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Demise of the housing growth machine

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Jonathan Thompson | Oct 12, 2011 12:00 AM

In 2008, the Morrison Institute for Public Policy at Arizona State University released a report called Megapolitan: Arizona’s Sun Corridor. It predicted that the corridor, stretching from Nogales in the south to Prescott in the north, with Phoenix and Tucson at its heart, would more than double its population by 2040, requiring some 3.7 million housing units and 2.4 million acre feet of water. When the report was being put together, the idea that this particular stretch of Arizona would house 10 million people in just a few decades wasn’t just realistic, it seemed inevitable -- after all, the region’s identity was tied up with that revved up growth machine.
home prices
Even as the report was making its initial round, the very foundations of its predictions were crumbling into the sand. After reaching its peak during the summer of 2006, the housing boom deteriorated, and the construction industry, which had provided nearly 1 in every 10 jobs in the Phoenix area, was hemorrhaging. The state’s estimates of population, which were based on the assumption that nearly all the new houses that had been built since 2000 were occupied, were proven wrong, because at least one out of ten of those new homes turned out to be empty.

Nevertheless, in 2009 the lead authors of the Megapolitan report, while admitting that their projections now sounded a “little out of tune,” continued to believe that the growth would return.

It hasn’t. And it won’t, at least not anytime soon.

 

home sales graph

We know now that the housing boom wasn’t merely “correcting” itself or slowing down, it was dying a rapid death, with the Sun Corridor Megapolitan dream -- or nightmare, if you prefer -- perishing right along with it. Phoenix is perhaps the most extreme example of this phenomenon, but it happened, and continues to happen, in all those Western areas that came to rely on growth as a primary economic driver. There's no way the entire state of Arizona can reach 10 million by 2040, let alone the Sun Corridor (new projections from the Morrison Institute call for 9 million in the Sun Corridor by 2040, but it doesn't explain how such rapid growth could emerge from the current economic climate).

A recent report from the Brookings Institution confirms it. The report, released in mid-September, paints a grim picture, noting that the Inter-mountain West is hurting worse than the rest of the nation, and even places like Denver, Colo., and Ogden, Utah, which have weathered the recession well, “have stagnated in the worst economic slump since the Great Depression.”

Construction Value Graph

Those, believe it or not, are the bright spots. The dark cloud, meanwhile, continues to hover over Phoenix and Las Vegas, where housing prices have plummeted nearly 10 percent even during the last year, not to mention the 50 + percent drops that they’ve experienced since the peak of the boom. Tucson, Boise and many a mid-sized California city aren’t faring much better. That’s in spite of mortgage interest rates being lower than they’ve been in about four decades.

This slump (or new normal) reaches deep into the economy. Construction remains at a standstill, meaning that tens of thousands of former construction workers remain jobless. Real estate agents -- once at the top of many a Western community’s job hierarchy -- are making less or abandoning the profession. And the indirect impacts of all of those jobs have dried up. Perhaps most significantly, one of the main sources of cash during the boom -- loans taken out against the rising value of the houses themselves -- has vanished. The growth cycle on which a good portion of the West sustained itself has been broken.

AZemploymentgraph1

Not only were many economies built upon this growth cycle, but the very concept of the so-called New West was, as well. We came to think of ourselves as a region that was growing faster than just about anywhere else except parts of the South. That growth was transforming landscapes, of course, as farmland and desert were gobbled up for new developments, but it would also alter demographics and culture. The West would finally get the voice in national politics that it deserved and one-time backwoods towns would get espresso and wine bars. New-West-intensive towns (think Aspen, Jackson, Telluride) with populations of less than 5,000 would end up with two or more newspapers, all of them relatively flush thanks to page after page of high-dollar real estate ads. 

While I can confidently declare that the housing boom and those wild growth projections are dead in the water, I’m not ready to declare the New West to be dead, too. High-end real estate ads can still be found in resort town papers. But clearly we’re facing a very different future than we did just a few years ago. Our assumptions about who we are as a region have been thrown for a loop; just as we were redefining ourselves and figuring out who we were, we’ve been handed a whole new identity crisis. First, though, we need to acknowledge that the old paradigm is perished (that this has yet to occur is evidenced in the persistence of water pipeline proposals -- Powell-to-St. George, Flaming Gorge-to-Denver, rural Nevada-to-Vegas -- that were predicated on those earlier growth projections).

Perhaps we can find a bit of allegory in the story of NewWest.net, which was founded in Missoula, Mont., in 2005. The Web site covered all kinds of Western issues, but its print magazine and most of the conferences it held were focused on growth, development and real estate. The print edition died in its youth, having the misfortune of being born just as the boom was busting. The Web edition kept plugging along until this summer, when visitors were suddenly faced with a single page with a note telling readers that it is  “temporarily offline” as it relocates its headquarters.

“New West,” the headline reads, is “in Transition.” Yes, indeed it is. 

Jonathan Thompson is a contributing editor at High Country News.

Charts were built by the author, using data from the U.S. Census Bureau, Arizona office of employment and population statistics, and the Case Shiller housing index.

Charlie Hohn
Charlie Hohn
Oct 13, 2011 07:55 AM
It's just too bad countless acres of agriculture and intact watershed and flood plain were ruined for a housing bubble, creating houses no one wants anyway. It's pretty darn difficult to turn a suburb back into open space or farmland.
Maude Barbee
Maude Barbee
Oct 17, 2011 10:29 AM
James Howard Kunstler has been warning for years that suburbia--and especially exurbia--will become the new slums.

http://www.ted.com/[…]/james_howard_kunstler_dissects_suburbia.html
Deb Dedon
Deb Dedon Subscriber
Oct 18, 2011 03:01 PM
Even though the bust has been personally excruciating, I sigh with relief. Tucson's fragile desert and limited resources simply cannot support a huge population, no matter how 'green' the building. Eventually, the CAP (central Arizona project) tap will turn off in Phoenix and Tucsonans will have the option of drinking treated sewage or treated TCE (etc.) laden groundwater.

The fate of over-priced, shoddy housing is less clear. Mold contamination renders much of it uninhabitable, but the banks will be damned if they'll sacrifice potential profit to a bulldozer.

Linda G Johnson
Linda G Johnson Subscriber
Oct 19, 2011 09:23 AM
DON'T TRUST "THE BUST!" I don't believe it for a minute, and those who don't want the growth shouldn't either. The reason people aren't buying now is they can't pass the new stringent (proper!) mortgage lending tests. We will see much lower housing prices and debt accumulation in the near future, but 10 years from now housing will have adjusted--smaller houses, lower prices--and people will be buying again like crazy. We are not at zero population growth ZPG)in this country, and though things slow down they don't stop. When people realize (and builders provide same) a proper house can be 1200 square feet and 3200 square feet isn't necessary, and that houses should cost no more than 33% of one's yearly income (less is better, 25% was the standard in my long-ago day) the boom will be on again. It took 60 years to go from Levittown's ticky tacky boxes to ticky tacky mega houses, now we are headed back to what is essentially more affordable to the humans and the environment, and perfectly adequate shelter.ZPG would be better environmentally, but not happening.

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