Economist Chris Brewer has some advice for Traverse City officials: Embrace uncomfortable conversations.

Brewer – the vice president of economics for design firm AECOM – highlighted that message Tuesday while presenting the results of an in-depth market analysis he recently completed of downtown Traverse City. Brewer noted that a widening gap between wages and home values, limited available real estate downtown, increasing rents for merchants, and a declining workforce all demand careful planning and candid dialogue in the coming years.

“Land is becoming more valuable at a pretty rapid rate, and we have to find ways of mitigating that,” Brewer said. “This gets to the heart of infill development. How do we figure out a way to sustain housing over the long term – how do we identify that land over the long term – to move the community forward?”

Here are some of Brewer’s key findings, as well as his recommendations for city leaders.

Challenges

> Traverse City’s workforce is shrinking. 4,400 new jobs have been created since 2010, but only 1,210 workers have been added to the workforce, Brewer reported. As the city’s population tilts increasingly toward retirees, workforce participation has dropped from 59 percent to 53 percent in the last decade. Dropping below 50 percent has “huge implications” for the city’s economy, Brewer says. Leaders will need to consider the impact of “Traverse City becoming more of a retirement destination versus a diversified economy.”

> Housing and wages are sharply mismatched. Homes in Grand Traverse County have been appreciating at two times the rate of local wages. Further compounding the gap: The “vast majority” of sectors pay salaries below the state average, Brewer says. He also highlighted the lack of apartments and rental housing near town, calling it “one of the huge policy questions people are struggling with.”

> Retail stores face an uphill battle. As land values and rents increase downtown, “the number of businesses that can (afford those rates) decreases,” notes Brewer. Downtown has already seen market share shift in the last decade from retail to restaurants, which are better able to bear higher rents. Retailers also have to contend with online competition, as well as the expense of transporting goods to Traverse City. “The fact we have to pay more to get stuff here may be an important detail,” Brewer says, adding that more effective transportation modes and routes could help address the problem going forward.

Recommendations

> Incentivize what you prioritize. If it’s important to the community to maintain a diverse mix of retail and restaurants downtown, or to increase affordable housing in the city limits, officials should adopt policies to encourage those priorities. For example, “do we not incentivize projects that don’t have workforce housing?” asked Brewer. Officials should also create a short list of properties that are either underutilized or have high redevelopment potential – then aggressively plan for and market those sites. “It all gets to being a lot more explicit and deliberate about (planning),” he says.

> Set clear development guidelines. Developers will likely continue to build luxury condos over apartments if their square footage is highly restricted, Brewer says, and will shy away altogether from investing in risky markets. “One of the things we always try to impress upon everyone is, let’s be clear on our entitlement process,” Brewer says. “(Developers) should understand the expectations and what they can build. The fact is there are fewer developers today than there were in 2006. They’ve been through the wringer.”

> Be prepared to wrestle with density and parking. Both are “uncomfortable” conversations, Brewer acknowledges – but are key to the city’s growth. “Density is obviously a very sensitive topic, but it’s a compelling topic,” he says. “It’s one of those inescapable things about downtown. If we really do have a workforce housing problem, and I think we do, how do we begin to identify locations that can handle the type of housing that can meet that market?” Building heights will continue to be a hot topic, he predicts, because “if you limit the number of people who can move in, and the real estate grows in value, the only release valve is to build a taller building.”

A final draft of Brewer’s market analysis – complete with data appendices – will be available on the Downtown Development Authority (DDA) website within the next month. DDA Executive Director Rob Bacigalupi says that in addition to being a critical tool for downtown merchants, the report will also help shape a possible new tax increment financing (TIF) district as well as future DDA planning.

“With a list of strategies like (Brewer) had…some of those require targeted action,” says Bacigalupi. “So that might be a discussion with the DDA board. Which of these are most important, and which of these should we focus our attention on?”