Small businesses were already being displaced in gentrifying neighborhoods. The pandemic made it worse.

Before the pandemic, small businesses in gentrifying neighborhoods in U.S. cities like Oakland, Miami and Washington, D.C., faced many of the same pressures as residents. Black and Latinx businesses were at particularly high risk of displacement and closure, as their traditional clientele were pushed out of the neighborhood, and residents with different tastes and preferences moved in, along with large chain stores with which small businesses had to compete. 

Then Covid-19 hit. And despite speculation to the contrary, the pandemic did not stop gentrification. While the housing market stalled in the early months of the pandemic, by summer 2020, it returned with a vengeance in many already-gentrifying neighborhoods. In fact,the pandemic could be priming some cities for a new and harsher wave than they saw pre-Covid, as federal and local moratoriums on residential and commercial evictions end. And while residential gentrification has been a frequent topic of dinner table, community and policy conversations, commercial gentrification —the force that leads to the displacement of small businesses — has not.   

Across the U.S., small businesses owned by immigrants and people of color have borne some of the worst impacts of the pandemic. In the early months of Covid-19’s spread, Black businesses closed at a rate twice the national average, with a 41% drop in active business owners, while Latinx businesses saw a 32% drop. In a survey of businesses conducted in November 2020, about a fifth of Black and Latinx business owners said they expected to close by mid-2021.

POC- and immigrant-owned businesses are concentrated in the hardest-hit sectors, including food, personal services and retail. They are also disproportionately located in neighborhoods with the highest infection rates. With less access to capital and credit than their White counterparts, they are less prepared to weather prolonged closures or adapt by changing their hours or offerings. For many Asian-owned businesses, the racist and xenophobic rhetoric about the pandemic that came directly from the halls of the White House and the former commander in chief added to their troubles. More fromIn Pursuit of Equality, French Cities Adopt Gendered BudgetsMinneapolis One Year LaterRural Italy Had a Pandemic Renaissance. Can It Last?What We Learned From the School Reopening Debate

With limited capital, POC-owned businesses concentrate in industries that produce below-average returns in Black and Brown neighborhoods that have been subject to historic and ongoing disinvestment. Though many of these neighborhoods have fallen deeper into financial distress during Covid, others have experienced mounting commercial displacement pressures.

For Black- and Brown-owned businesses in gentrifying neighborhoods, the circumstances have been particularly dire. Incentivized by policy changes and public investments, private capital flows rapidly into areas experiencing gentrification. So, too, do higher-income residents. Rents increase, and neighborhoods transform, physically, culturally and economically, seemingly overnight, as developers and politicians fight to attract new residents and employers. In the process, both residents and POC-owned businesses that have kept neighborhoods afloat leave — sometimes by forced eviction, sometimes simply because it no longer feels like home.

Small businesses are not widely viewed as critical to a community’s life and livelihood in ways that justify public policy interventions.

Commercial tenants are often subject to predatory leasing practices, harassment from landlords and rising rents in gentrifying neighborhoods. For the few that own their properties, rising property taxes add to their strains. As neighborhoods are revalued by private investors, policymakers and new residents, established businesses are often subjected to increasing municipal fines and fees — whether intended to help finance redevelopment or simply push them out. Neighborhood policing and surveillance increase or shift focus, often targeting Black and Brown residents and businesses over issues that might have previously been overlooked, like public intoxication, loitering or dirty sidewalks.Paid PostThe Risk She Took: Kunthea’s Journey to Cambodia’s Middle ClassTiffany & Co.

Customers change — often becoming younger, higher-income and Whiter. As established businesses struggle to appeal to new residents’ tastes and preferences, they face fierce competition from new commercial chains, often courted by municipal economic development policies. Many small businesses simply cannot compete. Redevelopment also brings new construction. Closed streets, cranes and limited parking disrupt the flow of customers for established businesses to make room for new competitors.

In the process, much is lost. POC- and immigrant-owned small businesses offer everyday goods, services and amenities that had been denied to Black and Brown neighborhoods during decades of commercial redlining. They add jobs to neighborhoods, increase their tax base, and often give back through neighborhood programs and other investments. They strengthen a neighborhood’s character and cultural identity, with products and services geared to the needs, tastes and desires of residents. And they foster stronger communities, building relationships among customers and employees. When they leave or close, local jobs are lost. Community spaces disappear. The cost of goods increases. Dollars circulate less and less within the neighborhood. One neighborhood looks more like the next. And as familiar community landmarks — hair salons, barbershops, clothing shops, restaurants and corner stores — disappear, established residents also become more likely to leave.

Many experts suspect that the worst effects of the pandemic on these businesses are still to come. As residential moratoriums end, many have warned that another eviction crisis is on the horizon — the likes of which the U.S. has rarely seen. The same is likely also true for the small POC- and immigrant-owned businesses that have been protected by a slate of state and local moratoriums during the pandemic.

The government response in the spring of 2020 did little to stop the bleeding. In fact, it might have made things worse by deepening inequalities and accelerating processes of commercial gentrification already underway. The federal Paycheck Protection Program (PPP) was meant to assist small businesses by providing forgivable bank-issued loans. However, the majority went to White-owned businesses and larger companies with up to 500 employees. In the first PPP round, White-owned businesses were granted 83% of the loans, compared to less than 2% of Black-owned business applicantsLittle of the funding went to the areas that were most impacted by business closures and layoffs. Many minority- and immigrant-owned small businesses lacked established relationships with banks, had student loan debt or previous criminal convictions that made them ineligible, or failed to meet the visa and citizenship requirements. Others simply faced the barrage of everyday barriers, from time and know-how to professional networks and language. Despite advocacy to correct some of these issues, disparities in access to PPP loans have continued. 

Some easy fixes are apparent and already underway in the U.S.. The Biden-Harris administration has begun to identify and repair many PPP program problems and loopholes that prevented POC- and immigrant-owned businesses from accessing them. The harder solutions lie in changing local and state policies to address the underlying conditions that make these businesses vulnerable in the first place.Cities are changing fast. Keep up with the CityLab Daily newsletter.The best way to follow issues you care aboutEmailSign UpBy submitting my information, I agree to the Privacy Policy and Terms of Service and to receive offers and promotions from Bloomberg.

There are many policies that work to stem the tide of small business displacement. Some are designed to preserve existing stores and cultural landmarks, such as legacy business programs; others support local hiring and grow entrepreneurs, such as neighborhood business incubators. Some municipalities provide tax credits and incentives to small businesses, rather than commercial chains. Others try to produce small business spaces through store size caps or restrictions on “formula businesses” intended to limit chain stores and big box retailers. Commercial tenant laws help renters promote affordability and avoid eviction, especially during the pandemic. Efforts to support commercial ownership or worker and business cooperatives can help business owners build long-term wealth.

The range of tools is wide. But their adoption is too slow and too limited to meet the demands of the moment, in large part because of a lack of political will, knowledge and resources.

Unlike housing, small businesses are not widely viewed as critical to a community’s life and livelihood in ways that justify public policy interventions. Housing is increasingly claimed as a human right, while large chain stores and corporations are subsidized in the name of economic development. In an economic system defined by inequality, small businesses are often left to their own devices, and POC- and immigrant-owned businesses are, unsurprisingly, the first to fall. Cities that fail to invest in what works to protect and promote these businesses do so at their own peril. They threaten to lose the people and places that make neighborhoods economically vibrant, environmentally sustainable, and frankly, more interesting and enjoyable places to be. 

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