A small businesses eviction crisis is coming, too

Since the economic fallout of the COVID-19 pandemic first became clear, housing experts have been warning of a forthcoming eviction crisis, which could skyrocket homelessness across the country. But another kind of eviction crisis is coming, too: small business evictions, which will put even more strain on apartment renters and the cities that rely on that property tax income.

When the coronavirus pandemic recedes (whenever that is), New York’s small business landscape won’t be the same. As many as a third of the 230,000 small businesses across the five boroughs may never reopen, according to a report from Partnership for New York City, a membership of business leaders.

This will have a dire ripple effect on a city’s economy. With the shuttering of those businesses comes job loss; already during the pandemic, as many as 520,000 small businesses jobs in New York City have closed. Without those small businesses, the city and state will see a huge drop in tax revenue, both from property and sale taxes. In May 2020, New York City tax collections were down 32% compared to 2019, totalling $196 million in lost revenues in one month, per the report.

Small businesses also have an effect on the housing market, because of how the two are intertwined. “One thing that’s been completely missed in this whole conversation by elected officials has been that we’re addressing these crises separately; we’re talking about small businesses needing help and we’re talking about renters needing help as if they’re different things and they’re not related,” says Jay Martin, executive director of the Community Housing Improvement Program (CHIP), a New York City trade organization that advocates on the behalf of primarily small building owners.

Whether it be residential or commercial, rent goes to paying mortgages and taxes, he adds, and in cities, this means the impact to small property owners is even larger. For small property owners who manage both residential and commercial units—for example, a building with a store at street level and apartments above—less rent from one of those creates a higher burden for the other. Already, owners of mixed-use apartment buildings report that rent collection is down 60% from commercial tenants, according to a CHIP survey.

Many businesses closed early on in the pandemic, and that drop in rent income for a landlord meant the rent income from their apartment tenants was even more important. With a third of small businesses expected to never come back, that both means renters may lose even more jobs, coming under further financial strain, and that landlords will depend even more on their rent payments.

“Not only will there probably be evictions of small businesses, but many of them will probably self-evict, because they just have no viable business model,” Martin says. Without the crowds of tourists in the city, the small businesses that are still open are struggling. Take Katz’s Delicatessen, which pre-pandemic saw as many as 4,000 customers a day. Now, they get around 100 a day, reported Crain’s New York. Nearly half of the city’s tax revenues come from real estate; this loss will be “a blow to the municipal budget,” the authors of the Partnership for New York City report write.

Business owners are at a tipping point, and many have been shut out of federal aid—especially those that are minority-owned. But small businesses are also crucial to a city’s entire economic recovery. “It will be far more difficult to restart and repair the economy than it was to shut it down,” the report reads. Small business relief is a crucial part of that recovery, but it’s intertwined with all the other issues we need to tackle, too, from health to housing. “Testing, tracing and public health standardization have to be the first priority,” Kenneth Jacobs, chairman and CEO of Lazard Ltd, says in the report. “The second priority is getting our small businesses back, and third is ensuring the security of all New Yorkers.”