This Old Factory

In a number of states, there's starting to be pushback against rezoning industrial land for housing.
by | December 2006

Here in California, we buy a lot of stuff and a lot of houses to put the stuff in. The stuff comes from stores, trucks or ships at the port. We're not always sure where it's made, except that we know it's not made around here anymore.

Which means, at least in the short run, that we don't need all that industrial land where the factories used to be. There are vast swaths of property running throughout both Los Angeles and the San Francisco Bay Area--mostly along rail lines--where industrial land lays fallow or underutilized. Given that condos are going for $600,000 a pop and the industrial land is located in close-in areas adjacent to emerging transit corridors, the sites look pretty tempting to both housing developers and municipal officials who dream of glitzy mixed-use developments.

At first glance, it's the ideal of the post-industrial society: convert land from an obsolete, low-density use to a higher-density plan that provides a quick market payoff and fills an urgent need. Yet in California and throughout the country, there's beginning to be pushback against rezoning industrial land. Instead of handing it all to housing speculators, maybe we need to preserve some of it in case we have an industrial economy again--or at least, an economy that places a higher value on business activity than condos.

So, oddly, industrial land has become a kind of preservationist cause celèbre--kind of like historic neighborhoods and farmland. Property that has, for decades, been devoted to the principal of business profit now needs to be preserved because this particular kind of business, while it may not be the "highest and best use" in the current marketplace, nevertheless serves the public interest. Or so the thinking goes.

This idea is driving developers in my state crazy. Even with the downturn in the real estate market, any close-in land can be profitably flipped into housing. And in most areas, housing is not permitted on industrial land. As with farmland, that means big profits for the developer who can successfully rezone, because the price before the rezone will be low.

Yet balking at the idea that all fallow industrial land should be flipped to housing is a valid response. Planning for future economic development involves bucking the short-term market for the long-term good, of laying a bet on one kind of business over another. Depending on your time horizon, sometimes it involves setting aside land, even if you don't quite know what you're going to want the land for.

Of course, you don't have to set aside all industrial land for future use. But a thoughtful approach does involve understanding both short- term and long-term market opportunities and an appreciation of how to use and maintain the economic infrastructure that serves the industrial land in question.

If, for example, the industrial land is located along a rarely used rail line that is being converted to passenger urban transit--and it's located adjacent to a heavily populated area--then letting it go to housing or mixed-use might make sense. That's the situation with the land along the Exposition Boulevard corridor in Los Angeles, where a new light-rail line will be completed by 2010. Some industrial uses still exist along the corridor, but it's just a short trip to the University of Southern California and downtown Los Angeles.

If, on the other hand, the land is not well served by new public transit lines--and it's still well served by freight rail lines--that may be a different story. The import economy is creating more demand on freight lines than ever before, especially freight lines connecting to ports. So land along those freight lines is likely to be valuable for warehousing and distribution as well as for businesses that manufacture products that have to go back to the ports to export.

There is no one-size-fits-all answer to the industrial-land question. In many cases, the land's time has passed as industrial property, and local officials need to let it go. But where the parcels are large, the freight infrastructure is close by and there's at least a mid-term market for manufacturing or other industrial uses, the land should be set aside, just like farmland. Old factories are not as pretty to look at as orchards, but in the long run, they can be valuable economic assets.

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