent control, small business tenants have been left to shoulder insurmountable market speculation without any regulatory interventions. In order to protect small businesses from being displaced from their communities, they need a fair chance at becoming owners in their communities, or beneficiaries of those who do own. Public and private entities need to adopt an economic justice framework, develop new financial products, and create anti-displacement programs that address the challenges small businesses face in hot real estate markets to create more opportunities for local small businesses and community control of land. Economic justice underpins these actions, and in the context of small businesses, is an ideology that seeks to ensure small business owners and micro-entrepreneurs have equal access and the opportunity to obtain resources, information, and capital regardless of socio-economic class, race, sex, and financial history. Additionally, economic justice seeks to prioritize uplifting small businesses that have been historically and systemically excluded from access to resources.
COVID-19 & Systemic Challenges Impacting Small Businesses
Small businesses and micro-entrepreneurs in marginalized communities, especially BIPOC and women-owned, are significantly impacted by the COVID-19 pandemic and they face many of the same systemic disadvantages as marginalized individuals. Before the COVID-19 pandemic, reports showed that small businesses had, on average, a 15-day cash reserve for expenses. Throughout the pandemic, small businesses have been further uprooted, facing high levels of escapable debt accumulation in the tens of thousands, pending eviction(s) once commercial tenant protections and the moratorium expires, and the growing threat of permanent closure. In March 2021, 44% of surveyed businesses nationwide - small businesses that have been able to weather the storm and avoid permanent closure - reported struggling to pay rent and/or their mortgage over the next six months. Limited cash reserves, coupled with debt incurred during the pandemic, puts local small businesses at greater risk of displacement and permanent closure.
In addition to the economic toll of COVID-19 on small businesses, systemic challenges such as limited access to financial institutions and the associated capital, lack of access to information on public programs and financial products, exclusionary regulations on eligible business types and applicants for financial products, and public resources, and neglect from private and public agencies, all of which exacerbate their situation. For small business owners and community organizations seeking to expand their operations or acquire property, these systemic barriers can further impact their ability to save for down payments, pass credit evaluations, develop relationships with financiers and property owners, and obtain technical assistance on financial products. What’s more, a lack of credit history and cash reserves can ultimately impact a small business owner's ability to sign a lease to rent, renovate a property, or purchase their property in a competitive real estate market. In Los Angeles, thousands of small businesses are estimated to be behind on rent and are at risk of eviction once commercial tenant protections end. Small businesses with limited cash reserves and/or evictions on record are at even greater risk of being displaced from their communities.
What Small Businesses Need Now
Small businesses need a fresh start and economic justice-oriented solutions pertaining to land control that address market speculation, COVID-19 economic impacts, and systemic barriers. These barriers hinder small businesses and community organizations from thriving and staying in place amidst a changing neighborhood. To ensure small businesses have a place in their communities' future, Inclusive Action recommends a set of economic-justice rooted anti-displacement programs and financial products to support small businesses. Furthermore, Inclusive Action will outline said recommendations in-depth through our upcoming Economic Justice & Small Business Series of blogs and white papers.
Economic justice interventions to support small businesses should include but not be limited to the development of:
Tailored Financial Products for Property Ownership. The upfront cost needed for a down payment and closing cost is a major barrier preventing many small businesses from acquiring property due to limited finances. Financial products tailored to small business owners and community organizations seeking to buy property can help expand access to ownership to marginalized small business owners and non-profits.
Technical Assistance Programs for Small Businesses to Purchase Property. Many small business owners are unaware of the resources available and steps involved to acquire property and/or negotiate lease terms. Locally-based technical assistance providers and small business legal aid providers can provide business owners with in-person guidance on purchasing commercial property and legal assistance on lease negotiations.
Anti-Displacement Policies. Not all small business owners have the desire or capacity to purchase a commercial property in their community. For small business owners seeking to lease, local governments should implement anti-displacement policies that provide temporary and long-term solutions that keep businesses in places, such as rent caps or rental subsidies - similar to rent control or voucher programs for residential units.
CONCLUSION
Small businesses are the backbone of Los Angeles County’s regional economy and serve as integral assets to our communities. Before the COVID-19 pandemic, small businesses faced threats of displacement and gentrification. With the onset of COVID-19, small businesses at no fault of their own are experiencing an even higher degree of challenges, further exacerbating existing challenges around real estate affordability and systemic challenges.
Los Angeles cannot rebuild its economy if small businesses are displaced from their communities and/or forced to close permanently in masses. Small businesses deserve to have a place in their communities' future without having to shoulder the collateral damages caused by real estate market speculation, systemic barriers, and a pandemic. Small businesses need an economic justice solution centered around anti-displacement policies and more programs to enable small businesses and community control of the land.