Focus, Economic Development, and Real Estate

Is downtown ready for a building boom?

Experts say expanding population will demand more housing options — and soon.

June 13, 2014
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With more people moving downtown, it’s getting difficult to find spaces on which to build residential housing. One option might be some of downtown’s private parking lots. Photo by Chris Pastotnik

Which comes first: the residential or the retail?

It might be a play off the age-old “the chicken or the egg” debate of circular causation, but it’s also an important piece to a puzzle that Grand Rapids downtown developers and economists have been trying to solve for generations.

Many city developers, however, believe the picture the completed puzzle will make is that of residential.

“Downtown for the past decade has been this chicken and egg. Some communities’ approach was, ‘do you subsidize the retail to try to attract people downtown, or do you heavily focus on getting people to live downtown, which will then in turn attract the retail?’” said Suzanne Schulz, managing director of design, development and community engagement for the city of Grand Rapids.

“I think our learning over the past few decades is you’ve got to get the people living downtown. It’s the chicken. You’ve got to get the people there, and then you can go buy the eggs.”

But recently, the “residential or retail” riddle has reached a stalemate in downtown Grand Rapids, a rejuvenated “comeback city,” where a growing population’s demand for residential housing has outpaced local developers’ ability to create space.

Since 1990, Grand Rapids has experienced a 188 percent growth in population, according to a graph that used 2010 U.S. Census data and was produced by the Downtown Development Authority’s planning consultant, Interface Studio LLC, said Schulz. That number could rise to 300 percent in the next 20 years, she said.

“We’ve added over 200 housing units in the past two years and we’re continuing to see increases,” she said.

“Housing has been slowly added, predominantly by affordable housing providers. When people hear ‘affordable housing,’ they think it’s all low income … (but) really the housing we’ve seen developed and what was being developed through the recession is really workforce housing.”

The graph also states that 11,203 people now live in the downtown area, although Kris Larson, executive director of the DDA, believes that number includes nearby neighborhoods, and he pegs the actual current number of those living in the downtown to be about 5,750.

“In three years, we’d be lucky to introduce an additional I’d say 500 at the low end, 1,000 at the high end, because you’re solely constrained by supply,” he said.

But regardless of which downtown neighborhoods get counted and which don’t, both Schulz and Larson agreed that their numbers still consistently show the same trend: Grand Rapids is growing.

“We’re growing up. We’re kind of in this weird tween stage from being a sleepy Midwest town to a regional — if not national — destination,” Schulz said.

“We have had comments that we’re very similar to where Portland (Ore.) was 20 years ago. Some of these (comments come) from experts who travel nationally. They’ve told us, ‘you’re on the cusp of something amazing in terms of an urban development standpoint. A couple little boosts and you’ll be flying.’”

But like all things that age, the inevitable growing pains are coming, and like any growing child, the city’s shoes are starting to pinch around the toes.

“We’re going to, especially in the neighborhoods, feel a lot of angst that we’re going to see a lot of change happen,” she said. “Even though we have prepared ourselves, from a policy and ordinance standpoint, that won’t preclude us from having issues in massing in scale, height, how it relates to the existing neighborhood fabric. The pace at which it could potentially happen makes me a little nervous.”

Grand Rapids’ growing downtown population isn’t just noteworthy for what the numbers are, but also for “who” the numbers are. The two overwhelmingly major demographics are the members of the millennial and baby boomer generations, Schulz said, with millennials moving downtown for access to the urban lifestyle, and baby boomers moving for the proximity to a more maintenance-free, healthy lifestyle.

About 77 percent of America’s millennials prefer to live in an urban environment, Larson said, adding that any city with economic development ambition is trying to find ways to attract millenials to choose to live in their downtowns.

“The reality of the fact is that Grand Rapids is not competing with Fort Wayne and Lansing… This is a mistake that some people make when they’re comparing themselves; they’re comparing themselves with comparable cities,” he said. “We’re competing with Brooklyn, San Francisco and Chicago, because those are (millennials’) choices. Millennials first decide what city they want to live in, and then they find a job, and that is a very different dynamic than the boomers.”

On a national level, cities also are starting to see a dynamic change in population income and diversity, a cultural switcheroo to which Grand Rapids is no exception. Schulz said there is a growing inverse movement in the fact that many of the lower-income families and minorities, who used to make up the downtown urban population, are now moving into the suburbs, while white, high-income populations, who used to live in the suburbs, are now moving into the urban areas.

That lack of mixed diversity, both culturally and financially, could become an economic problem, Larson believes.

“You don’t just want a lot of six-figure-income earners living in downtown,” Larson said. “Now, housing developers would love that because that means they can build very high dollar, high-profit margin products and make more money doing it, but the problem for that is, as a community, you need all kinds of people.”

The ultimate problem, however, is that residential space is getting harder for everyone to find in downtown Grand Rapids. Both Larson and Schulz named a lack of available downtown residential as the No. 1 obstacle facing downtown’s population growth. Demand for housing is outstripping the current supply and the speed at which it can be found, they said, and construction for new residential options will be inevitable.

That means a lot of work for construction developers.

“You can’t find condos downtown right now. We have a huge waiting list for market rate downtown. We have a waiting list for affordable housing downtown. So right now we have a major supply problem that is going unfulfilled,” Schulz said.

“We could be developing three times the projects we are right now and still have a supply side problem. So, that’s our No. 1 issue right now. We need to get more developers in the pipeline with banks financing their projects.”

Larson has been busy tackling this problem partly by trying to find available land downtown for conversion. He’s especially fond of parking lots, many of which are underused for the amount of space they take up, he said. But that will only happen when the parking lot owners can justify making economic sense of selling that revenue stream.

“These things — economics, population shifts — move in cycles, and right now we’re at the precipice of this tremendous opportunity. We came out of this giant recession. Nobody was building anything. You couldn’t get access to debt,” he said. “And now all this stuff is coming off the sidelines. People are looking for projects, people want to live downtown and invest here, and our biggest problem is going to be finding sites for investments.”

But Larson also has encountered what he believes is a second major obstacle keeping people from moving downtown: the education system. The two largest demographics of people living in downtown — millennials and baby boomers — are both groups who, generally speaking, are not currently raising children at home, he said, and many of the families that do have children want to move their kids out of the downtown and into the suburban school systems.

“Education is that one variable where we don’t excel in here in downtown. It’s one we need to make improvements on,” he said.

“I think we’re going to continue to see things like single people get married, have kids and choose to stay in downtown, which is why we are very much proponents of improving the access to quality education downtown. That has been a dynamic that when I moved here two years ago, I kept hearing, and, frankly, (it’s) frustrating to hear.”

In the end, bold developers building and renovating downtown residential will be what brings the population downtown, and a population downtown will be what brings the retail, Larson said. He’s hopeful that when the downtown population hits 10,000, a grocery store will get built somewhere, though he’s convinced a pharmacy will get built sooner.

The momentum is coming, Schulz said, adding that she doesn’t think it will be long before there are multiple cranes in the sky again.

“All those things happen when you have more people here to pay income tax, property tax and place higher value on the land. That’s how we get those enhanced services and better retail and better transit,” she said.

“People need to understand that equation. You’ve got to have the numbers to make the numbers work.” 

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