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HomeMy WebLinkAbout173007-Growth Policy Forecast Project Issue Areas v5 TO: PLANNING BOARD FROM: CHRIS SAUNDERS RE: GROWTH POLICY UPDATE DATE: SEPTEMBER 5, 2017 The Economic and Planning Systems staff met with the Planning Board on July 18, 2017. They also conducted a number of interviews and research efforts while they were in Bozeman. A report of their findings has been prepared. It also lays out a variety of follow up questions and actions. A copy of the report is attached for Planning Board review. I will not be at the September 5th meeting but can follow up with board at subsequent meetings. M EMORANDUM To: Chris Saunders, Policy and Planning Manager From: Brian Duffany, Tim Morzel, and Dan Guimond Subject: Growth Policy Forecast Study - Project Issues and Direction; EPS #173007 Date: July 28, 2017 EPS completed a recent trip to Bozeman to meet with the Planning Board, tour the community, and interview key real estate and other community stakeholders. The purpose of this memorandum is to summarize the key issues we heard from the Board and Stakeholders and outline how this Growth Forecast Study should address them. This summary, with your input and concurrence, will allow EPS to focus the remaining work in the market analysis and forecasting tasks. This memorandum is organized into three major sections: • General Observations • Issue Areas • Next Steps and Schedule Outline General Observations EPS has completed an initial review of baseline economic and demographic information and existing reports including the Prospera Business Network’s 2017 Economic Profile and the City of Bozeman’s recent Economic Development Strategy. The published data combined with our growing understanding of economic conditions indicates that Bozeman is a dynamic and fast-growing city. Job and population growth have been occurring at sustained high rates for the past 15 years with only moderate slowing during the Great Recession. For a small and relatively remote city, the economy is stronger and more diverse than seen in other cities of similar size that are not part of a larger metropolitan regional economy. Memorandum July 28, 2017 Growth Policy Forecast Study - Project Issues and Direction Page 2 173007-Growth Policy Forecast Project Issue Areas v4.docx Many small and rural economies are being propped up by health care growth. While health care is a large segment in Bozeman, there has also been significant job growth in manufacturing, professional services, and technology. The Bozeman economy has three major ‘layers’ or segments: the local economic base, a portion of which is being driven by innovation and in-migration; the MSU and MSU student segments; and the tourism segment due to Bozeman being a “gateway community” to Yellowstone National Park and many other exceptional outdoor recreation assets. These different economic segments combined with the quality of life contribute to the growth of Bozeman and make it a diverse and dynamic community. As you know, growth creates challenges and opportunities. Rapid growth has impacts. Residents feel a change in community identity and types of residents. Housing costs have increased because the desirability of Bozeman is known both in the U.S. and abroad. Development is occurring on previously vacant land and existing neighborhoods are experiencing infill and redevelopment. Demand for City services and infrastructure are increasing faster than the City can respond. The amount and pace of growth is likely to be a major issue in the Growth Policy Update. In our opinion, if managed well the opportunities that strong economic growth brings can outweigh the negative impacts of growth. Limiting growth has risks such as higher housing costs, stagnating job growth, and flat or decreasing city revenues. While this is not a growth management study, we may need to address these issues at a high level. There are “lessons learned” on the pros and cons of growth control and growth management approaches from some other communities. Issue Areas This section summarizes the issues and topics discussed in the Planning Board meeting and stakeholder interviews conducted by EPS. It is organized by general topic area with a short lead- in followed by statements summarizing comments and questions, then followed by proposed tasks/analysis to address those issues, questions, or comments. Questions and comments are paraphrased for brevity. Overall Growth Trends We sense that the community is grappling with the overall pace and magnitude or growth and change in Bozeman over the past 10 to 15 years, or longer. We and others have observed that the pace of growth is remarkable for a small city that is not part of a larger metro area. Building on the data in our presentation, we will document these trends in Bozeman and the surrounding communities. Comments/Questions • What has driven this growth? • How long will this pace continue? How big could Bozeman become? Will growth slow down and stabilize as the City matures? • What share of growth will shift to surrounding communities? • Are remote workers good or bad for the community? • What are the implications of limiting growth in Bozeman or being more selective toward the types of development we favor? • What can we learn from peer communities in other regions? Memorandum July 28, 2017 Growth Policy Forecast Study - Project Issues and Direction Page 3 173007-Growth Policy Forecast Project Issue Areas v4.docx Next Steps and Tasks These topics are well within our core scope of work of documenting and analyzing economic and demographic drivers and forecasting growth for the region by community/area. More specific analysis and follow-up will include: • Growth drivers - Validate and substantiate the observation from our interviews which indicate that quality of life, the airport, good schools, natural amenities, and innovation/entrepreneurs have driven a lot of growth. A comparison of wages from other metro areas may also be informative, as some have noted that Bozeman wages for the same occupations/industries are lower than in other cities. • Peer communities - Historical trends from peer communities may inform the overall pace or moderating of growth and the relationships with surrounding communities. • Remote working and in-migration – Estimate to the extent possible the portion of the workforce working remotely. Discuss the pros and cons and economic impacts (qualitatively) of growth in remote workers. Some of this may be addressed qualitatively as the outcome of a being successful community with a high quality of life (Figure 1). Figure 1 Quality of Life, Productivity, and Regional Economies Source: Luis, Michael, 2009. A Tale of 10 Cities: Attracting and Retaining Talent. International Regions Benchmarking Consortium. • Growth management - Document trends from comparable cities that have implemented growth controls (e.g., annual building permit allocations and land supply controls). This will be a limited analysis as it is not squarely within our scope. Low Quality of Life High Quality of Life High Productivity Low Productivity A. Superstar Cities. Dynamic regions that attract employers and employees and enjoy a virtuous cycle of growth. D. Retirement Havens. Areas that offer high quality lifestyles but will have difficulty attracting employers. B. Solid Performers. Highly productive regions that may have difficulty attracting and retaining high value workers. C. Downward Spirals. Regions that risk entering into a declining cycle of a loss of both businesses and talent. Memorandum July 28, 2017 Growth Policy Forecast Study - Project Issues and Direction Page 4 173007-Growth Policy Forecast Project Issue Areas v4.docx Housing Bozeman has seen a rapid housing appreciation that is increasing the cost of living, and wages are reported not to be keeping pace. The desirability of Bozeman that is attracting outside buyers and the impacts of MSU students are the two primary market drivers of housing price increases. As an input to the forecasts and Growth Policy update, we need to identify the types of housing that are in short supply or not being provided. We are not planning to address this at the level of detail in an Affordable or Workforce Housing Strategy (e.g., regulatory barriers, financing toolkit) but will evaluate the major residential zoning categories regarding the amount and type of housing allowed. Comments/Questions • Need to understand the impact of MSU growth on local rental housing. MSU needs to be more proactive in addressing its student housing needs. • Are there gaps in any segments of the market such as the “missing middle”? • Does current zoning and land use allow enough capacity for housing? • Within the scope of this project are there other tools that can be used to increase opportunities for attainable rental and for-sale housing? Next Steps and Tasks • Rental market - Document rents (comps) for student housing and other housing in Bozeman. Student rents are typically priced by the bedroom. Provide a simple table/calculation to illustrate how students out-pay locals. • Housing gaps – Analyze residential sales price distributions to determine where the market is concentrated and where there may be gaps. • Housing supply – In the course of the land demand analysis, evaluate the current supply of residential land and likely future supply. Retail Development The topic of the commercial centers and B2 zoning was prominent in the Planning Board meeting and in each interview conducted by EPS. Viewpoints varied widely however, and some opinions are not backed by market realities. • Some people indicated that more commercial development is needed in the neighborhoods. The inverse to this is that the B2 commercial nodes are not developing with residential development because there are not enough households in the neighborhood trade area. Thus there is an issue of whether there is too much or too little B2 zoning. • Can we promote commercial development in neighborhoods through other mechanisms? • Is the ground floor commercial requirement too restrictive? • Does Bozeman’s geography and regional trade center function help it buck national retail trends (decline)? Memorandum July 28, 2017 Growth Policy Forecast Study - Project Issues and Direction Page 5 173007-Growth Policy Forecast Project Issue Areas v4.docx Next Steps and Tasks • Commercial centers and retail demand – The issue of commercial center sizing and allowable uses will be fairly straightforward to address and to offer recommendations. Spending power calculations for a 1- to 3-mile radius around commercial centers (or a prototypical calculation) will show the number of “rooftops” needed to support a neighborhood or community retail/commercial center. We will become more familiar with the zoning requirements to weigh in on the ground floor use requirements. We will also prepare a citywide retail demand forecast and compare zoning capacity with current and future demand. • Bozeman retail position – Bozeman retail seems to be performing well and is in line with national trends. Most of the growth in Downtown retail has been in the food and beverage sector, which is consistent with national and western metro area and mountain community trends. Citywide growth has been in large format discount and warehouse clubs which have also been doing reasonably well nationally. What we don’t see is growth in other “shoppers goods” categories such as clothing, electronics, and home/housewares stores due to competition from online retail. We do think it is important for the City to maintain its strength as a regional trade hub, even though there are no sales tax benefits. The supply of retail helps make Bozeman a balanced community, and travelers to Bozeman for shopping will also support other businesses. Office Development The office market is reported to be tight in Bozeman. At the same time, developers are not currently motivated to build new speculative space. Despite the strong job growth, Bozeman is still a small market with a small number of office tenants in the market looking for space. We believe that to support economic development, the City should ensure there is a supply of land suitable for office development. A mix of infill sites (Midtown, Northeast, Idaho Pole, etc.) and greenfield sites will be needed to serve different preferences. Greenfield sites will serve more traditional office users and firms that need a larger floor plate. More urban settings will serve firms wanting to be in or near Downtown, which may be smaller tenants. Next Steps and Tasks Evaluating office demand is also squarely within our scope and will be addressed in the land demand forecasts. We will better document the current supply/vacancy conditions although published data is not as available in Bozeman as other larger markets. • Document supply/demand conditions with available data and interviews. • Forecast office demand at the regional level by community. Estimate share that could be captured in Midtown and other infill/redevelopment sites. • Note sites/areas most appropriate for office development (including confirming any existing locations). Industrial Development Development and economic development stakeholders also noted a shortage of light industrial buildings and land. One stakeholder pointed out that the zoning map greatly overstates the amount of ready-to-go available acreage. The State Land Board has a large M1 holding in the Northlands but no disposition process. Other M1 sites lack access and infrastructure. Memorandum July 28, 2017 Growth Policy Forecast Study - Project Issues and Direction Page 6 173007-Growth Policy Forecast Project Issue Areas v4.docx The industrial market is an area where Bozeman may want to cede (and already has) some ground to Belgrade and Four Corners. Land prices are considerably higher in Bozeman, which makes it less feasible to build large footprint and low value per square foot industrial uses (heavy equipment storage, large materials, and noisy or dirty operations). Belgrade and Four Corners may be more competitive and more suited to these types of uses (e.g., the Bruce Industrial Park in Belgrade). The Growth Policy needs to consider which types of industrial Bozeman wishes to attract and retain. The current market indicates that Bozeman is best suited for higher employment density industrial uses and higher value product businesses, translating to smaller footprint and higher level of finish flex industrial and R&D buildings. Next Steps and Tasks Addressing the industrial market is also well within our scope of work. More specific tasks are: • Document industrial development trends in Bozeman, Belgrade, and Four Corners. Note comparative land values and types of uses locating in each area. • Forecast industrial demand by type (large footprint, smaller flex/R&D). Forecast market share by area. Key Growth Areas Throughout this analysis there will be considerations of the most appropriate areas for each major land use type including mixed use development. Areas that came up in discussions are noted below. • The Midtown – Potential location of mixed use residential, office, and retail/commercial development. • Northlands – Large opportunity for a business/light industrial park but has infrastructure and land ownership constraints. • Idaho Pole Site – Former Superfund site that has been remediated. Possible location for residential, mixed use, office, and industrial development. • 19th Street – The likely role for this corridor is to continue to support it as a regional retail/commercial node. • MSU Research Park – There are roughly 40 acres available for office and R&D development, and MSU is partnering with a developer to build spec and build-to-suit space. • General infill and redevelopment – We will need to make some assumptions on the amount of forecasted growth that could be reasonably expected to occur as infill and redevelopment. Other Issues During the meetings and interviews other issues were discussed that we believe are outside our scope to address but important to be aware of. The two most vocalized issues were the overall development process and building code and the City’s economic development approach. • Development/Building Code - Developers and realtors noted that the City’s process for site plan approval can take 5 months for sites being developed by right under zoning. There were remarks that the Bozeman market is moving too fast for developers to respond fast Memorandum July 28, 2017 Growth Policy Forecast Study - Project Issues and Direction Page 7 173007-Growth Policy Forecast Project Issue Areas v4.docx enough to new employers who need buildings. As a result, some employers have secured sites in Belgrade and Four Corners despite their preference for Bozeman. In our judgment, this issue is separate from this study and should be addressed through another process. There is also concern that the new UDC will further increase commercial building costs potentially above what commercial rents will support. Economic theory would suggest that land prices would adjust proportionally, but land prices are notoriously sticky and theory is not always reality. • Economic Development - We heard comments on different ways the City should expand and/or modify its economic development approach from an economic gardening and amenity based approach to a more direct recruiting and incentivizing approach. In our judgment, commenting on the City’s economic development approach is not within the scope of this project and should be addressed through a separate process. Next Steps and Schedule Outline • End of August — Draft Market Analysis — Preliminary Land Demand Forecasts • September — Review land demand forecasts — Develop scenarios — Provide draft material to Planning Board. • October — Meet with Planning Board to review/discuss above material — Respond to comments/questions • Late October / Early November — Final Report and Presentation