http://www.nytimes.com/2009/08/28/b...pw=&adxnnlx=1251433110-AAew/SP44EvTcfn41ItjXw
Construction That Fueled Growth in the Sun Belt Slows
Food City, an anchor in a shopping center near downtown Phoenix, closed after the owner of the chain declared bankruptcy.
By JOHN COLLINS RUDOLF
Published: August 27, 2009
PHOENIX âFor years, business boomed at Gilberto Preciadoâs home-furnishings store in a working-class neighborhood near downtown Phoenix. But on a recent afternoon his showroom was deserted. Other businesses in his strip mall have been shutting down at a brisk clip.
With a big grocery store nearby gone already, the parking lot was an empty field of asphalt baking in the sun. âYou stand out there a couple of hours and you hear crickets,â Mr. Preciado said.
In a little more than three years, the Phoenix area has gone from the hottest of Sun Belt hot spots to one of the nationâs economic disaster areas. It is not alone in its rapid fall.
After riding high during the boom, the Las Vegas area, parts of southern Florida, and Southern Californiaâs inland counties have also been brought low by plunging payrolls, billions lost in housing wealth, a continuing epidemic of foreclosures, record government budget deficits and stagnating populations.
These areas share one thing besides their warm climates. To a degree unmatched in the rest of the country, their recent prosperity was built not on manufacturing, technology or natural resources, but on construction and real estate â growth for its own sake.
As other areas tasted the excesses of the housing boom, they gorged on it. From 2002 to 2006, about 20 percent of private industry growth in the United States was tied to real estate and construction. In the Phoenix area, almost 36 percent of growth in the private economy during that period â more than $34 billion worth â came from real estate and construction.
That expansion was driven in large part by capital flows from Wall Street and abroad, which financed a wave of speculative residential and commercial development. Overbuilding, in turn, accelerated the regionâs already rapid population growth.
In essence, many people began moving to Phoenix and other parts of the Sun Belt to build houses and stores for the next wave of people who would move there. Now, that influx has slowed or, in some places, stopped entirely.
Gilberto Preciado owns a furniture store in Phoenix. âBack when I opened up the business, I knew there were going to be bad days. I never expected it to be this bad,â he said of the downturn.
âWeâve been on a growth sugar high, and you know what happens when a sugar high runs out,â said Scott Smith, mayor of Mesa, Ariz., a once-small Phoenix suburb that has become the nationâs 38th-largest city. âWhen it stops, the punishment is severe.â
Now, the long-term prospects for these regions are cloudy.
Their political leaders think that migration from the Rust Belt will inevitably rebound, in turn reviving residential construction. But some experts are skeptical, warning that a housing boom that was fed by reckless lending will prove difficult to resuscitate.
âPlaces that were built on real estate speculation or as retirement and second-home communities are going to have a harder time, unless they double down and begin to build real economies,â said Richard Florida, the urban theorist and author.
Even those who are relatively bullish on recovery for the former hot spots, like David Denslow, a professor of economics at the University of Florida, doubt that the extraordinary population growth seen in past decades will return anytime soon.
âGrowth will never be what it was in the 1990s, and by no stretch of the imagination what it was in the early 2000s,â Professor Denslow said. âThat is gone.â
It is clear in retrospect that in parts of the Sun Belt, the economic dependence on construction reached unhealthy levels in recent years.
In Orlando, Fla., for instance, construction and real estate accounted for almost 33 percent of all economic output by private industry in 2006, compared with a national average of about 20 percent, according to data from the United States Bureau of Economic Analysis. In the Miami, Las Vegas and Phoenix metropolitan areas, as well as Californiaâs San Bernardino and Riverside counties, it was near or above 30 percent.
By contrast, in the Dallas-Fort Worth area, 18 percent of economic activity was in real estate and construction at the peak of the housing bubble. In Charlotte, N.C., it was just 15 percent.
Those cities have suffered during the recession, but not as much as the former boomtowns. Home prices in Charlotte are down only 11 percent from their peak, compared with 54 percent in Phoenix. And Charlotteâs job losses, while severe, are also spread almost evenly across several sectors. That is unlike Phoenix and Las Vegas, where job losses in construction have far outstripped those in other industries â down by 45 percent from their peak in Phoenix, for instance.
In Arizona, the construction job losses helped drive the unemployment rate to 9.2 percent this July, up from 3.7 percent the same month two years ago. Florida and Nevada, with unemployment at 10.7 percent and 12.5 percent respectively, are also struggling with high rates of joblessness.
CONTINUED BELOW
Construction That Fueled Growth in the Sun Belt Slows
Food City, an anchor in a shopping center near downtown Phoenix, closed after the owner of the chain declared bankruptcy.
By JOHN COLLINS RUDOLF
Published: August 27, 2009
PHOENIX âFor years, business boomed at Gilberto Preciadoâs home-furnishings store in a working-class neighborhood near downtown Phoenix. But on a recent afternoon his showroom was deserted. Other businesses in his strip mall have been shutting down at a brisk clip.
With a big grocery store nearby gone already, the parking lot was an empty field of asphalt baking in the sun. âYou stand out there a couple of hours and you hear crickets,â Mr. Preciado said.
In a little more than three years, the Phoenix area has gone from the hottest of Sun Belt hot spots to one of the nationâs economic disaster areas. It is not alone in its rapid fall.
After riding high during the boom, the Las Vegas area, parts of southern Florida, and Southern Californiaâs inland counties have also been brought low by plunging payrolls, billions lost in housing wealth, a continuing epidemic of foreclosures, record government budget deficits and stagnating populations.
These areas share one thing besides their warm climates. To a degree unmatched in the rest of the country, their recent prosperity was built not on manufacturing, technology or natural resources, but on construction and real estate â growth for its own sake.
As other areas tasted the excesses of the housing boom, they gorged on it. From 2002 to 2006, about 20 percent of private industry growth in the United States was tied to real estate and construction. In the Phoenix area, almost 36 percent of growth in the private economy during that period â more than $34 billion worth â came from real estate and construction.
That expansion was driven in large part by capital flows from Wall Street and abroad, which financed a wave of speculative residential and commercial development. Overbuilding, in turn, accelerated the regionâs already rapid population growth.
In essence, many people began moving to Phoenix and other parts of the Sun Belt to build houses and stores for the next wave of people who would move there. Now, that influx has slowed or, in some places, stopped entirely.
Gilberto Preciado owns a furniture store in Phoenix. âBack when I opened up the business, I knew there were going to be bad days. I never expected it to be this bad,â he said of the downturn.
âWeâve been on a growth sugar high, and you know what happens when a sugar high runs out,â said Scott Smith, mayor of Mesa, Ariz., a once-small Phoenix suburb that has become the nationâs 38th-largest city. âWhen it stops, the punishment is severe.â
Now, the long-term prospects for these regions are cloudy.
Their political leaders think that migration from the Rust Belt will inevitably rebound, in turn reviving residential construction. But some experts are skeptical, warning that a housing boom that was fed by reckless lending will prove difficult to resuscitate.
âPlaces that were built on real estate speculation or as retirement and second-home communities are going to have a harder time, unless they double down and begin to build real economies,â said Richard Florida, the urban theorist and author.
Even those who are relatively bullish on recovery for the former hot spots, like David Denslow, a professor of economics at the University of Florida, doubt that the extraordinary population growth seen in past decades will return anytime soon.
âGrowth will never be what it was in the 1990s, and by no stretch of the imagination what it was in the early 2000s,â Professor Denslow said. âThat is gone.â
It is clear in retrospect that in parts of the Sun Belt, the economic dependence on construction reached unhealthy levels in recent years.
In Orlando, Fla., for instance, construction and real estate accounted for almost 33 percent of all economic output by private industry in 2006, compared with a national average of about 20 percent, according to data from the United States Bureau of Economic Analysis. In the Miami, Las Vegas and Phoenix metropolitan areas, as well as Californiaâs San Bernardino and Riverside counties, it was near or above 30 percent.
By contrast, in the Dallas-Fort Worth area, 18 percent of economic activity was in real estate and construction at the peak of the housing bubble. In Charlotte, N.C., it was just 15 percent.
Those cities have suffered during the recession, but not as much as the former boomtowns. Home prices in Charlotte are down only 11 percent from their peak, compared with 54 percent in Phoenix. And Charlotteâs job losses, while severe, are also spread almost evenly across several sectors. That is unlike Phoenix and Las Vegas, where job losses in construction have far outstripped those in other industries â down by 45 percent from their peak in Phoenix, for instance.
In Arizona, the construction job losses helped drive the unemployment rate to 9.2 percent this July, up from 3.7 percent the same month two years ago. Florida and Nevada, with unemployment at 10.7 percent and 12.5 percent respectively, are also struggling with high rates of joblessness.
CONTINUED BELOW
