This boom will end like all the others - in a deep, deep bust
by Ed Marston
In 1982 a plumber named Jeff Everett and I competed to see who was the greater fool.
The competition centered on a 1,000-square-foot building we owned at 124 Grand Avenue, on Paonia's two-block-long main street. It had been home to Betsy's and my first newspaper - North Fork Times; by 1982 it stood empty, just south of Paonia State Bank.
Paonia was in the midst of a coal and lifestyle boom, and Jeff wanted a main street location for a plumbing supply store. We agreed, as I remember, on $45,000. Then I got to thinking about the bank to the south, and how it inevitably would need a driveup window. So I went back to Jeff and said $45,000 was too low, and we agreed on $50,000, or maybe $55,000.
And then I realized that our kids would soon be going to college, and we'd need real money. With western Colorado being the Saudi Arabia of the Western Hemisphere, and with Exxon Oil about to divert the Missouri River into the Colorado River basin and solve our aridity problems forever, I figured I should hang onto the building until it was worth $200,000. So I had to go and tell Jeff that the deal was off, and that my handshake, after all, wasn't as good as a signed contract.
Within a year or so, that building was worth what a rundown frame building on the main street of a town of 1,400 should be worth - $10,000 to $15,000. What Jeff and I and everyone else for hundreds of miles around had seen as a boom that would never quit, quit so abruptly it knocked half of Paonia into other towns and states. By 1987, half the houses in town were unoccupied, people referred to Paonia as a Mexican village because so many residents worked far away, stores on the main street were vacant or were used for non-retail uses (our building became home to High Country News), and the most popular saying was: "Happiness is Paonia in your rearview mirror."
It is now a decade later, and the Rocky Mountain West is in another boom, this one driven by Californians fleeing inland in search of quality of life. They want freedom from crime, from congestion, from zoning, from racial diversity. They want a good place to raise children. If that place comes with clean air and snow-capped mountains, all the better.
I believe in this boom as strongly as I believed in the last boom. Booms feel as if they will never end. They feed on themselves, spreading panic. You see the Titanic leaving port with all the rich and young and tanned dancing on deck, and you want to get aboard too.
The West's last boom rested on the world's need for energy. This one rests on the perceived disintegration of Southern California, which is the seventh largest economy in the world. What we have here in Colorado and Idaho and Montana and New Mexico is a variation on the cargo cults of Pacific island tribes, whose members prayed for additional airplanes to crash on their turf. Here in the West, wealth is being rained down on us by a crash taking place in the economic stratosphere.
When will the debris, made up of fleeing urbanites with cash from real estate sales, stop falling? Some demographer or economist can undoubtedly predict the date. What I have here is mostly anecdotes.
A contractor I know recently built a $200,000 house for a person moving from California to Montrose. That's a very expensive home for Montrose. The buyer paid cash. The next time the builder saw the Californian, he was working at Wal-Mart as a $5/hour greeter.
To understand the Californian, imagine yourself a lottery winner. This person's lottery was a $30,000 to $40,000 California house that grew in a few decades into a several-hundred-thousand-dollar house. Someone who stumbles onto such a windfall, and considers himself rich for life, can build a new, much fancier house in the inland West and still have $100,000 left over. That's enough, he thinks, to live happily ever after in a small, unspoiled, inexpensive town.
The trouble is, more often than not his wife misses her friends and shopping. He may miss his buddies and an urban vitality he thought he hated. He may not like working for low wages. And if the couple has kids, they will discover that Western towns can be very difficult, very dangerous places in which to raise children.
The second anecdote concerns a Californian who bought Paonia's Bross Hotel - a three-story (if you can imagine a building that high) brick building just crying out, at $60,000, for conversion to a Bob Newhart-type bed and breakfast.
That dream ended one winter evening when the new owner stalked across the street to the Methodist Church and ripped the electric bells off the wall. It wasn't just the incessant bells that had gotten to him, of course; it was everything maddening about a small, rural, Mayberry R.F.D. town. Within weeks, he was gone, and the Bross was again up for sale.
If the Bross owner returned home to California, where there are rules against bells and dogs running free and neighbors who do backyard garage work next door, he was taking a well-trodden path. Even in pioneer days, nine out of 10 who came West went home. Demographers say the nine out of 10 number still holds. In HCN's home valley, the real estate people say that about four out of five newcomers leave within a few years.
That's about what happened to the people we moved West with. When we arrived in 1974, we joined people perceived as "hippies' as we settled happily in an ideal Western town. One of the other newcomers, Rico Garner, said Paonia was a wonderful place: "It's like a college campus, except there are no classes."
We were all young then, or at least younger, and our parents came through in large numbers, as they do in college. These parents were amused and interested (if dismayed, they hid it) by where their children had chosen to settle and by what their children had chosen to do, and not do.
By the mid-1980s, those parents were no longer to be seen. That's because their children were gone. Although the local prejudice had us urbanites living off trust funds - -trustafarians' is the phrase today - or drug money or food stamps, the bust treated newcomers as it treated coal miners: Everyone left. The coal-mining population dropped from about 700 to about 100, and the hippie population took a similar dive.
Think of the West - whether Boise or Livingston or Paonia or Ruidoso - as a large, leaky hot-air balloon being inflated at a rapid rate by newcomers. So long as more new people push their way into the West than are leaking out, the balloon grows. But once the inflow stops, the balloon deflates. The Western towns and small cities that look so calm and bucolic are churning at a fierce rate, and are anything but stable.
The question is: When will the boom end? When will the supply of newcomers bearing equity decline? Booms can go on for a century or more. Mike Davis in his brilliant book, City of Quartz, writes that Southern California's century-long boom was fueled by real estate. There was no underlying economy such as steel or autos or banking, Davis says. People wanted to live in Southern California, so they came West bringing their dreams, equity and skills. Only later, as an afterthought, did they bother to create an economy independent of real estate.
So the rural, inland West - which is also a pure real estate phenomenon - could boom for decades. Even the last energy-driven boom started in the mid-1970s and lasted for a decade or so, although the hysteria didn't reach today's heights until 1982.
Back to bust
What is likely to happen? In the next year or so, it will become increasingly clear that Southern California's economy and society are recovering. That recovery will cause the flow to reverse; once again, people will move from the country to the city. Because this boom isn't fueled by beaver or gold or BTUs, logic tells me that the rural West will manage a soft landing, with real estate values gradually leveling off. But my gut tells me that the coming decline will be as steep as the oil bust because prices are already far above what the region's underlying economy can sustain.
Many parts of the inland West are no longer a bargain even when compared to Southern California. That is because commercial real estate prices in Southern California have dropped by half since the 1990 peak. According to the Los Angeles Times (7/28/94), office, factory and warehouse space is often cheaper in and around L.A. than in the inland West. And raw land, with permission to build, is for sale for as low as 20 percent of its peak price in 1990, says the Economist (7/23/94).
Housing is also affordable. In 1990, it took 91 percent of the average Southern Californian's monthly paycheck to cover an average monthly mortgage payment. (That's why so many Southern Californians couldn't afford a home.) Today, mortgage payments eat up only half of the average salary. Prices are likely to stay relatively low, the Economist predicts. The federal government still owns a bunch of repossessed homes, and 25 percent of office space in downtown LA is empty.
California is also more business-friendly; the state has reformed workman's compensation and streamlined its air-quality permit system. And while it may be a blip, the murder rate is down 28 percent this year, with other crime rates also down. And although some of the motivation is ugly and racist, it appears that Southern California will eventually get a handle on immigration.
The change has shown up in the number of businesses and jobs planning to leave Southern California. Again according to the LA Times, in 1990 businesses planned to move 14,000 jobs out of the region. By 1992, that number had climbed to 17,000 jobs. This year, businesses plan to move only 2,000 jobs. And the lead to the Times' story describes how a company that moved from L.A. to Las Vegas in 1990 with 100 jobs, is coming back with 350 jobs because of low real estate prices and because, says the owner, "a lot of my best executives are sick of 115-degree heat."
When it comes, the next bust will cause misery. The depths of Paonia's bust was reached when a car full of teen-agers dove into a river, killing five. Some of the young people were on their own, living with friends or relatives. Their parents had moved away in search of jobs, but the children had stayed to finish school, or at least the school year. The accident occurred during a pizza run to a town 70 miles away.
But the aftermath of the bust and tragedy was wonderful - a stable period when communities and their surviving residents concentrated on living here rather than on making money. It was during this interim period that riverfronts were reclaimed from rusted cars, trails were built in the backcountry, land was put into conservation easements, and libraries were expanded.
So long as the present boom roars along, little planning will be done. You can't plan in a hurricane; you can only keep from being blown away. It will only be possible to plan after the bust, whenever it occurs. For one thing is certain: The coming bust will be followed by yet another boom. In the thinly populated, thinly capitalized, thinly rained on, deeply disorganized rural West, boom-and-bust remains the dominant cycle.
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