States Addicted to Growth

Some of the biggest shocks from the housing correction have been in states where extraordinary growth had seemed perpetual. Nevada, Arizona, and Florida led the nation in housing starts, relative to population, over the past 20 years, and their economies became heavily dependent on home building and other industries related to the absorption of new residents.

Employment growth in Nevada exceeded the national average every year from 1984 to 2006. In 13 of those 23 years, Nevada's growth rate was the highest among all states. Arizona and Florida also consistently exceeded the national employment growth rate. All three states have now fallen below the national average.

I calculated estimates of state-by-state employment involved in building, selling, and financing housing. Using data from 2005 County Business Patterns (the latest year available for that measure of detailed employment by industry), as well as some other sources, plus some crude but reasonable estimates of the share of employment in various industries dependent on housing, I figured that about 5.9 percent of jobs nationwide were related to housing growth and turnover. Nevada had the largest share among the states, with 9.0 percent, even though the building materials and other inputs used there largely came from other states. New York had the smallest share, at 4.4 percent, according to this calculation.

In growth-addicted states such as Nevada, Arizona, and Florida, reduced housing demand means significantly fewer jobs. And with so many recent migrants in the population, the likely impact on outmigration is greater than in states where there are stronger ties to the community. The unwinding of speculation and overbuilding thus translates into further reductions in housing demand. The demand-construction-employment-population-demand feedback loop supercharged home building during their long growth periods, but now it is operating in reverse. Nevada, Arizona, and Florida are not going to become chronic laggards like Pennsylvania or Michigan, but it may take a couple more years before they return to their growth trajectories.

Not all the over-achieving states of the past decade with large housing production sectors have been clobbered by the recent unpleasantness. Utah and Idaho, for example, seem to be doing all right. It is not entirely clear why they have been less affected. Maybe people who might have gone to Nevada or Arizona are moving there instead.

March 17, 2008 -

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