How Big Retailers Lock Up Land to Monopolize Local Markets
PLUS: Real momentum to stop RealPage.
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Washington State Attorney General Bob Ferguson — who is running for governor — recently announced that, following a state investigation, the grocery corporation Albertsons has agreed to eliminate an illegal land use restriction that prevented a new grocery store from opening on the site of a store Albertsons closed back in 2016.
The site in question — located in Birchwood, a poor part of Bellingham, Washington — was subjected to two restrictions: An original development plan from 1982 says that only the parcel Albertsons occupied is eligible to sell groceries. When Albertsons sold that site off in 2018, it included a restrictive covenant in the sale, which stipulated that future owners can’t sell groceries, and also must abide by the terms of that 1982 agreement.
So functionally, Albertson’s closed a store, and then made it impossible for a new one to open — which benefitted Albertsons, since it also owns a Haggen’s grocery store a few miles away. Ferguson launched an antitrust investigation, alleging Albertsons was using restrictive deeds to limit competition in the grocery market, which got Albertsons to drop the restriction. Bellingham itself has passed an ordinance making such sale restrictions illegal in the future.
“In a neighborhood like Birchwood, many residents may have less access to transportation, or may be elderly or disabled. Albertsons forced the residents of Birchwood to walk farther for groceries so it could reduce competition for its own grocery store nearby,” Ferguson said. “My legal team will continue to stand up to antitrust violations that create food deserts that harm Washington families.”
Kudos to Ferguson! But this issue is actually much more widespread: All over the country, big box stores and major retailers and grocers routinely use restrictive deeds and sales contracts to lock up land in local communities and keep out competition, contributing to the existence of food deserts and more generally limiting retail options for local shoppers and creating local monopolies. Some of these restrictions ensure that communities go without adequate food access for 10, 15, or even 20 years.
Since the 1950s, courts have been grappling with whether restrictive deeds — whether in the sale of a piece of land, in tenant-landlord agreements, or, perhaps most perniciously, when a retailer buys up vacant land and never uses it before selling it on with a restriction — should be considered an unfair method of competition. They have generally, though not always, okayed restrictive deeds under the theory that it’s too hard to assess their impact or by insisting that grocers won’t open in certain areas if they can’t use restrictive deeds to safeguard their investments.
That seems pretty weak to me, and I agree with the International Association of Assessing Officers — a trade group for property assessors — which says, “It is certain that deed restrictions, by design, are imposed to limit competition and force a change in highest and best use.”
Indeed, the whole point of including such a restriction is to prevent new competition from entering an area and to alter the retail makeup of a community in a way that is advantageous to the incumbent retailer. Albertsons didn’t want a new grocery store competing with the one it owned several miles away, so it used contract language to deny access to any other business that might come in, no matter what the community might desire or the difficulties or harms it might face from artificially limited options.
Deed restrictions also have another negative effect, which I’ve touched on before: Dominant retailers use the existence of the restrictions they’ve imposed on properties to argue for lower property taxes on their other locations. I.e., a retailer’s restrictions keep a lot vacant, and then that same retailer uses the vacant lot as a comparable for its other, open retail locations, in order to lower its property tax bill.
This is what’s known as “dark store theory,” and it all gets a little through the looking glass if you think too hard about it. But it can have a devastating effect on local finances, with major retailers dodging hundreds of thousands, if not millions, of dollars in property taxes.
Several cities, including Bellingham, Chicago, and Washington, D.C., have made restrictive deeds illegal in the name of fighting food deserts — those areas where there is limited or nonexistent access to fresh groceries. And that’s good to see, because too often, the only response elected officials have to food deserts is to throw more bribes — errr, I mean tax incentives — at major grocery chains to build new stores, even though that approach has failed over and over again, both federally and locally.
Research shows that food deserts are the result of corporate power and consolidation, which allow dominant grocers to ignore underserved areas in the name of driving business to existing stores elsewhere, and make it impossible for small, local entities to get into the market and compete. Restrictive deeds are a part of that puzzle, as is stopping mergers, such as the one proposed between Albertsons and Krogers, which would be the largest grocery merger in American history if it isn’t blocked in court.
If communities want more shopping options, they don’t need their legislators paying more to the corporations that control the market. They need to limit the power those corporations wield, which will open the market to others.
UPDATE: I’ve written a couple of pieces on efforts to stop algorithmic price-fixing in rental housing, the proliferation of which is one of the ways corporate power is warping housing markets. There’s some real momentum to report on that front:
San Francisco legislators this week introduced the first city-level bill to ban the use of algorithmic software to set rents;
The Department of Justice is reportedly readying a case against RealPage, the main purveyor of that software;
A federal ban was introduced in the House of Representatives, a companion piece to an existing Senate bill;
New Jersey became the latest state where legislators are examining a ban, joining Colorado, New York, and Rhode Island, and;
The Jersey City, New Jersey, city council passed a resolution calling on the state to ban algorithmic rent-setting.
It’s great to see officials at all levels of government focused on this problem, because as I’ve said, new housing supply is all well, good, and necessary, but won’t effectively bring down prices if it’s controlled by a price-fixing oligopoly.
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— Pat Garofalo
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