US Retail Giants Target Urban Housing Projects to Address Housing Shortage
Major American retailers like Target and Costco are shifting their long-standing strategy by opening smaller stores in urban centers rather than large suburban locations. This change is driven by incentives from states such as California, Massachusetts, and Philadelphia, which offer benefits to encourage new housing construction. According to the New York Times, Costco plans to open its first urban store in 2028 within a $450 million residential project in Baldwin Village, Los Angeles, which will include 800 housing units, some affordable and designated for workers.
Target has already opened a store in Harlem in 2024, integrated into a complex with 171 affordable housing units, including 51 for youth from vulnerable backgrounds supported by welfare services. Costco is also planning a similar store in Montgomery County, Maryland, within a residential project featuring affordable housing, with construction expected to start later this year and completion anticipated within two years.
Costco CEO Ron Vachris explained that this unconventional approach allows the company to enter markets where large retail spaces were previously unavailable. He told Fox News that the strategy helps bring stores closer to customers and improves service in busy locations. These partnerships provide retailers access to lower-cost land since developers handle construction and related expenses, a significant advantage amid a 50% rise in building costs since March 2020.
The retailers also benefit from enhanced public image by associating with affordable housing projects, while developers gain from the presence of a well-known retail brand that can attract tenants and potentially justify higher rents. David Leopold, vice president at commercial real estate firm Brackadia, noted that retailers offering essential services may encourage city authorities to grant tax incentives and zoning changes.
Ben Shaul, founder of Thrive Living, which initiated the Costco project in Los Angeles, expects more such partnerships, emphasizing that these neighborhoods have been underserved by retail. However, challenges remain, including different fire and noise regulations for residential buildings and logistical issues like delivery access, which can delay project implementation by several years. For example, Target’s Harlem store took four years to resolve logistics. Some retailers have declined projects due to insufficient underground parking, as happened near Ohio State University.
These retail moves come amid a severe US housing shortage, with a projected 4.03 million home deficit by 2025. The shortage traces back to the 2008 financial crisis, from which the construction sector has not fully recovered. Recently, a new law aimed at reducing housing costs and increasing supply was passed by Congress with a large majority, though President Donald Trump opposed it and did not sign it, nor vetoed it to block its enactment.
