New Hampshire can’t thrive as a Hallmark movie set
Speaking at an event in Portsmouth this month, economist Ali Wolf dropped a stunning statistic. Rents in the United States have risen by an average of 25% since the pandemic—but in New Hampshire they’ve risen by 45%.
Consider the news a follow-up to last July’s revelation that New Hampshire rents rose at double the rate of the prior year, even as rents fell nationwide.
New Hampshire, which is exceptionally hostile to new housing construction, is experiencing exceptionally high rent and home price growth. Go figure!
So, we’re fixing this problem by approving more and more residential units each year, right?
Right?
Well, according to U.S. Census data, the number of new building permits issued in New Hampshire in 2023 was below the number issued in 2022. And that number was down from 2021.
With demand for housing surging, the rate of new construction is slowing.
This is not good. And it’s hurting the state’s economy and overall quality of life. But too many people can’t see this because the commercial side of the economy looks so healthy.
Last year, New Hampshire passed 100,000 corporate and LLC annual reports filed, setting a new record. And new business applications were up 10% in December of 2023 vs. December of 2022, according to the Small Business Administration.
New business creations are growing, which is a sign of a strong economy. But when only one side of the economy is healthy, it’s at risk from the unhealthy side.
In New Hampshire, there’s a disconnect between the way people think about business growth and the way they think about population growth. Some people (and many town officials) want one, but not the other.
To illustrate the point, consider small businesses that are very popular right now, such as coffee shops, craft breweries and neighborhood pubs. People love them because they create a sense of community. They’re a “third place,” a spot between work and home where people can socialize.
Coffee shops are more than just fun, though. They’re famous for being incubators of economic activity and hubs of information sharing. The London Stock Exchange was created in Jonathan’s Coffee House, located in Exchange Alley in the old City of London. The New York Stock Exchange also first met in Totine Coffee House on Wall Street.
People love coffee shops, which is why local governments are happy to approve new ones. Who protests the permitting of a new coffee house?
When towns approve coffee shops, they do a lot more than give people a cozy place to hang out. They might also be creating other new businesses.
A study published this week by the Bureau of Economic Research has found that the addition of a single Starbucks in a neighborhood can increase business startups.
The researchers found that “compared to census tracts that were scheduled to receive a Starbucks but did not do so, tracts that received a Starbucks saw an increase in the number of startups of 5.0% to 11.8% (or 1.1 to 3.5 firms) per year, over the subsequent 7 years.”
Similarly, researchers studying the effects of pubs on social capital in Ireland found that local, rural pubs were important sources of economic activity as well as community cohesion.
“Third places” like pubs and coffee shops facilitate both economic growth and social capital. People get excited when a new bar, restaurant or coffee shop opens in town because these businesses offer additional social opportunities.
But what happens when local governments approve lots of new bars, restaurants, coffee shops and other businesses, yet deny new housing?
What happens is you get more businesses competing for the same number of customers and employees. That’s what’s happening in New Hampshire.
In the Granite State, it’s much easier to start a business than it is to build a residence. So a lot of economic investment has been shifted away from residential construction and toward commercial and industrial development. As a result, we have a lot of businesses competing for too few employees. That’s created a labor shortage (or at least worsened a broader national labor shortage).
Governments in New Hampshire are approving new businesses, but restricting the supply of both customers and employees, which makes it hard for some of the new businesses to survive. It’s as if local planners are trying to build Hallmark movie sets–beautifully designed spaces that aren’t spoiled by the presence of regular people.
Desperate for workers, employers such as Valley Regional Hospital, the City of Lebanon and Service Credit Union are building housing for their own employees. But most small businesses can’t do that. Unable to find employees, or enough customers, they close. We’ve seen this happen with numerous bars, coffee shops and restaurants in places like downtown Manchester and Portsmouth in the last few years.
The residential shortage is already slowing the state’s overall economic growth, as highlighted by these small business closures. This imbalance between commercial growth and residential growth cannot continue. At some point, the housing supply will have to increase dramatically, or overall economic growth will have to slow further, if not contract.
In the last several decades, local governments have happily approved new commercial developments while restricting new residential developments, as if businesses (and the economy) could grow indefinitely without any increase in customers or employees.
Most everyone agrees that building more businesses is good for the economy and the community. They create economic opportunities and improve the quality of life. It follows that building the customer and employee base for all those new businesses is also good. Approving new businesses while deliberately depriving them of employees and customers is not a strategy for long-term success. Communities are strengthened by coffee shops that are filled with people, not by pretty but empty ones.
