be careful for what you wish for... http://online.wsj.com/article/SB10001424127887323384604578326203965125848.html PEEKSKILL, N.Y.—Artists such as Margaret Steele, a magician and acupuncturist, make up the fabric of this Hudson Valley city's quirky downtown. Her status as an artist also earns her the privilege of living here. Since 1991, only city-certified artists have been allowed to rent the historic lofts here, as Peekskill sought to jump-start its moribund downtown. The law gave rise to a bohemian enclave of painters, sculptors and musicians. Now Peekskill is weighing whether to change the law again, this time to allow non-artists to live in the lofts—and in future apartments downtown—because many say the city of about 24,000 needs a more diverse population to support residential and retail development. That worries residents such as Ms. Steele, who said she feared artists could be pushed out for wealthier tenants. Enlarge Image Close Andrew D. White for The Wall Street Journal Margaret Steele does a magic trick in her Peekskill home-artist space. "I don't want to stand in the way of progress," said Ms. Steele, a former Broadway musician who moved to her two-story loft on North Division Street 2½ years ago. "But we are [nearly] fully rented. There is a demand. This kind of space is very rare. It's why I'm here." Peekskill, along the Hudson River about an hour from Manhattan in Westchester County, has previously considered lifting the artist requirement. None of those proposals arguably had the momentum of the latest idea, which was developed by the city's Downtown Business Improvement District. "You don't want to lose the feeling of the city as a center of arts and culture and entertainment," said Mary Foster, mayor of Peekskill. "But at the same time you don't want to stifle growth." Ms. Foster said the city's seven-member Common Council wanted to study the issue more closely before making a decision, probably in the coming months. "It's been a success. I'm not willing to throw [the law] away wholesale," she said. The Peekskill artist district is a small-scale version of New York City's SoHo, where similar residency policies were established in the 1970s. More recently, Jersey City experimented with artist-friendly zoning in its Powerhouse Arts District, a section of warehouse lofts near the waterfront. But unlike in Peekskill, that effort never quite took off. Jersey City, however, was poised this week to consider another plan to promote spaces in which artists can live and work—in part of the city's Heights section. Peekskill created its artist district after its approximately 18-block downtown deteriorated over a few decades. Retailers had largely fled, and crime was a problem. "My employees were frightened," said Ken Laudon, who owns two loft buildings in downtown and is a board member of the Business Improvement District. He has run a software company from the first floor of one of his buildings since the mid-1990s. The city now has about 55 loft spaces downtown reserved for artists that range from $1,100 to $1,600 a month. Nearly all those spaces are occupied. The lofts are mainly in buildings, some dating to the 19th century, that once housed hardware stores, clothing makers, carriage shops and blacksmiths. Peekskill is enjoying a resurgence these days. A number of bars and restaurants have opened in downtown. Peekskill's Jazz and Blues Festival has become a popular yearly attraction. The riverfront has become more developed, anchored by the new Peekskill Brewery. In 2004, the Hudson Valley Center for Contemporary Art opened in the city. Yet trouble spots remain: Numerous storefronts, commercial spaces and lots remain vacant. Real-estate developers won't build new apartments on those vacant lots, said John Sharp, board president of the Business Improvement District who owns two new restaurants in town, Gleason's and Birdsall. "Having restrictions on who you can rent to are pretty much dead in the water scenario for any investor coming in," Mr. Sharp said. Relaxing the artist requirement would make it more appealing for developers to build, he said. Under the current zoning for the artist district, 100% of the residents must be certified artists. The Business Improvement District wants to set aside a lower percentage of units for artists in existing and future residential buildings. In a building with four units or less, half of the units would be reserved for artists. In a building with nine units or more, 10% would be set aside for artists. Livia Straus, director of the Hudson Valley Center for Contemporary Art, supports allowing the non-artists to move into the downtown lofts and in future apartments if artists were granted protections. "The challenge facing Peekskill now is that it is kind of in a middle ground," said Ms. Straus. "If those buildings stay empty, then the city is not going to continue to flourish." The prospect of rising rents is an important concern for artists, said Maureen Winzig, a 49-year-old painter who lives in a loft downtown. "My fear is that the artists that were tapped to come and revitalize a community…would be dismissed and pushed aside," she said. Ms. Winzig organized a group of local artists to speak with the Business Improvement District about its proposal. Ms. Winzig said she is now cautiously optimistic about the plan to guarantee a percentage of units for artists. "That to me seems fair," she said. Alexis Cole, a 37-year-old jazz singer who lives in a downtown loft, said she liked the idea allowing non-artists in—as long artists can keep a portion of units. "I'm worried the prices in the neighborhood might go up," Ms. Cole said. "But it's bigger than that. I want the whole neighborhood to flourish." Write to Joseph De Avila at joseph.deavila@wsj.com