Spotlight on economics: N.D.’s growth creates challenges

Farm Forum

The economy in North Dakota is changing in ways that were thought unlikely, at best, in the not too distant past. A thriving agriculture industry, a growing and diversified economy in eastern North Dakota, and oil and gas industry development and expansion has brought economic prosperity to the state. However, this also has brought unprecedented challenges to communities in western North Dakota.

Rapid expansion in the oil and gas industry has been the largest driver of economic change in North Dakota and has created jobs, leading to in-migration and population growth. The state’s population recently was reported at a record high of 723,393, which represented an astounding 3.14 percent increase in one year.

Of course, the population gains mean an increase in demand for housing. Housing markets are strong in the metropolitan communities, but rapid growth in the oil and gas industry quickly exceeded the very limited excess housing capacity in western North Dakota.

Housing quickly became an issue in 2010 because development activities escalated. Communities in western North Dakota continue to struggle under the weight of the rapid and widespread development. While housing issues are not limited to western North Dakota, the effects of those issues are most evident and dramatic in that part of the state.

While builders and developers in western North Dakota are adding housing units at historic and unprecedented rates, infrastructure expansion must come first. However, it takes time and substantial investment to build roads, sewer and water systems, and other utilities. The city of Williston has identified needs of $255 million, but estimates $125 million in improvements will go unmet in 2014 because of a lack of funding and the inability to bond for additional improvements. For now, housing demand in western North Dakota still far outstrips housing supply.

Rental costs clearly demonstrate the effects of more demand than supply. In 2009, a one- or two- bedroom apartment in Williston would rent for somewhere in the neighborhood of $500 per month. Today, that same apartment would be $2,300 to $2,400 per month. According to Apartment Guide, an online apartment finder, the cities of Williston and Dickinson boast the two highest average rents in the country. An apartment in Williston or Dickinson is more expensive than a similar apartment in New York City. No one could have predicted that five or 10 years ago!

The lack of housing and inflated housing costs have wide-ranging effects and especially are damaging to people with low or fixed incomes. They simply do not have the ability to absorb high housing costs driven by a lack of housing availability and high wages driven by oil and gas development. Some leave by choice and others are forced to move. The lack of affordable housing also affects schools. The superintendent in Watford City estimates 40 percent of the students in the school system are classified as homeless because they live in campers and recreational vehicles.

Housing costs also create challenges for secondary businesses and public services. Secondary businesses, such as restaurants, hotels and retail outlets, cannot attract a labor force if the labor force cannot find or afford housing.

The lack of housing also creates challenges for the delivery of state and local public services. School districts and local government units have had to find a way to provide affordable housing for their employees by purchasing housing units to rent at affordable rates or subsidizing housing costs.

With unemployment rates in some western North Dakota counties at less than 2 percent, the additional labor force needed to service a growing population and rapidly expanding economy must come from outside the local economy. The lack of housing limits and constrains secondary business development and makes recruiting and retaining teachers and other public service providers challenging.

In addition to the demand for long-term permanent housing, such as single-family homes or apartments, there is a demand for nontraditional temporary housing. Temporary housing, such as crew camps and housing permitted under conditional-use permits, are an important part of the mix needed to meet the housing demands associated with oil and gas development. Because of the characteristics of some segments of the oil and gas industry workforce, some of the jobs in the oil and gas industry are filled by people who work in North Dakota but live elsewhere.

Jobs are characterized by shift workers who have alternating working and nonworking periods. During nonworking periods, the workers travel home. This especially is prevalent in activities related to drilling and fracking, and gathering systems construction. When the drilling is complete and the pipelines are constructed, the workforce will move on to the next job location. Accordingly, it is imperative that the demand for temporary housing be met by housing units that can be removed or converted to an alternate use when the housing demand for a temporary workforce declines and eventually disappears. However, housing is just the beginning of the long-term development needs.

In the long-term, communities will need to build everything such as schools, parks, recreation, health-care and child-care facilities, and public services. Communities also will need to develop secondary businesses and other critical goods, services and lifestyle amenities.

North Dakota currently is experiencing unprecedented growth and prosperity and with that comes tremendous opportunities. The unprecedented growth also presents tremendous challenges.