How Stanford (financially) penalizes hoarding office space

University space is poorly utilized. One of the key reasons is that those who control space have little or no incentive to use it better. Many of the unproductive uses of academic space are simply rational responses to the fact that space is a scarce resource with no cost for its user. There are no costs to hoarding—and no reward for lending space out to other units.

Incenting better space decisions

To incentivize better space utilization, Stanford University implemented a financial penalty for units that fail to meet office space utilization targets. The space charge levied on each dean is based on the difference between their college's actual space usage and the amount of space they are allocated according to the space guidelines.

Stanford charges $33 per square foot over guidelines. This figure was chosen because it is the cost of rental space in Stanford’s research park. However, the exact penalty is more art than science. The goal is not to pass on the true costs of space to individual colleges but rather to create an incentive for them to improve utilization.

Colleges over their space allocation can use the charge to renovate their space to increase their utilization, or they can simply pay into the provost’s reserve fund. Colleges within the guidelines receive money back from the provost’s reserve and can use it however they want. One college actually used the money to fund a new administrative position.

Effectively changing dean behavior

Stanford’s space charge has had a concrete impact on how units plan their space. One college is currently creating a new master plan, and the space guidelines have played a critical role in shaping the plan. College leaders plan to return over 10,000 square feet back to central administration, reducing their space charge from $309,000 to $68,000.

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