The housing boom that brought new condos to Ballard, Belltown and Capitol Hill almost completely overlooked Pioneer Square. Fully 60 percent of apartments and condos are subsidized. The Square is better known for panhandlers, homeless shelters and soup kitchens serving a downtrodden population that has been around since World War II ended.

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On sunny mornings near the heart of Seattle, two lines form for lunch.

In one, the homeless and hard-luck crowd, mostly men, waits patiently outside the Lazarus Day Center for sandwiches and day-old pastries. In the other, office workers from century-old buildings nearby and downtown day-trippers from elsewhere queue up and chat outside Salumi, a popular deli where the signature sandwich sells for $9.

These are the extreme ends of a dynamic Pioneer Square street scene that draws people in for all kinds of reasons: College kids party here at night, sports fans swarm the area for baseball, football and soccer, and the arts crowd throws a lively walk one evening a month. Tourists trickle in, too, discovering a place with even deeper roots but smaller crowds than Pike Place Market. Still, something important is missing.

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Children, grocery stores, people walking dogs and chatting on their front stoops — elements that define a community — you won’t find them here.

The central reason: Nobody’s home in Seattle’s first neighborhood.

By the city’s last count in 2008, the area has just 1,200 apartments and condos.

John Siscoe, who owns the Globe Bookstore a block away from the home of now-departed Elliott Bay Book Co., compares the area to a Potemkin village, a term for the elaborate facades of Russian towns built to please Catherine the Great — except nobody actually lived there.

Incomplete as it is, Pioneer Square already boasts assets that many cities would envy. Centrally located, it’s also along the water, near bus and train lines, and endowed with an array of restaurants, galleries and boutiques. What’s more, it’s a gorgeous slice of history without the desolation and violent crime of troubled inner cities. Yet, the housing boom that brought new condos to Ballard, Belltown and Capitol Hill almost completely overlooked Pioneer Square’s exquisite bones and shabby-chic style. Fully 60 percent of those apartments and condos are subsidized.

The Square is better known for panhandlers, homeless shelters and soup kitchens serving a downtrodden population that has been around since World War II ended.

Many say what the area needs now is something it hasn’t had since the city’s infancy: a much bigger base of ordinary folks calling the neighborhood home. Patrick Phillips, CEO of the Urban Land Institute, says, “It’s difficult to overstate the value of housing if you’re talking about a sustainable approach to revitalizing a neighborhood. You can’t do it with retailers, restaurants and sports stadiums alone.”

What creates demand for housing “are really robust, everyday, street-level amenities that can help people imagine living their lives there,” says Liz Dunn, a Capitol Hill developer who has done both new construction and renovation.

At least one developer is bent on bringing new settlers to Pioneer Square — planning a mixed-use development on Qwest Field’s north parking lot.If Pioneer Square flourishes, many agree with real-estate expert George Rolfe at the University of Washington:

“It could put the city back on the map as a doer instead of a talker.”

SEATTLE HAS been trying to rescue Pioneer Square for most of its life.

Since the Great Fire of 1889 flattened downtown less than four decades after Seattle was founded, it has talked about reclaiming its first neighborhood. “Never again need this section be used for despicable purposes,” the Seattle Post-Intelligencer opined after the fire, according to Murray Morgan’s 1951 book, “Skid Road: An Informal Portrait of Seattle.”

While some people debate how Pioneer Square got the nickname Skid Road, the area’s grittiness is real enough, and in a way springs from the same fearless roots that made Seattle a success.

The loggers, longshoremen and miners who came West in search of opportunity and adventure liked to kick back and be entertained in the area’s many saloons, brothels and gambling houses. In the late 1890s, the place was flush with excitement and cash from outfitting ships and miners for Alaska’s Klondike Gold Rush.

That luster faded along with dreams of making it rich, and the Square languished for decades as the business district crept north, and settlers left the hustle of downtown for quieter spaces.

The Depression turned Pioneer Square from a working-class neighborhood into a down-on-your-luck place. Revivals were attempted as far back as the 1950s, but it never became a popular place to live.

When Seattle’s new money came, first from Boeing and then Microsoft, the Square never got the same traction as other parts of the city.

Some of the biggest reasons are entwined in Pioneer Square’s DNA:

Visionaries have been stymied by property owners like now-deceased Sam Israel, whose neglected buildings housed some of the area’s most downtrodden denizens and fed its image problem.

Ironically, such disregard might have saved them from becoming parking garages.

Historic-preservation rules definitely saved them from that fate in the 1970s, although those same rules are now seen by some as obstacles to progress.

Many of its old brick buildings stand on soft soil and landfill that can behave like quicksand in an earthquake, making them expensive to renovate.

Seattle requires seismic and other upgrades when buildings undergo major renovations or add a lot more space for people. Given its soft soil and old buildings, such changes in Pioneer Square can be particularly daunting.

Reyn and Shannon Yates learned just how daunting after they bought the historic Metropole Building at the corner of Yesler Way and Second Avenue a decade ago. Back then, Reyn says, gunfire sometimes rang from a nightclub in the basement. Porn videos looped on televisions in one of its restaurants, and its convenience store was believed to sell illegal drugs.

The Yateses persevered, fixing up the place with some seismic retrofits and bringing in better tenants. Then in 2005, part of the basement collapsed, and in 2007, a fire gutted the building.

The city required upgrades as part of the renovation, including making storefronts and an undamaged elevator handicap-accessible and installing thicker glass in unbroken windows to meet new energy standards. About halfway through the remodel, Yates says, his insurance company stopped paying. While he sues, the building sits empty.

“Circumstances like this are probably how a lot of buildings go dark, particularly in Pioneer Square,” says Yates, who figures the renovation cost is two to three times what the building is worth.

A collapsed housing market hasn’t helped lately. Plans to turn Pioneer Square’s largest and best-known building, Smith Tower, into condominiums have stalled, presumably because of market woes. The Chicago firm that bought it in 2006 received city approval for the conversion, but has not moved forward and declined to comment about its plans.

Notably missing for Pioneer Square is a big push from the city, the kind of progressive vision and financial backing that has helped property owners remake lackluster neighborhoods from Washington, D.C., to San Diego. Maybe it’s because the neighborhood is not in desperate need, or maybe it’s the city’s personality.

“There seems to be the reluctance to act — meaning to do anything at all — until absolutely everyone, including everyone’s dog — has signed on,” says Donovan Rypkema, a consultant who put together reports for the city and Pioneer Square leaders in 2002 and 2009. “This has caused some — including some developers, some property owners and even to an extent the city — to simply withdraw from participation. Consensus is important. Unanimity is impossible.”

“Seattle has somewhat of a love/hate relationship with master planning,” City Councilwoman Sally Clark concedes. “We like it as long as we’re doing it individually, but if other people are doing it, we don’t trust their motivations.”

Besides, there’s the law. Washington’s constitution and tax system prevent cities from offering tax and other incentives that have boosted communities all over the country, including the Pearl District in Portland.

“We’re hamstrung in terms of how government goes about economic development,” says Hugh Spitzer, a public-finance lawyer at Foster Pepper and affiliate professor at the University of Washington School of Law.

Tom Murphy, a former mayor of Pittsburgh who led the revitalization of an area around an old steel mill where his father once worked, has seen other old neighborhoods get stuck. “People paralyze themselves,” says Murphy, who is now a senior fellow at the Urban Land Institute. “It needs to be driven by a strategy and not ‘we don’t have the money to’ or ‘it’s the wrong color’ or ‘it’s going to attract too many cars so you won’t be able to park there.’ All the details can get worked out in the context of where you want to get to.”

EVEN THE the homeless and advocates for them agree that Pioneer Square needs a new brand of settler.

“The ticket for economic stabilization in Pioneer Square is a greater distribution of income groups than currently exist,” says Bill Hobson, executive director of Seattle’s Downtown Emergency Service Center, which operates three subsidized-housing projects here.

There are a few ways to make that happen, despite the hurdles.

One is just going for it: spending the money to turn old buildings into market-rate housing and hoping they will come.

And developers are keen on building new high-rises, as they have in other parts of Seattle.

“It’s more efficient to build housing from scratch,” says William Justen, until recently the managing director of real estate for the Samis Foundation, named after its deceased benefactor, Sam Israel.

He already dove into Israel’s pile of dilapidated Pioneer Square buildings and turned two into market-rate apartments. Another three buildings became offices, partly because that costs less.

But Justen has moved on to a new venture aimed at investing in distressed properties. And though he’s known for filling skyscrapers, including the 38-story luxury condo tower near Pike Place Market called Fifteen Twenty-One Second Avenue, he says he has no plans to look for opportunities in the Square.

The one developer still hoping to add housing in Pioneer Square is Kevin Daniels, who returned Union Station to its former glory and helped save the Cadillac Hotel from demolition after the Nisqually earthquake of 2001.

Daniels’ project on the north parking lot of Qwest Field would feature four high-rises with nearly 700 new apartments and condos, plus offices, parking and retail space. It’s been on hold for years, waiting for the real-estate market to pick up.

Meanwhile, Daniels is leading a street-level revival in Pioneer Square.

Spurred by the departure last year of the neighborhood’s premier retailer, Elliott Bay Book Co., he became co-chair of Pioneer Square’s business association and pushed it to join the Main Street program of the National Trust for Historic Preservation, where he is a trustee.

The Alliance for Pioneer Square — whose other co-chair is former Seattle Mayor Charley Royer — plans to use the program, which typically focuses on small towns, as a catalyst for urban growth.

They are going for the kind of thing Dana Crawford did to spark the revitalization of historic Denver. “We built Larimer Square with special events,” she says. “Because we couldn’t afford advertising, we had events where people wanted to come and bring their families.”

New signs of life in the Square include artwork in empty storefronts, a Saturday market and more city parks events in the summer, movies shown on screens in alleys that used to be dirty and empty, and the city’s plan to extend a streetcar line from First Hill into Pioneer Square.

There are also pioneers like Jim Olson, founder of Olson Kundig Architects, who has lived in Pioneer Square with his wife for 23 years. “I can’t think of anywhere else we’d want to live,” he says. “It’s been a lifelong goal of mine to have lots and lots of housing in this neighborhood. It’s the most beautiful neighborhood in the city.”

Sparkling recommendations like that, along with vision and money from developers like Daniels, offer more hope that people will come to live, walk dogs and chat on front stoops than Pioneer Square has seen since the Gold Rush.

Melissa Allison is a Seattle Times business reporter. Erika Schultz is a Times staff photographer.