Daily Archives: January 24, 2008

The Changing Economics of Housing and Retail


After years of debate about the impacts of the proposed Lowe’s on Geneseo and the Town’s secretive dealings with Newman to advance this proposal, changing national economic conditions (as shown in the chart above) may overtake local political and legal considerations in shaping the outcome of our Big Box battle.

That’s the implication of continuing and sharp declines in the housing industry, not to mention declining retail sales, increasing energy costs, and increasing inflation. These trends make it increasingly likely that the future of Geneseo’s Lowe’s will be determined by decisions made far from Geneseo.

As the chart above indicates, the housing industry is facing its sharpest downturn since the Depression. Housing prices are predicted to fall by as much as 30% nationally before stabilizing. That’s especially bad news in an economy where median incomes have not been rising and homeowners have relied on increasing home equity to fuel consumption.

Now that home equity is declining, consumption is strained and personal debt is increasing. Add to that increasing energy costs, which create inflation across the entire economy, and it is difficult to see how an economy as dependent on personal consumption as ours doesn’t go through some hard times.

As Bloomberg News columnist Caroline Baum recently stated, “The even worse news is that commercial real estate, where strong growth has been offsetting the collapse in the housing market, may be the next shoe to drop. The old maxim that retail development follows new housing is about to be tested in a case of new supply meets slack demand.”

The problem, as has been discussed in this column in the past, is that the now-busting housing boom and historically low interest rates led also to a boom in retail construction. According to the Wall St. Journal, since 2005 “developers in the U.S. have produced more retail space than office space, rental apartments, warehouse space or any other commercial real estate category.”

This level of sprawl didn’t make any sense during a boom. During a bust, it is a recipe for widespread business failures and vacancies. Indeed, projected retail demand “will justify only 43 percent of the new space delivered this year and last,” writes the Wall St. Journal. Imagine what happens if the lending standards for commercial development were anywhere near as bad as those that became commonplace among residential lenders.

First in line for trouble among retailers will likely be the home improvement industry. After all, a housing-led recession spreads next to housing-related consumption. One measure of this trouble is found in the stock market, where Home Depot shares have fallen by nearly 40% and Lowe’s shares have lost a third of their value in the past year.

Another measure is retail home improvement sales. The recent period, during which a Lowe’s seemed to some like a good idea for a place like Geneseo, also coincided with the highest levels of building material supply sales in generations. That boom is now busting, and figures to get worse before it gets better.

Some readers will be inclined to dismiss this as the exaggerated concerns of a project opponent. Only time will tell. However, much of my concern is and always has been that a project of this scale doesn’t make sense for a place the size of Geneseo. We shouldn’t make long term community decisions based on short term and unsustainable economic conditions.

Remember that when Applebee’s appeared before the Town Planning Board, they said Geneseo was a “C” community in terms of our ability to support chain retail. But remember, even that assessment was made during an era of rampant grade inflation.

I fear this means that a future Lowe’s will fail, and leave behind a dark store and weakened local businesses. Short of this, declining consumer spending means that the success of a future Lowe’s will require that a bigger bite be taken out of the receipts of local businesses.