Growing Pains: The changing climate of Ann Arbor businesses

Tuesday, October 20, 2015 - 12:09pm

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Cover by Luna Archey

 

In 2012, the downtown Ann Arbor area saw 28 new businesses.

In 2013, there were 38 more.

By June of 2014, the last time comprehensive data was released, another 15 new businesses were already planned for the upcoming year.

Their types varied, from a new outpost of Babo’s Market in Nickels Arcade to vintage and antique store Thistle and Bess. Alongside them, new housing developments were popping up as well, with more than ten apartment and condo complexes entering or exiting construction over the past few years.

Depending on who you ask, those eighty-four businesses represent an upwards trend that’s been happening in the area for the past few years. Or the past ten years. Or the past thirty years.

Regardless of the timeline, though, the growth is good — that’s what a number of downtown stakeholders, from the city to business owners to residents to business associations, all seem to agree on.

But for many of those same stakeholders, the changing face of downtown has also prompted concerns about another trend: the sharply rising cost of living in Ann Arbor, and what an increasingly prosperous downtown means for the economic diversity of the city.

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Luna Archey/Daily

Reasons for growth

It’s difficult to point to just one reason why downtown is seeing change and growth, or how development might correlate to affluence. The way cities grow and change is complex, and Ann Arbor is no exception.

Part of understanding what’s happening to Ann Arbor is a question of looking at national trends on prosperity, according to City Councilmember Sabra Briere (DWard 1), who has been active in city politics since 1978.

“Affluence is just one part of this, and that goes across the entire country,” she said. “The gap between income brackets grows, the people in the middle shrink. And so what that really means is that a lot of people who twenty years ago were living comfortable lives in a place like Ann Arbor, earning $40,000 a year, are confronting the fact that they could not buy a house in Ann Arbor now.”

When it comes to the specific patterns of business growth and subsequent affluence, Maura Thomson, director of the Main Street Area Association, said it’s something a lot of downtowns are experiencing nationwide, albeit in different ways and forms.

“I am sure you can go to any downtown in America, and see similar patterns,” Thomson said. “But I think those are the lucky ones, because I think what you’re going to see in a place that isn’t maybe as economically vibrant (as Ann Arbor), is you’re going to see downtowns with stores closing but nobody filling the space. And we don’t seem to have that problem here.”

Within Ann Arbor, the growth over the past few years seems to be connected to a multitude of factors, each influencing the city in a different way, from the type of business on the street to changes in housing density and average income.

Downtown is frequently divided up into four neighborhoods — Main Street, Kerrytown, State Street, and South University areas — for planning purposes, and each is experiencing changes in a unique way, said Thomson.

“I think you’re going to find a different perspective in each one of the four neighborhoods,” she said. “This neighborhood, Main Street area, the student impact isn’t as great as, of course, South U. and State Street. Each neighborhood is going to have a little bit different reflection of the changes that are occurring.”

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Luna Archey/Daily

Maggie Ladd, director of the South University Area Association, agreed that different parts of the city were seeing different changes.

For the South University and State Street areas, she said change over the past years has been largely expressed in the balance of businesses, pointing in particular to a higher number of retail businesses in the area.

She said she thought the changes had more of a cyclical nature, as opposed to a push toward affluence — and that the balance between retail and restaurants could already be self-correcting in another iteration of change.

“It’s cyclical and I think what you’re seeing on State Street is more balanced than you’ve seen in the past,” she said. “Their mix is beginning to be balanced and that’s because I think you have more people living downtown and you have the IT businesses going, you have the office workers there so they create a demand.”

On Main Street, Thomson said, growth has also been signalled through a shift in the type of business, though in a different sense, and more definitively in a trend toward affluence.

“Our downtown is becoming less available to, perhaps, the mom and pop stores and local business that I think a lot of people in Ann Arbor were used to,” she said. “So I think we see a change, as far as the type of businesses that we see downtown, are catering to the more affluent because they are businesses that can afford to pay the rent. And in this particular neighborhood, we have seen in the last years, we have seen huge turnover in the sale of property, and that’s what drives it.”

"I think the student body as a whole probably has more of a disposable income for groceries than say, the average shopper at Meijer,"
Roger Hewitt, co-owner of Red Hawk Bar & Grille

Thomson cited several of the same factors Ladd did in explaining the shifts, pointing to more visitors, Ann Arbor’s booming technology sector and higher housing density from the new housing developments as a reason for increased prosperity in the area.

“I always use cranes as an indicator of a strong economy and if you go around downtown Ann Arbor and look, currently you’re seeing some cranes up there,” she said. “And it’s also, with the increase in residents, we’re also seeing kind of a little bit of downtown expanding a bit from what we have traditionally thought of as downtown….residents and employers (have a) huge impact on our downtown economy.”

Business owners cite a number of reasons why they’ve chosen to expand over the past years.

Roger Hewitt is a co-owner of Red Hawk Bar & Grille as well as Revive+Replenish, a higher-end restaurant and grocery store that opened in the South University area in 2010. He said he and his business partner felt that opening a business like Replenish made sense in recent years in part because of a customer base in the area that could support it.

Speaking to why the downtown area is able to support a business like Replenish, as opposed to a more wholesale, less high-end grocery store, he pointed to students and the new development of high-rises in the area in particular.

"The main thing, if you look at all the student high rises, they're fairly expensive places,” he said. “People there have disposable incomes."

"I think the student body as a whole probably has more of a disposable income for groceries than say, the average shopper at Meijer," he added.

Nonetheless, Hewitt, who is also the vice chair of the Downtown Development Authority, said he thought the area has seen change and prosperity, but not necessarily in the direction of higher affluence, pointing in particular instead to a rise in mid-priced dining options.

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Luna Archey/Daily

Consequences of change

What development and growth downtown means for the city in terms of its economic future is a messy question. Across the spectrum, stakeholders in downtown are quick to note that there are both positive and negative aspects.

One thing, though, is clear — it’s expensive to live in Ann Arbor, much more so than the rest of the state.

Overall, the yearly cost of living in the city for a four-person family is currently at $68,302, higher than any other region in Michigan, according to the Economic Policy Institute. And, according to the 2014 Washtenaw County Housing Needs Assessment, 31 percent of Washtenaw County residents don’t make enough to afford a two-bedroom apartment in Ann Arbor, a figure that includes the median salaries of many jobs located in the city.

For Thomson, the question of balance between prosperity downtown and affordability is familiar in a personal light.

“I’m one of the people that I live in a near-downtown neighborhood, I rent an apartment, that if my rent does go up I probably won’t be able to stay this close to downtown and I might not even be able to stay in Ann Arbor,” she said.

“Which makes me — you know, I love Ann Arbor, and I’m passionate about the job I do, and I think it’s wonderful that we’re so successful. But it’s hard for people who maybe aren’t in an income bracket that will allow them to continue to stay as things continue to increase.”

In a sentiment repeated by many, City Councilmember Graydon Krapohl (DWard 4) said he thinks the development is good, but that there are unresolved issues downtown, especially when it comes to housing.

“Any type of growth like that is positive,” Krapohl said. “It generates tax revenue. It revitalizes areas. I think the challenge Ann Arbor faces with our housing market is workforce housing, affordable housing for our workforce. That’s a challenge for us and part of it is, you know, we don’t have a lot of land to expand to build a lot more housing so a lot of it is redevelopment, and redevelopment is expensive.”

Increased housing density — one of the same factors cited in discussing reasons for growth — and housing prices seems to have become a particularly noticeable issue as growth has continued in recent years.

A recent Michigan Daily survey found that locating housing downtown is currently so competitive for students that many now sign leases 10 to 12 months in advance. For residents overall, the County Housing Needs Assessment found that to keep up with the number of jobs in the city, 3,137 additional workforce housing units would be needed in Ann Arbor over the next years.

Workforce housing generally refers to housing that is affordable for individuals whose income doesn’t currently allow them to find homes within a reasonable distance to their workplace, based on the market prices.  

When it comes to pricing, there are upward trends for both housing and rents. According to the Ann Arbor Area Board of Realtors, in October 2012 the average selling price for a house was at $216,465. In April of 2015, it was at $269,321. The median sale price of a home in the United States is currently $225,000 according to Zillow’s housing index.

Rental prices have seen a similar increase, rising by up to 10 percent in the area for 2014-2015, according to MLive, compared with a national average of 3.6 percent.

“Our downtown is definitely gentrifying,” Thomson said. “And it’s causing neighborhoods, near downtown neighborhoods that were at one time affordable to people who, you know, were maybe working in the restaurants or working in the shops, it’s becoming so that it isn’t affordable. And I think that’s something that our city has recognized, affordable housing is a huge issue.”

High cost of living, of course, isn’t only a one-factor issue. Briere noted that in Ann Arbor, the income of the population for both students and residents, as well as the construction that’s part of new development, also plays a big role.

“The reasons for the higher cost of living and therefore the sense of increased affluence are complex,” she said. "Some of it is how much income people get from their jobs. Some of it is they get that income because the cost of living is so high. Some of it is we can charge this amount of money for a rental unit because U of M students have affluent parents. Part of it is that new construction in the downtown is inevitably going to be more expensive than older construction. Maybe not significantly more expensive, but more expensive.”

For some, the biggest factor in regard to cost of living is that the relationship might be flipped — higher affluence in the area prompting prosperity downtown, instead of the other way around.

Ladd also cited the need for housing affordable to the workforce, but said she thought costs were going up commensurate with national trends and the local population.

“We’ve always been pretty prosperous in Ann Arbor,” she said. “The standards of living and I think the earning capacity of people that live in Ann Arbor has very much increased and so that has an effect on the prosperity of downtown. I don’t think we’re pricing people out downtown.”

Finding a balance

When it comes down to the policy on how to create that affordable housing and how cost of living increases should be treated overall, the issue has been contentious for years.

At a Council retreat for strategic planning in 2012, former Ann Arbor Mayor John Hieftje said the city had become gentrified, according to MLive.

"I've seen the city gentrified from the time that I've been here," Hieftje said. "It's less affordable now, and I think that's something we can't ever forget. We have to continue to work in that area. We can't forget that we need to make it possible for others to live here who may not have the best of jobs."

A year later, at another retreat, multiple members of Council raised concerns about cost of living, and affordable housing was also an oft-mentioned topic of discussion in the 2014 Council and mayoral races. Most recently, in the 2015 Council elections, it resurfaced as a focus for multiple candidates.

Krapohl, who was elected in 2014, said he thought keeping housing affordable downtown would continue to be an ongoing issue for Council.

“I just don’t see how we’re going to get around it,” he said. “Because it’s an issue that affects multiple income levels within the city and our residents. And we have a relatively diverse economic group here and for the health of a city, the health and growth of any city you need to maintain that. And a big part of that is having affordable housing.”

So far, he said, it’s been hard to find a policy to promote affordable housing that had a long-term impact.

In many ways, Briere said, City Council is limited in what it can and can’t do.

The state doesn’t allow the city to mandate building sizes, or require that developers building downtown also build affordable housing. Nor is funding generally available to increase housing downtown through a government effort.

“The reason the Council hasn’t moved forward is it doesn’t have sufficient revenue itself to put aside many, many millions of dollars to build and then support enough housing for young workers, for retirees, for people who are earning but who aren’t able to afford to live in Ann Arbor,” she said. “Being able to provide housing for people who are living in public housing is pretty much the maximum we can do, at least today. It’s a source of frustration, and I don’t have an answer. If I did, I’d be promoting that answer.”

Beyond the numbers, discussing the changing face of downtown also raises another series of concerns — what it means for the character of the city.

“The fear that the people have who want the community to be stable rather than growing significantly is that not only will the charm that Ann Arbor possesses disappear, but also that the sudden growth will be followed by shrinkage,” Briere said. “And all of the changes will occur and then the new buildings will become derelict, the old houses will be abandoned, because the change is not sustainable.”

Others, she noted, think that change is what builds the city’s character, creating two ideas about the city’s future with vastly different outcomes.

Overall, Krapohl said there’s no easy answer to what the balance should be between growth downtown and cost of living, or how to to mitigate unintended effects that might come from it.

However, he noted that the solution might lie in a new approach to looking at the issue — thinking of development of the downtown, and development of the neighborhoods around it as a single concept, not ones at opposition.

“It’s a nice thing with some of the new development, new building,” Krapohl said. “It strengthens the city center. To me the city is like a wagon wheel, and the downtown area is like the wagon hub, and you have to have a strong hub for the spokes of the neighborhood going out. I think there’s a lot of discussion at times, the development of the downtown at the expense of the neighborhoods, that to me I think they have to go together."