By Frank J. Martin
Civic boosters, local governments, neighborhood associations, business improvement districts, and chambers of commerce often organize “shop local” campaigns to help neighborhood businesses and promote the economic health of their town or city. Typically, they frame their “shop local” messaging as an altruistic act of support for local “mom and pop” stores.
A more compelling argument might be a message that elevates the financial benefit to a family’s most important asset when their local business district thrives and, of equal importance, the financial hit that occurs to nearby home values when those business districts shutter or decline. It is time to be clear with our neighbors that patronizing business districts close to our homes is necessary to support home values.
To change consumer behavior, we must clearly show the economic benefit of selecting one option over the other. “Shop Local” campaigns miss a great opportunity to connect the dots for community members and show them how their purchasing choices directly affect their own balance sheets in more ways than one. Homeowners, of course, are not the only ones with an interest in thriving local business districts. Renters and visitors also benefit from their success. It is important to support local business districts for the benefit of all, regardless of housing status, by leveraging homeowners’ unique ability to financially participate in their local business districts success.
Home values are a loose function of a home’s exact location, physical structure, lot size, neighborhood, public schools, and amenities. “Shop Local” messages tend to focus on the benefits to the local small business, I believe a more compelling frame would be along the lines of “fertilize your home value.” In accounting there are two broad categories of expenses – operating expenses and capital expenses. Operating expenses leave your family’s balance sheet. For example, if you had $100 in your checking account (an asset) and then you spent that $100 to pay for multiple video streaming services two things would happen from an accounting standpoint: 1) hopefully you experienced the joy of watching shows and 2) you would become $100 poorer.
A capital expenditure, on the other hand, doesn’t leave your balance sheet. For example, if you had $100 in cash then you bought a back-up generator with that money you would now simply have a different asset. The asset side of your balance hasn’t decreased – you have $100 less in cash but you have a new asset, the generator, on your balance sheet worth $100. Over time the value of the generator will depreciate (decrease), but for purposes of this essay I simply want to raise our awareness to the fact that all $100 expenditures are not equal – some make you $100 poorer, and others simply convert one type of asset to another.
I live in Oakland, California, and if I decide to drive my family through the Caldecott Tunnel for a birthday dinner in another city, while I may be supporting the regional economy, I am not doing anything to help Oakland or my neighborhood. This dinner would be a pure operating expense, and the cost of the dinner would leave our family’s balance sheet as a decrease in our cash. But what about having that same birthday dinner at the closest commercial district to my home? If a component of my home’s value is directly connected to local amenities, then my family’s largest financial asset is directly supported, from a valuation perspective, by the success of that commercial district.
As a homeowner, I capture some of that business district’s success and part of my expenditure will be “capitalized” into the value of my home. So when my family is choosing a place for birthday dinners out, staying in my local commercial district, by “shopping local” that is, I am doing far more than supporting a local small business, or making a statement of the value of family-owned restaurants vs. chains, but rather, I am acting upon a very simple premise – our home is our family’s most important asset and if I have a costless option between adding value to it or not, I should always select the option that supports its value. As my friend in London quips: “You can quickly know the prices of the houses around by the quality of its High Street.”
Thinking of Premiums
Perhaps you have heard about the “green premium” in connection with discussions of our energy transition. The “green premium” is the increased cost to use renewable energy over carbon intensive sources for the same amount of power. As an example, for now in many places it is still cheaper to buy energy from coal powered powerplants than to use renewable sources (excluding the externality of climate change of course). The long-term goal is to bring the “green premium” to zero and then for renewable energy to be cheaper than carbon intensive options. Likewise, historically, there was a premium for the convenience of buying something in the local business district.
My local grocer, shoe store, butcher, florist, and hardware store were likely more expensive than if I sourced the lowest cost provider within my reach, but because “time is money,” the premium for convenience was worth paying. Convenience, for time immemorial, has been the local business district’s greatest selling point. Amazon and other delivery services upended that world. Today it is more convenient to have someone deliver whatever item you want right to your front door. It is well known that this presents an existential threat to local business districts. What is less clear to me is whether it is well known by homeowners that the decline of their local business district also presents an existential threat to the value of their home. By not using our spending power to support our local business districts we are harming ourselves in ways that most people don’t take the time to appreciate.
With convenience no longer available to justify “shopping local,” I believe we need a new and more direct decision framework to help us support local business districts and home values. I see three broad buckets. First, where the price is roughly the same always buy from your closest commercial district. Here, your only cost is time over the home delivery option, but you get the added benefit of spending that time in your community and connecting with neighbors. Second, when the local business district option is more expensive, but not meaningfully so, with an understanding that you are getting a rebate in the form of “capitalizing” some of that expenditure into your home value, you should still buy from your local business district.
In fact, if you zoom in a bit on the math, your local business is being supported by the entirety of your expenditure (e.g., the full $10.00 for the set of lightbulbs you bought) and you are capturing some of that benefit even though the “premium” you are paying is only the difference in the amount paid over the lowest cost option (e.g., perhaps you could purchase the same lightbulbs for $9.25 online so $10.00- $9.25 = $.75 premium). The final bucket consists of items and services that are meaningfully more expensive, for one reason or another, in the local business district. For this category there is no reason to bear this additional cost except under extraordinary circumstances.
Honing the Message
Local campaigns organized by cities, local merchants, and others need to reframe their emphasis from helping the local “mom and pop” shop to more directly informing their local consumers of the importance a thriving local business district plays in that consumer’s home value. Those of us who care about thriving cities need to articulate to our neighbors the frameworks of “capital expenditure” versus “operating expenditure” and the decision tree of how to decide when to shop in the local business district. And perhaps most importantly, it is time for all of us to stop burying the lede on why everyone should shop local – our families’ most important asset depends upon it.
Frank J. Martin is an attorney and former non-profit board member and executive who lives in Oakland, California. He served as Interim Executive Director of the UC Berkeley School of Law’s East Bay Community Law Center, Board Chair of YR Media (formerly Youth Radio), and Treasurer of Centro Legal de la Raza.
