How the City has let the Growth of Supply Outpace the Growth of Demand
Lawrence has grown in population and income, and that is good. But the growth in real estate development has outpaced the demand for that real estate, and that is bad. It causes disinvestment and blight, and all too often the taxpayers suffer.
Since 2000, developers added about 800 units per year while the population growth would support only about 400 units per year.
The surplus has brought about an out-migration from older neighborhoods resulting in a loss of units. The loss of population and units resulted in a loss of value and deterioration in the city’s older neighborhoods.
Inflation adjusted growth in retail spending since 2000 is growing at 0.2 percent per year, enough to support about only 25,000 to 30,000 additional square feet per year.
From 2000 through 2007, the stock of retail square feet is growing at 3.1 percent or about 150,000 square feet per year.
The developers added about 1.3 million square feet beyond what the growth in retail spending could support. This is approximately the size of the retail space in the entire downtown or about one-fourth of the total stock of space.
The situation is rapidly becoming worse as an additional 750,000 square feet of space have been approved for West 6th Street from Folks Road to the South Lawrence Trafficway. If all of this space is built, it will swell the stock of surplus space to over two million square feet.
The surplus development has stalled redevelopment plans downtown and has pushed the vacancy rates so high that disinvestment and blight now threaten several older shopping centers.
Industrial, Warehousing, and Office Development
Employment growth, like population growth, has slowed since 2000. It has declined for manufacturing and warehousing jobs but continues to grow slowly for office jobs.
Manufacturing space grows in incremental steps as facilities are added. However, there have been no significant additions to the stock of manufacturing space since 2003. Manufacturing space has stabilized with no additions because demand for the space is contracting rather than growing. This means that empty space is available on the market.
The supply of warehousing space is growing at about 2 percent per year, adding about 85,000 square feet each year. Warehouse space is growing despite declining employment. This means a surplus condition exists.
Office space is growing at about 2.3 percent per year, adding about 67,000 square feet each year, a rate close to the rate of growth in employment. The office sector is reasonably balanced with growth in supply closely matching growth in employment, but the market is negatively impacted by the surplus of retail space that is being offered as office space.
Allowing the supply of real estate to grow faster than growth in demand adds to costs. Unneeded roads, sewer lines, water lines are built to service this space. Police and fire protection must be provided even if the space is empty.
Growing supply faster than growth in demand does not stimulate more demand. Lawrence has been overbuilt for years. Yet, surplus housing has not attracted more population. Surplus retail stores have not attracted more vendors. Surplus industrial and warehouse space has not attracted more employers.
Growing supply faster than growth in demand causes older areas to deteriorate. Older neighborhoods are not receiving sufficient investment in the form of replacement homes and improvements to existing homes to maintain their value. Older neighborhoods are losing value, schools and people. Downtown, which is one of Lawrence’s strongest attractions, is stagnating and failing to attract vendors into its newly renovated shops.
Employment centers sit empty while the City rushes to build more.
Lessons to learn
Growth in supply is not growth in demand.
City and county leaders, and their planners, should view it as part of their job to fix a failure in the marketplace, which is the propensity to overbuild. These leaders should keep the growth of supply in balance with the growth in demand. This means limiting growth to just that amount that can be absorbed without harm to the community at large.
The community is overbuilt, and a long cooling off period is needed. The city should stop adding to the problem and work toward redirecting growth into existing space.
The community needs to stop the overbuilding and permit only very selective development that can clearly demonstrate that it responds to an unmet need, despite the surplus stock that exists.
In the housing sector, the city needs to take steps to redirect growth away from new sprawling subdivisions on the perimeter of the city and toward the older neighborhoods that are suffering from disinvestment and decay.
In the retail sector, the city needs to protect and enhance its downtown, the retail district that attracts the coveted tourist dollars. The city needs to stop the unneeded expansion of retail space at the perimeter of the city and help to redirect retail spending to the downtown and the other shopping centers distributed around the city.
In the industrial and office sector, the city needs to carefully gauge the pace of growth of employment and limit the expansion of employment centers, whether office parks, industrial parks, or other form of employment center, to just that level that can be absorbed.
None of these steps means a complete moratorium on development. Moratoria have been tried and failed in other communities. Except in a few short-term situations, they do not work. However, city leaders need to realize that the stock of real estate is in trouble largely because the city has pursued a pace of growth that cannot be sustained.
In the housing sector, the city should stop the development of any new subdivisions until it is clear that more are needed. Evidence of this would be found in low vacancies among existing homes and small inventories of homes for sale.
In the retail sector, the city should avoid adding to the problem by approving any more retail proposals. However, from time to time, a neighborhood center may be needed because it will serve a newer subdivision that does not have a neighborhood center. Despite the retail market being overbuilt, some small quantity of new space may be needed to service the homes in this new subdivision. However, the city has approved several new retail developments that, if built, will be harmful to the city as a whole. Some of these developments cannot go further because they are unable to obtain the needed leases to leverage loans from banks. The development permission given to these projects runs for 18 months. As this permission expires, it is customary for the city to grant extensions without scrutiny of the impact of these unneeded projects upon the remainder of the city. This should be stopped. Until such time as the city can easily absorb new space without hurting existing shopping districts, the city should stop renewing the development approvals. When these retail developments come up for renewal, they should be shelved.
In the industrial and office sector, the city should avoid adding to the problem of surplus employment centers. While land needs to be available for the small number of new firms that may locate in Lawrence, there is already an ample stock of unused and underutilized buildings. The city should make every effort to make use of these structures before sprawling into new sites. In addition, the city should make every effort to use the existing employment center land before bringing more onto the market. Sprawling development, whether housing or manufacturing or office space, adds unnecessary and costly public improvements, and it stretches city services that are already stretched.