Even before the pandemic, Lawrence’s economy was shrinking, new federal numbers show
photo by: Nick Krug/Journal-World Photo
It is easy to predict that the economic tally for Lawrence in 2020 won’t be pretty. It also is a good bet that the final analysis will show the 2020 downturn was fueled, in part, by tough times in the city’s rental market, as the pandemic caused hundreds — if not thousands — of students to decide they don’t need a local apartment to attend online classes.
But a new set of federal numbers suggests both Lawrence and its rental market were suffering before the pandemic even began. New federal statistics that measure the economy of every county in the U.S. show Douglas County’s economy in 2019 shrank, and the real estate industry was a major reason why.
Douglas County’s gross domestic product — which is basically the measurement of all goods and services produced in the county — shrank by 1.1% in 2019. That put Douglas County in the minority, as the U.S. Bureau of Economic analysis reported Wednesday that only about 25% of all counties nationally saw their economies shrink in 2019.
However, there were several in Kansas, and several nearby. Shawnee, Wyandotte and Riley counties, for example, all posted declines, and the historic economic powerhouse of Johnson County grew, but at a below average rate.
What is going on that has created downturns and slowdowns in a part of the state that generally has produced most of Kansas’ population growth?
For several of the counties, it was a downturn in the real estate and rental industry, the numbers show. The report for Douglas County shows that a downturn in the real estate and rental industry contributed 1.77 percentage points to the 1.1% reduction in the county’s GDP. In other words, if the real estate and rental industry would have just held steady in 2019, Douglas County’s GDP would have grown by about 0.6% instead of shrinking by 1.1%.
The stories were similar in Riley and Johnson counties. The real estate and rental industry was the biggest drag on both of those counties, with Riley — home to Kansas State University — seeing a big drop. Its real estate and rental industry contributed to about 2 percentage points in that county’s decline in GDP. Shawnee and Wyandotte counties also saw downturns in their rental and real estate industries, but to lesser degrees. Decline in businesses that engage in wholesale trade appeared to be the bigger culprits in those counties.
The numbers in this report don’t separate the real estate — selling of homes and properties — versus the rental industries. But I’m guessing the rental industry is the bigger cause of the decline in Douglas County. I say that because home sales weren’t terrible in Lawrence in 2019. Lawrence home sales were down about 2% in 2019, but selling prices were up by more than 4%. In terms of total economic value of the real estate industry, that creates something close to a wash.
But how much money was the rental industry bringing in during 2019? That is always a guessing game in Lawrence. Despite rentals being the most predominant type of housing in Lawrence, the city doesn’t do anything to track the vacancy rate of rental units in the community. The Census Bureau tries, but those numbers get dated in a hurry and have a pretty high margin of error. Figuring out how much landlords are having to discount rates to fill apartments, also can be a bit of a guessing exercise.
What is clear, though, is a large number of apartment units have been built in the city the last decade — just over 3,500 apartment units over 10 years. There are some who would argue that is too much, and you’ve even started to hear it from some in the business. Doug Compton, the owner and founder of the Lawrence rental and construction giant First Management, expressed some of those concerns in an interview I reported on earlier this month. He said his company’s construction business is now done 95% outside of Douglas County because the city’s population growth isn’t matching up with commercial and residential construction rates.
“Right now I don’t see a big need in Lawrence, Kansas for housing or commercial development,” Compton said in the early November article. “It is not that we don’t want to do more, but right now you have to go where the need is.”
In a town like Lawrence, a downturn in that industry can be a big deal. In a college town, the rental market is a big part of the economy. As I noted earlier, if that industry could have just held steady, Douglas County’s GDP actually would have posted growth for the year. That said, there were a few other industries that saw declines locally. Remember, these numbers show how many percentage points each industry contributed to Douglas County’s total decline of 1.1%.
• Utilities: down 0.34 percentage points
• Transportation and warehousing: down 0.28 percentage points
• Construction: down 0.07 percentage points
But the following industries helped offset those declines with growth:
• Manufacturing: up 0.57 percentage points
• Management of companies and enterprises: up 0.27 percentage points
• Professional, scientific and technical services: up 0.18 percentage points
• Retail trade: up 0.13 percentage points
• Information businesses: up 0.12 percentage points
So, there are some positive numbers in there for Douglas County. But the bottom line number of a 1.1% decline is tough to paint as a positive. The entire state of Kansas posted a 1.2% growth rate in GDP for the year. Douglas County’s growth rate ranked 87th out of the 105 counties. It also represented quite a slow down from past years. The Bureau of Economic Analysis also released revised numbers for 2018 and 2017. Douglas County posted 2.2% growth in 2017 and 2.3% growth in 2018. The 2017 growth rate was well above the statewide total of 1.3% and 2018 was just below the state’s total of 2.4%. So, compared to past trends, 2019 was markedly different for Douglas County.
Here’s a look at GDP numbers for a host of other counties in the state. I always find these numbers interesting because it not only shows how much an economy is growing, but it helps you understand how large or small Douglas County’s economy is to other places. Note, all the dollar figures are in 2012 dollars, which the government does to factor out the impact inflation has on these figures.
• Douglas County: $4.45 billion; down 1.1%
• Franklin County: $873.2 million; up 1.9%
• Jefferson County: $378.3 million; up 5.6%
• Johnson County: $43.76 billion; up 0.7%
• Leavenworth County: $2.59 billion; up 0.3%
• Osage County: $290.6 million; up 4.4%
• Riley County: $2.41 billion; down 0.6%
• Sedgwick County: $29.33 billion; up 0.8%
• Shawnee County: $9.38 billion; down 1.0%
• Wyandotte County: $11.1 billion; down 0.1%