[oersted]

I am sure that they could better maximize their returns by making room for local businesses and increasing the appeal of the area. And who says that a house will be worth more than a shop?

It sounds more like “this is the way you do it” momentum.

[bluGill]

You need about 10 houses per shop (anyone with better numbers? this works for discussion but it is likely wrong). However everybody needs many different shops and so it isn't a case of 10 houses 1 shop - since you always need to go elsewhere anyway wouldn't even think of the local shop when it would do and so they fail. Even in dense cities it is common to see one street of ground for retail then several streets of no retail.

Shops do better when clustered together. People combine trips and so if they need to go one place for any reason that will often enough "drop in" to a different one.

All this is to say, in most cases a shop is worth less than a house on those developments even though a shop would get higher rent when it is rented!

[AnthonyMouse]

> However everybody needs many different shops

That doesn't matter to any given one because they rarely need multiple types at the same time, so they just go to the nearest one of whatever they currently need. If you could build them in the suburbs then for many people in the suburbs, that would be the nearest one and it would get enough business to be sustainable. While reducing traffic because now some subset of the customers can walk to it instead of 100% of them needing to drive.

> Even in dense cities it is common to see one street of ground for retail then several streets of no retail.

Isn't that mainly because of zoning? The area with all the shops is the area where shops are allowed, or the area where something that pays higher prices for space than shops isn't.

> All this is to say, in most cases a shop is worth less than a house on those developments even though a shop would get higher rent when it is rented!

You should be able to have the shop and a housing unit or three on the same piece of land, which not only allows you to make more valuable use of the land, it also puts more people (i.e. customers) near the shop.

[hansvm]

> 10 houses per shop

Broadly speaking, that sounds super low, and it also doesn't echo the business density I typically observe. I think even for lifestyle businesses you need hundreds of homes actively using your services, maybe thousands total. Suppose you really could live off just 10 houses; you'd need something like $2400/yr/person in revenue at 100% cash operating margins to turn it into a reasonable income (which, given your risk exposure via rent, capital, etc, I don't think most people would start a business with the intent of the owner making less than $60k/yr in income, perhaps scaled down in much smaller, cheaper towns). There aren't many kinds of businesses where I spend that much money, and those definitely don't have anywhere near 100% margins. Just right off the bat, 100 or 1000 feels closer to correct than 10.

Most small businesses have fairly low margins. Even when you factor the cost of owner labor at zero (common for "lifestyle" businesses -- splitting it out this way so that we can look at COGS and then compare to a single family's income), you might see 10-20% cash operating margins for various shops, cafes, restaurants, 5-10% at groceries and pharmacies, 20-40% at bike shops and gyms, and 50%+ at barbers (details, especially for higher-margin industries like barbershops, depend a lot on the exact terms of rent and local tax laws, but this is a halfway decent ballpark).

Let's run some numbers.

The average person waits 2 months between hair cuts. Let's assume a moderately expensive cut at $40. The owner keeps $120/yr/person, or $300/yr/house. In the sort of town likely to have $40 be a reasonable baseline haircut price, $60k/yr is probably the bare minimum you'd want the owner to make to call this endeavor successful, especially when you factor in the increased financial risk they're taking on, so you need 200 homes actively frequenting your establishment in particular.

The average grocery bill for a single person is $300/mo, or $750/mo per household, of which the grocery store owner keeps $37.50-$75/mo, or $450-$900/yr. You need 66-133 homes frequenting that establishment in particular to keep its lights on, but I'd argue $60k/yr, while low for a barber or hair salon, is extremely low for a capital-intensive business.

Suppose you have a local cafe or bakery you visit every weekday on the way to work, or maybe every weekend on your morning walks. You spend $10 on a couple nice croissants, a single stuffed croissant, or something to that effect -- averaging the two customer types together, you spend $5/day, $1825/yr, $4562.50/yr/house, and the bakery keeps $456.25-$912.5/yr/house. You need 65-132 homes actively supporting that business. If you have customers like me who basically only stop in to the bakery when extended family is in town (preferring to cook my own), I might slightly bolster the grocer's margins (not a ton if I'm just buying flour, yeast, butter, and salt), but you need 1249-2500 homes like mine to support the bakery.

Retail shops (bookstores, local artwork, etc) have a pretty dismal outlook too. Used books are dirt cheap, I don't read as much as I used to (picked up other hobbies like playing the piano), and I do a lot of my reading online nowadays anyway. I spend maybe $100-$200/yr on books. I think that's above average, though I don't really know. The bookstore owner keeps $10-$40/yr though after rent and other expenses and needs 600-2400 homes filled with people like me (and who also don't share their books) for its support structure.

Instead of looking at rough estimates based on profit margins and usage, you can look at towns you understand reasonably well. One county I know of, for example, which does all of its business in a single, central town, has around 15k people, or 6k households (or if we're just counting the town population itself for some reason, 1200 households, but I think that's a significant underestimate). It has two grocery stores, two hardware stores, two music stores (instruments, lessons, etc, and another store outside of town), 15 restaurants (and another 5-10 in the rest of the county), and three pharmacies. Depending on how you slice and dice the numbers, it takes 400-3000 households to support most of those businesses, and 48-400 to support various kinds of restaurants. When factoring in just the county population, it's 2000-3000 households for normal businesses and 240 for a restaurant.

[bluGill]

You are not running the same numbers I am. If there are 1000 houses I'm claiming there should be about 100 retail shops. That people only get a haircut every few months is why those can't spread out.

[bombcar]

You can run the numbers relatively exactly. 35% of income is spend on housing, which "disappears" (we can assume this will support some banks and realtors or whatnot), some is spent on this and that, and the remaining spent on "household, groceries, entertainment, etc" would be what can support retail shops. Then you just need to know how much it costs to run a shop, and you know how many houses you need to support it.

[hansvm]

That sounds plausible. If you're talking about total shop count of any kind, then as a conversion factor between my numbers and yours we're saying there are 20-100 types of shops people visit with any regularity in a year. That sounds about right.