One of the great business stupidities in this part of Florida has been excessive reliance on home-building as “the” engine of economic growth. Aside from the fact that adding more residents puts extra strain on roads, beaches, schools, parks, and other public facilities, there’s also the fact that construction booms always end, and when they do they end harder than other kinds of booms. This is why I’m happy to see the Bradenton Herald focus — for a change — on businesses that are not tied to construction or real estate in any way. These are the businesses we must have here if we are going to have a healthy economy in coming decades, and they typically get little notice from local media.

Let me first explain why the end of a construction boom is worse than a typical business slowdown:

If local home construction increases from a rate of 1000 units per year to 5000 units per year, suddenly you need roughly five times as many workers in the construction industry. You also need five times as many pickup truck salespeople and mechanics, mortgage brokers, appliance delivery people, and so on. All of these people need places to live, which means the boom feeds on itself and accelerates even more; suddenly instead of 5000 new units per year, there is a perceived market for 10,000 units. And because of the increased housing demand, builders raise prices and earn greater profits, which leads to more sales of yachts, private aircraft, Hummers, and McMansions for the contractors, which pushes the boom along even harder.

Now imagine a slowdown in the rate of building. I don’t mean a screeching halt to new development, but a drop from 10,000 units a year to 8000. Suddenly 20% of all the construction workers — and the pickup truck salespeople and mortgage brokers and appliance delivery people who rode the boom along with them — are out of work. Many of the construction workers will say to themselves, “Well, the boom here is over. Time to move on,” and will put their houses up for sale.

Whoops! suddenly you have a whole bunch of houses hitting the market, some of them at desperation prices. Apartment complexes have more move-outs than move-ins. Car dealers — along with yacht and airplane dealers — experience sales declines, which means fewer people in those businesses are going to buy new homes. Some of them, after being laid off, may not even be able to keep the homes (or rental apartments) they already have, which forces an even greater decline in the housing market.

Note that construction hasn’t stopped. It’s merely slowed down a bit. But because the area’s economy is driven largely by construction, that construction slowdown ripples quickly through the economy and takes many other businesses down with it. The boom that made housing growth into such a powerful economic driver becomes an anti-boom to the point where construction may now actually halt because there is now no local need for even 1000 new homes per year, what with all the suddenly-vacant units that hit the market.

And there’s another fun factor in all this mess: during a construction boom, the demand for housing typically exceeds supply — temporarily — by such a large factor that both new and existing housing become unaffordable for people who were able to buy houses on their salaries during pre-boom times. Post-boom, housing prices drop like a rock, and keep dropping to the point where — once again — a working couple of modest means (say, a cop whose wife who works part-time at Target) can buy a modest home and keep up the payments without stress.

Meanwhile, because of high housing prices caused by the construction boom and the frenzy that surrounds it, other businesses have trouble finding workers willing to work for modest wages and either cut expansion plans or start moving their facilities elsewhere. Local and State officials (at least here in Florida) typically blame these business moveouts on high taxes, and whine that in response we must cut taxes — which are not exactly onerous in Florida — on the our richest and greediest citizens in order to keep them here.

Somehow, these tax whiners seem to overlook the fact that many of the places in the U.S. with the healthiest local economies have much higher overall tax rates than Florida. They can’t seem to understand that the main number to watch is the income:expense ratio for working families. This number is simple to derive. You tot up the cost of living a modest lifestyle in a given region and compare it to the average and median wages in that region. If the median family can afford a house, food, utilities, car payments and insurance, and still have money left over for McDonalds and movies and such, than life is in balance and everyone’s happy. When your median family can’t buy that house and live decently on a median salary, they are going to think about leaving — and employers who need people willing to work for modest wages will go someplace where housing and other costs for working families are lower than they are here, taxes be damned.

A diversified economy

What the Herald celebrated this morning was a number of stable and/or growing tech-oriented businesses around here. If you look at today’s business section you can find them even though they don’t stand out as much as they do in the “paper” paper.

We need to see more emphasis on non-housing businesses here. The Chamber of Commerce is sort of starting to realize this, and its Economic Development Council is working full-tilt, along with its Sarasota County counterpart and regional technology business association 82 Degrees Tech, to make this area more attractive to technology-based businesses.

The funny thing is that there are a fair number of technological innovators living here, mostly hidden, operating below the radar of local governments and business organizations. This is a pretty good place to live, and while costs are not as low as they will be once the housing market finishes unwinding from its recent stupidity, they are not high compared to New York, Boston, San Francisco, Los Angeles, and other cities we think of as centers of innovative business. Tampa — about an hour away — has an airport served by a whole rack of discount airlines. You can get to any city in the U.S. from Tampa with no more than one plane change, and to most of the larger ones non-stop, and can get to most European and Asian capitals with only one or two stops.

Traffic here is mild compared to most metro areas. The beaches are generally clean, not overcrowded, and have free parking. Most of Manatee County’s salt water shoreline is comparatively free from the high-rise blight that affects most Florida East Coast cities (and has taken over neighboring Sarasota, too), which is nice. And if you want to visit a boardwalk/highrise shoreline you can always drive 45 minutes to Clearwater Beach.

In general, if you want to live quietly and create software or do other innovative work, this is a high-score place. Public schools are not great, but they aren’t terrible, either. We hear a lot of local whining about crime, but compared to other places it’s not bad. The local government bodies…. let’s just say they have a certain amount of entertainment value and leave it at that.

Quality of life here needs to be marketed better

With a median house price of $230,100 and a median family income of $49,076 (according to EDC figures), the income:expense ratio here still isn’t where it should be, but it’s realigning rapidly and will probably hit full rationality in another year or so. Still, it is possible to hire reasonably intelligent people here in the $30,000 range (or live on that level of income yourself). $800 a month will rent a decent apartment, and if you search a little you can find decent three-bedroom houses for $180,000 or less in passable neighborhoods — all within 15 or 30 minutes of lovely beaches and many fine recreation facilities, and no more than 30 minutes from Sarasota’s many cultural activities. Golf and fishing? Both are great around here. And the area is generally well-wired for both home and business high-speed Internet access, with most neighborhoods served by at both Verizon DSL and either Brighthouse or Comcast cable Internet.

Finally, the last part of the puzzle is starting to fall into place: local media are starting to realize that little techie businesses are becoming an important part of the local economy, and some of the government agencies are sort of kind of fuzzily realizing that just maybe two guys wearing sandals and writing computer code might be a more important economic driver in the long run than a dozen construction dudes driving large trucks. This doesn’t mean local governments here will actually help a software business, but at least they will probably leave it alone and not get too bent out of shape if software people and other innovators work quietly from home. And that’s really good enough, isn’t it?

Now, with a little push to bring innovators to this area from higher-cost (and less nice) parts of the country, we might be able to build a nice, low-key concentration of tech businesses around here. And with the local media — starting with the Bradenton Herald — possibly starting to realize that this is possible, the day when this starts happening may not be too far in the future.

This entry was posted on Monday, September 15th, 2008 at 8:39 am and is filed under Bradenton/local, Business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.