Why is something built here and not there? Why do we build out instead of up especially as in Olympia the people would (at least if their comprehensive plan is any guide) want them to build it up? Why does this house block the view from mine? Why are certain proposals brought forward instead of others? These are the questions that follow the one we’re really concerned about which I assume for most is how can Olympia become the community we all want it to be?
There is an idyllic narrative that carries the story of a greenfield development that goes something this: someone wanted a building either a house or store. So they bought the land, hired a contractor (or did the work themselves), and got the structure built. Once the construction was complete, they moved in, opened their store, had a family (or both), and lived happily ever after. For perhaps the first century of the American frontier this story was accurate. It still occurs in some relatively isolated circumstances (taking the entire country as a whole). However, it’s no longer typical, but this is the story that still cages our understanding of the development process that occurs in our communities.
Today the actual story is very different from the halcyon days of yore. It starts with GIS, capital and finance, absentee developers and you guess it, maximizing shareholder value. Now more than ever, real estate developers are seeking to maximize the investment from shareholders and from banks with progressively fewer opportunities available to them. How does this process work? Development occurs over intersecting spatial (land) and temporal (time) planes. It is most helpful to illustrate these planes over three levels of analysis:
Markets (demand): The development starts with a list of all the MSA’s which are analyzed to determine which have sufficient demand for the product its offering (i.e. where are the people who will buy our product?). Potential MSA’s for any particular developer vary dramatically in scale: a national developer might be looking at all cities in the country; a local one might simply be looking at all those in this and the next county. The important question here is can I sell my product in this area?
Buildable Land: Within the relevant MSA, the land is analyzed to determine whether there are any potential opportunities in terms of availability of specific properties such as a remodeling a hotel, converting a condominium, or building a subdivision of houses. Just as if the market does not have sufficient demand, without available properties the analysis can stop quickly here. Without available, developable land (greenfield or otherwise), development cannot occur.
Feasibility is the name I’ll give the next step. This is pretty much everything else after the point that land is determined to be available within a market that has demand for the product. The question to be resolved here is whether the constraints on the specific parcels in question would allow the developer to receive a sufficient return for the capital that he or she is risking. These constraints are manifold: land use and zoning regulations (legal), political environment, finance capital, construction costs, and any one of them might sink the project. The developers who do this well are able to exploit these constraints through some sort of competitive advantage when others cannot. So for example if someone has some kind of political opposition deterrent (be it a carrot or stick), or can get a sweetheart deal from a contractor or a bank, or has the ability to risk more capital that would be appropriate for anyone else at the scene; they will certainly have a leg up on their competition. It’s not necessarily pernicious advantages either: some developers may simply offer a product with greater demand, greater economies of scale in the production process, materials that are sourced to exploit a weakness in competitors, or any other number of regular old market advantages that exist in any other industry.
It’s important to consider some of these constraints in detail at the onset. From a developer’s perspective, the local jurisdiction with land use and zoning authority is a constraint, not a partner, regardless of what you hear in glossy brochures and newspaper articles. The city’s involvement however, is the only means by which the collective rights of the people in the jurisdiction, as opposed to the private rights of the developer can be reconciled and this varies with each local government and election. Suffice it to repeat; those developers that are able to use these constraints to their advantage will always do better than those who do not.
Each one of these above constraints could be envisioned as an overlay with a few holes punched out set over a map. In that process most land in any particular jurisdiction is excluded, but there are a few places where those overlays, stacked up on each other, leave development opportunities. Then the feasibility begins: is the land available? Could the project be done in such a way as to reward the developer for the capital risked? In short, this means that at any given time a piece of land or a building works or does not work for a particular type of development. For example, the local jurisdiction can prescribe the rules it wants, and if those rules keep the light from shining through those overlays, the land is highly unlikely to be developed if left to market forces (though most developers are happy to oblige a city’s attempt to thwart market forces by socializing its development). You see examples of that often in local newspapers when developers and consultants comment on particular projects. While it doesn’t answer our initial theoretical question, I think it precisely answers its converse.
Of course, these maps and overlays change as any particular parcel is developed over time (temporally). When a building is constructed that profitably sells condominiums, or leases apartments the analysis and the overlays changes. That increases neighboring land values potentially making them more attractive to development. (The same works in reverse as when a blighted property makes the rest of the street undevelopable.) We’ll see a superficial example of these trends’ manifestations momentarily.
These modes of development articulate the two extremes, both in terms of the three step analysis and the developers involved, but actual development usually comes somewhere in between. For example, you don’t need to be a huge developer to scan the country’s MSA’s (although it helps). I am drawing bright line distinctions to illustrate the dissimilarities. These lines are not as distinct as I am making them and many are actually interrelated, for example a striking workforce would fall under both the political consideration under feasibility but would obviously have implications in the market demand question too. However, it helps to look at it the way I’m describing it in order to approach an understanding of our initial question.
Let’s now examine divergence in the two tales. Instead of someone building a house or a store in which to live or work, today most developers are producing something to sell. They need to make a profit for this system to work. And this concept of building something to sell has become the basis of the American economy since the dot-com implosion of 2000. The capital which temporarily licked its metaphorical wounds ran straight to real estate under the impression that it was an investment that that had no risk. The capital flows to real estate created a real estate bubble in the same mold as the dot-com until it wrought yet another similar crisis.
Today we are still in that aftermath and the major problem in every single locality that actually has a problem is lack of demand. The development capital perhaps that is seeking its returns in real estate development has fewer possibilities (see e.g. the massive increases in commodities such as gold, coffee, and oil). The opportunities that exist will be exploited; put otherwise, if a parcel is not developed that means it’s either under the overlay or not feasible. There are exceptions to the demand problem however, and the temporal component by its very nature is fluid. For example, Seattle has weathered the real estate storm relatively well. While prices have fallen from inflated values, developers are still building condominium towers. The same goes for many other cities where incomes have become all the more stratified over the last few years. Among those income earners at the higher end of the scale, there remains a reasonably robust demand for housing—large, expensive, and luxury housing. That is not necessarily the case in towns and smaller cities including those of Olympia’s size where there are comparatively fewer very high earners—there are only so many houses a rich person can buy. In the terms of our analogy, that means that these overlays cover almost the entire maps and thus there are very few exploitable development opportunities. They exist but the profitability of each is much less than it once was.
I’ll close this post without fully answering my initial questions. In fact, they are almost unanswerable except when undertaking historical research. It’s very easy to draw up the collection of factors that allowed a particular building to enter existence. The theoretical question of when, where, and why, buildings are built becomes much more complicated, but it’s necessary to explore this because we all are interested in the result of this process: a community in which we want to live. As we extend our temporal existence we’ll explore these questions in greater detail. It may be impossible to answer these questions, but through them we can approach a much more sensible resolution of the tensions that are behind our asking them in the first place.