E-Commerce Growth A Boon – And Bust – For Local Communities

Jul 13, 2017

There is a warehouse shortage on Long Island. The reason is e-commerce.

The shift in how consumers are spending money is having lots of unforeseen consequences for local communities, from zoning to how police departments are funded.

Marko Glavadanovic, a commercial real estate broker in Huntington, New York, shows off a warehouse that he admits is pretty rundown. But there is so little industrial-zoned land in the region that companies are willing to tear down a perfectly good warehouse just to build a bigger one.

“Absolutely because you don’t have a level of supply that is growing. There is no more room. Big companies like Amazon are pulling on other companies to come here and they need space.”

Huntington is an extreme example. Warehouse prices here have jumped 10 to 20 percent in the last year. But across the U.S., industrial vacancies are at a record low.

Suzanne Mulvee researches real estate for the CoStar Group. She says communities, particularly suburbs, have too much space dedicated to retail, and not enough zoned for industrial, which would accommodate the warehouse fulfillment centers that are creeping closer to customers in order to reduce delivery times.

“But you can’t open up a million square foot warehouse in the middle of downtown Boston so what you do instead is open up smaller warehouses closer to city centers.”

Even if local zoning boards could simply swap vacant strip malls for warehouses, they’d still lose a huge source of revenue: sales tax. 

Max Behlke, budget director for the National Conference of State Legislatures, says, “It’s tens of billions of dollars each year, and as ecommerce continues to grow at 15 percent a year, like it has the last six years, those numbers will grow.”

It used to be that local communities would compete for big box stores because getting that sales tax was a politically painless way to fund fire departments and road projects. But according to Census data, last year 22 states had either negative sales tax growth or growth that couldn’t keep pace with inflation.

“It definitely is a problem. I think it’s something that the public should be better aware of. What’s happening to the way we shop, it’s going to have an effect down to the local level from employer to job creators to the revenues that pick up your trash or fix the pot holes in your street.”

Instead of raising property taxes, states have tried to figure out ways to make internet companies like eBay or Amazon collect the sales tax from their third party sellers. Those companies have resisted. Of the 40 states that have introduced bills attempting to get sales tax from online marketplaces, only nine have been successful. 

Behlke also blames ecommerce for stealing jobs from local communities, but that might not be true. According to Michael Mandel, an economist with the Progressive Policy Institute, warehouses have added five times the number of jobs that retailers have cut.

“You’re not in a situation where you are eliminating brick-and-mortar and nothing is appearing, but you’re actually creating jobs where a lot of jobs didn’t exist before.”

Mandel’s view is not universally accepted, and he’s quick to add that the data could change. But he says there is the possibility that technology might help reduce income inequality. 

“Most of the counties that have gained jobs from the fulfillment centers are not the counties that have gained jobs from the tech boom in the past. This is an expansion of the winner’s circle."

He says these new ecommerce jobs could narrow a widening wage gap in the U.S. labor economy as part-time retail sales jobs are replaced by full-time, decent-paying warehouse jobs.