The suburbs aren’t great for small business and free markets

DSCF2529Prewar neighbourhoods are better suited for migrant entrepreneurs than postwar neighbourhoods. That is the conclusion of a fascinating new study by Pascal Beckers and Robert C. Kloosterman, which looks at the link between the design of neighbourhood, zoning, and it’s effects on local migrant businesses.

What Beckers and Kloosterman find is that the urban design and zoning has an impact on the chances of setting up a business and the success of that business in the five Dutch neighbourhoods that they studied.

Prewar neighbourhoods have more commercial spaces (55 vs 31 firms per 10 hectares of built-up area) and less restrictive zoning regulations. This was found to offer more choice to local entrepreneurs and more flexibility to adjust to changes in the market and the business than to entrepreneurs who were operating in postwar neighbourhoods. 

Prewar neighbourhoods also have more businesses that are non-neighbourhood oriented, which means that they serve a broader market than just the immediate area (35 vs 16 firms per 10 hectares of built-up area). This is because local regulations in postwar neighbourhoods restrict commercial activities to those that serve the needs of local residents. Therefore, they have a commercial base that is more localized and less diversified

Existing businesses in postwar neighbourhoods also have less competition than those in prewar neighbourhoods. This protects local businesses and enhanced their chance of survival, but more restrictive zoning meant it is harder for businesses to expand if they became more successful. As a result, residents in postwar neighbourhoods have fewer choices when it comes to shopping and services and successful businesses have a harder time building on their success.

On the other hand, businesses in prewar neighbourhoods can be much more flexible. It is easier to convert buildings from residential to commercial and there are fewer restrictions on what can be done in those buildings. Businesses in prewar neighbourhoods also benefit from more policies that focused on creating new commercial space and supporting new businesses.  

More evidence that if you’re looking for competition, choice, and diversity you are much more likely to find it in the city than in the suburbs.

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