Traverse City’s dilemma: Why this hot vacation mecca can’t attract young workers

Traverse City has become a booming, chic vacation destination, but sees a looming need for young professionals and other workers to maintain growth. (photo courtesy of MLive)

TRAVERSE CITY — During the summer, Traverse City can feel like a crowded metropolis, with traffic jams and lines for restaurant seats and parking spaces downtown, just the sort of place said to attract younger workers critical to future growth.

The crowds, though, are largely tourists. The city itself has just 15,000 permanent residents. Grand Traverse County, as a whole, has not quite 90,000, roughly the same number who live in Canton Township, west of Detroit.

And although the local economy is thriving in many ways, the county is facing a looming attrition of baby boomers and stands a very real chance of losing the talent wars if it can’t figure out how to attract new, younger workers to live there full time.

Low-paying jobs and a lack of affordable housing are two of the culprits.

Too few rental units in the city center have created a serious housing crunch — especially among millennials, the generation loosely defined as born between the early 1980s and early 2000s — that is driving up rent prices, lengthening wait lists and contributing to a labor shortage that has employers worried.

“Housing is one of the big things underlying the skills gap or the talent shortage, particularly when you’re talking about younger workers,” said Sarah Lucas, regional planning department manager for Networks Northwest, a Traverse City-based firm that assists with workforce and business development across 10 counties.

“We hear often — almost daily — about businesses who can’t fill jobs because they can’t find people who have the skills to work them,” Lucas said.

“At the same time, we hear from young people who want to live up here, are able to find jobs up here, but … can’t take the job because they can’t find a place to live. Or, it’s too expensive, or they have to drive too far from the place they can afford.”

What young professionals need is workforce housing, said Allison Beers, owner of Traverse City-based meeting and event planning firm Events North and chairwoman of the Traverse City Young Professionals networking group.

“With a lot of the jobs paying $25,000 to $35,000, you can’t afford a $1,400-a-month apartment — or, if you are, you’re living with four people,” Beers said. “We have a lot of great, beautiful places in town, but they are high-end condos. And so for young people, they want to live where they can work and walk and bike and come downtown and have dinner and go run an errand.”

Beers said she hasn’t heard of people who passed up jobs because they can’t find housing. But she does know of people who move 15 minutes from downtown because that’s the closest they can afford to live, and of people who post to Facebook in search of roommates when leases expire.

“We need to get ahead of it before it is an issue,” she said.

Uphill climb

Addressing the talent shortage will be critical as Traverse City and surrounding communities in the northwestern Lower Peninsula deal with recession-era growing pains.

Traverse City has fewer workers than it did close to a decade ago, before the recession sent many of them packing in search of jobs, according to data from the U.S. Census Bureau’s American Community Survey (ACS). Many positions that remain aren’t paying enough to keep pace with inflation. Even some better-paying positions may go begging. Business leaders are concerned about an aging group of engineers and machine operators nearing retirement without a full pipeline of younger workers to replace them.

Traverse City, like many small and rural towns across the country, is facing an uphill climb because of young professionals’ preference to live in dense, metropolitan cities, said Lou Glazer, president of Ann Arbor-based think tank Michigan Future Inc., which studies talent retention amid the transition to an information economy.

Large technology and professional companies, with the exception of health care and education, typically don’t set up in small towns because they don’t have a large enough talent pool, Glazer said.
“Knowledge-based employers, even though they have to pay higher wages — and obviously, they’d rather not pay higher wages — are concentrating in bigger metros because that’s the only place they can find a concentration of workers,” he said.

“Raising wages or lowering housing costs are two ways to change the value proposition. But I don’t know that that’s enough.”

The region’s chamber of commerce is trying to address the attrition problem through new efforts to promote living and working in northern Michigan. But solving the affordable housing problem remains the top policy priority.

Attracting people to tourism and hospitality-related jobs can be harder, Glazer said, since those workers often have higher transportation costs because they live farther from work and don’t have access to public transit.

A minimum-wage worker would need to work close to two full-time jobs to afford a two-bedroom apartment at market rates in Grand Traverse County, estimated at $825 per month, according to data from the Washington, D.C.-based National Low Income Housing Coalition. To afford that rent on a standard 40-hour week, a person would need to earn at least $15.87 per hour, or about $33,000 a year.

Yet that income would be out of reach for most of the region’s service workers, according to ACS data; median annual earnings for a retail worker were $18,287 in 2013, the most recent year available. Lodging and food service workers earned $13,682, and employees in entertainment or recreation jobs made $20,442.

An affordable rental in Traverse City is generally considered to cost about $650 per month, Lucas said. Data in the Networks Northwest report suggest people in Grand Traverse County making 30 percent of the 2015 area median income of $69,200 could afford to pay $519 in monthly rent.

Grand Traverse County residents who earn $11.25 per hour, estimated to be the mean hourly wage for workers who rent, could afford to pay $585 per month.

“Most people right now are trying to figure out how to handle the affordable housing issue,” said Laura Galbraith, executive director of Traverse City-based Venture North Funding & Development, the region’s economic development agency. “The talent attraction piece is still kind of segmented by industry.

“We will have to be more innovative.”

The housing problem

Both Traverse City and greater Grand Traverse County are made up mostly of owner-occupied homes.
Traverse City has more than 2,500 rental units within city limits, or about 39 percent of the city’s total occupied housing stock, according to 2013 data from the American Community Survey. The data doesn’t break down to show how many of those are downtown, or how many might be seasonal.

More than half of renters in the city — 58 percent — pay $750 per month or more to lease an apartment or house. The median monthly rent is $808.

In Grand Traverse County, which has about 8,500 rental units, rentals make up just a quarter of all occupied housing. Renters countywide also pay more than in the city — nearly 65 percent pay at least $750 per month, and median monthly rent is $847, ACS data show.

Affordable housing advocates say the shortage of rentals is not isolated to Traverse City. Housing costs have a disproportionate impact on people who work in Traverse City but live farther out — particularly those with lower incomes — because of the added transportation and energy costs.

Many people in rural areas choose to live there because rent can be cheaper, but they often have no reliable public transit and rely on propane heat. Networks Northwest said propane can cost three times as much as natural gas in some rural counties, including Kalkaska and Antrim.

In its study, the agency found the problem has been exacerbated by both demographic shifts and policy choices.

Most new home construction in the region has emphasized single-family homes on large rural lots, its authors wrote. But the demand for rentals is rising faster than units are being built — from seniors trying to downsize, families with lingering economic constraints keeping them from buying a home and young professionals who are delaying marriage and kids.

“At its simplest, the phrase ‘affordable housing’ simply refers to housing that costs 30 percent or less of a household’s income,” wrote the authors of Networks Northwest’s study.

That figure can increase to 45 percent for housing and transit combined, Lucas said. In some places in the northwestern Lower Peninsula, she added, some people pay 60 percent or more of their income on those two expenses.

“We try to focus on the need to locate new housing development near employment, near schools, near shopping, so people have the option to walk or bike to work,” Lucas said, adding that it’s a long-term solution.

“We’re seeing what happens when you don’t do that.”

Growing healthcare sector

The rental crunch is making it more challenging for employers to land new hires.

An exception to the rule might be health care. It was the fastest-growing employment sector in Traverse City over much of the past decade, according to ACS data.

Galbraith, with Traverse City’s economic development agency, said health care has consistently been a growing industry that may have had an easier time recruiting doctors or nurses with attractive pay — unlike, say, construction or manufacturing, which are just beginning to pick up after the recession.
Overall, though, the region is struggling to attract and keep a talented workforce.

The Traverse City area’s jobless rate, while lower than the state’s, has been dropping steadily for several years. But so has the size of its labor force — from a peak of 78,812 in 2006 to 74,833 in 2014, the most recent year available in state records.

That would indicate potential employees are leaving the area or dropping out of the workforce altogether, which happens when the unemployed stop looking for work. The labor force has ticked upward slightly since 2012, but it remains below the pre-recession peak.

The region’s economy is still heavily tourism-based, much of it during the summer. In fact, a third of the city’s total employment pool in 2013 consisted of workers in three industries — retail; lodging and food services; and arts, recreation and entertainment, according to the ACS.

At least seven of the 10 most-wanted job postings by occupation in the region for July were in retail or other service fields, encompassing retail clerks and supervisors, housekeepers, cooks, food service supervisors, customer service representatives and waiters, according to data from the Michigan Department of Technology, Management and Budget.

In total, 69 percent of the postings required less than a college degree. Truck drivers and registered nurses were the two most in-demand positions.

Restaurants and other service employers are having a hard time finding housing for their workers, particularly those who need short-term seasonal housing, but the issue also is affecting professional and management employees, Lucas said.

Glazer, of Michigan Future, said places like Traverse City are challenged to maximize their tourism economies while building other sectors, such as agriculture, healthcare, education and some small-scale manufacturing.

It will be tough for the city — and smaller towns like it — to attract major companies to set up corporate headquarters or offices in fields like finance, telecommunications and software development because of their limited talent pool, he said.

“None of that’s going to small towns,” Glazer said. “To some degree, they’re stuck.”

Yet, he added: “For northern Michigan, they’re in better shape than anywhere else because they are more attractive.”

Movement on pay

A wage survey hasn’t been done in several years, Galbraith said, but anecdotally she has heard that some employers are beginning to pay more in an effort to compete for talent.

She said some employers are offering pay above Michigan’s $8.15 base wage, to the tune of $9 to $12 per hour.

Still, that’s not the $15.87 hourly rate Networks Northwest identified as necessary just to afford a market-rate apartment.

So what to do?

Lucas, of Networks Northwest, said local governments can help by amending zoning rules to incentivize smaller homes or affordable units, such as offering payments in lieu of taxes to private developers.
Traverse City has an ordinance on the books that allows developers to build one additional market-rate unit for each affordable unit they include in a multifamily building, she said, but it’s voluntary and hasn’t yet been used.

Other possible policy changes: Launching partnerships between developers and nonprofit housing agencies to integrate more units into planned projects; creating a public housing trust fund with a dedicated revenue source that can subsidize affordable housing development; and encouraging construction of new upscale rentals, rather than condos, to free up cheaper apartments for lower-income tenants.

“I think we all know what the problems are. We’re just trying to get our hands around how to fix it,” said Rob Bacigalupi, executive director of the city’s Downtown Development Authority. “One agency can’t solve them all, but hopefully together we can.”