The Georgia State University Economic Forecasting Center is predicting anemic job growth in Savannah for 2012 and 2013.
What would it have taken to change that forecast? Two words — housing demand.
Housing demand has far-reaching effects that aren’t always apparent. Certainly, construction employment is obvious for new housing.
And consider the laundry list of industries positively affected: Equipment rental, lumber, sheetrock and concrete; windows and doors; roofing, wall finishes, electrical and plumbing contractors; flooring, design services, furnishings, appliances; landscaping, and the list goes on.
This demand impacts manufacturers and retailers as well as builders, and clearly employment in those industries, which in turn means more tax dollars for the municipalities that participate.
We cannot forget all that stuff has to be transported to the job site, so that industry profits, as well.
Demand for existing housing is equally important, although its impact on the basic industries is obviously less. But cleaning up supply means housing values begin to climb, which also positively impacts the tax base for the city.
It also has a psychologically important effect on the homeowner as he or she begins to once again experience the ‘wealth effect.’ In both cases, lending is stimulated and that contributes to the banking industry.
The greater the wealth effect — housing is the largest asset most Americans hold — the more consumer spending on “things” other than housing we can expect.
Taken together, such rolling good times are a function of the economic multiplier of housing. But weak housing, depressed prices and high unemployment all conspire to make it rough on communities that depend so heavily on tax revenue to provide services.
In Savannah, we see the Pavlovian salivation of the city and county over tourism dollars that generate tax revenues from the lodging industry and provide almost unlimited ability for municipalities to raise taxes. Most certainly our elected officials are proud of their city and invite one and all to come, but they are equally in love with tourism tax revenues. Tourists don’t vote here.
Even the fiscal cliff is affected. There would likely be no cliff if we had vigorous housing demand, the employment it creates and the local, state and federal tax dollars it generates. There would likely be no squabbling over revenues because they would be substantially higher than they are currently or are expected to be in the next few years.
New housing stands out in particular when we consider the unemployment rate that is released for public consumption.
For October 2012, the national unemployment rate was 7.9 percent, but that is highly misleading. People older than 25 with college degrees are enjoying an unemployment rate of 3.8 percent, the lowest level of unemployment for that group since December 2008.
Those older than 16 with associate degrees or specialized skills have a 6.9 percent unemployment rate. Construction and extraction as a category are at 12.6 percent, higher than any other occupation group and higher than the national rate by almost 60 percent.
Regrettably, the rate for 16- to 19-year-olds is 20 percent, and for African-Americans in that age group, it is an appalling 40 percent. Is it any wonder why elected officials will jump at the promise of any construction project? Even folly?
There is, of course, the chicken or egg conundrum. We need strong employment to stimulate housing demand as much as we need strong housing demand to stimulate employment. Fortunately, the latest economic data releases confirm that we are slowly headed in the right direction.
So when do we climb out of all this? I have no idea. My gut tells me 2015 or 2016, but my gut is no better than yours. I think a clue to how long it will be is the clash in Washington over the cliff.
If Congress felt that housing demand would bounce back quickly, I don’t think you would be seeing an effort to construct a 10-year plan for deficit reduction. It would be shorter. Interestingly, in Spain authorities have proposed offering residency to foreigners willing to buy a house costing $200,000 or more.
Hmm, there’s that population growth thing again.
Russ Wigh is a professor of business. Email him at rdwigh@bellsouth.net.