Monday, November 17, 2008

The Pace of Growth

The national election is over; it is time to think ahead to the election of our next City Commission.

The current City Commission has favored developers and builders to the point of harming the community. The City Commission confuses growth in the supply of real estate with economic development. It is easy to be confused because a coalition of developers, builders, and others engaged in the real estate development industry incorrectly equate growth in supply with growth in demand. This coalition also gives lots of money to the election campaigns of pro-developer candidates who will listen to this false claim and act upon it by approving virtually every development proposal.

The truth is that economic development is the growth of the aggregate income within the community. This can be the result of increasing income among the existing population, usually from wages growing faster than inflation. This can also be the result of increasing the population itself with the new residents bringing new spending to the community.

With growth in aggregate income in the community comes growth in demand for real estate. More households seek more housing. More income increases demand for retail goods and services.

Without growth in aggregate income in the community, there is no growth in demand for real estate. More housing without more households simply causes neighborhoods to compete for a finite, and insufficient, number of households. More retail space without increased income simply spreads the finite amount of retail spending very thinly, with weaker shopping centers failing and becoming blighted.

The community is in need of a City Commission that understands the most basic tenet of real estate economics, that real estate development must be supported by growth in demand for that real estate. If real estate is allowed to grow faster than growth in demand, the older space and the older neighborhoods lose value. Developers make money when they overbuild, but the community suffers. The City takes on the costs of new infrastructure that is not needed. Older neighborhoods lose value and deteriorate. Older shopping centers lose value and become blighted, reducing the value of surrounding neighborhoods.

The next City Commission needs to call for, and act upon, good planning from its planning staff. This means monitoring the pace of growth and ensuring that the developers are not allowed to add subdivisions, shopping centers and other developments that are not needed.

Over the next few weeks, I will itemize some of the specifics of the overbuilding that has taken place in Lawrence along with the harm that this overbuilding has created.

For more on this pace of growth in Lawrence see my recent study at: