Nothing highlighted a malinvestment-driven “if we build it they will come” boom (and subsequence complete bust) better than China’s so-called “ghost cities.” But now, thanks to The Fed’s “lower for longer” enabling of every and any zombie company in the world, many previous oil-boomtowns across Texas and North Dakota are facing a real-estate crisis. As Bloomberg reports, the former bustling “man-camps” of towns like Williston, ND are now desolate with hundreds of skeletons or wood & cement as predictions that fracking would sustain production and a robust tax base for decades have failed completely.
Chain saws and staple guns echo across a $40 million residential complex under construction in Williston, North Dakota, a few miles from almost-empty camps once filled with oil workers. As Bloomberg reports, after struggling to house thousands of migrant roughnecks during the boom, the state faces a new real-estate crisis: The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn’t lasted long enough to support the oil-fueled building explosion.
Civic leaders and developers say many new units were already in the pipeline, and they anticipate another influx of workers when oil prices rise again. But for now, hundreds of dwellings approved during the heady days are rising, skeletons of wood and cement surrounded by rolling grasslands, with too few residents who can afford them.
“We are overbuilt,” said Dan Kalil, a commissioner in Williams County in the heart of the Bakken, a 360-million-year-old shale bed, during a break from cutting flax on his farm. “I am concerned about having hundreds of $200-a-month apartments in the future.”
The surge began in 2006, when rising oil prices made widespread hydraulic fracturing economically feasible. The process forces water, sand and chemicals down a well to crack rock and release the crude. Predictions were that fracking would sustain production and a robust tax base for decades.
Laborers descended on the state, many landing in temporary settlements of recreational vehicles, shacks and even chicken coops. Energy companies put up some workers in so-called man camps. In 2011, Williams County commissioners approved 12,000 beds, says Michael Sizemore, the county building official.
Everyone levered up on this “no-brainer”…
The camps were supposed to be an interim solution until subdivision and apartment complexes could be built.
Civic leaders across the Bakken charged into overdrive, processing hundreds of permits and borrowing tens of millions of dollars to pay for new water and sewer systems. Williston has issued $226 million of debt since January 2011; about $144 million is outstanding. Watford City issued $2.34 million of debt; about $2.1 million is outstanding.
and many remain delusional…
“We didn’t build temporary housing on purpose because we viewed North Dakota as a long-term play,” said Israel Weinberger, a principal at Coltown Properties, which invests in multi-family real-estate developments.
“We think the local production of oil is here to stay. Yes, prices have dropped, but it’s a commodity and commodities fluctuate. There is always a risk.”
Fracking’s success has created another glut…
As the migrant workers leave, their castoffs pile up in scrap yards such as TJ’s Autobody & Salvage outside Alexander, about 25 miles (40 kilometers) south of Williston. More than 400 discarded vehicles crowd its lot, including souped-up pickup trucks and an RV with rotting potatoes and a dead mouse in the sink.
“I wake up and RVs are in my driveway,” said owner Tom Novak. “It’s insane; there are empty campers everywhere.”
But they are still building…
With the region’s drilling-rig count at a six-year low of 74 and roughnecks coping with cuts in overtime and per-diem pay, the vacancy rates in Williams County man camps are as high as 70 percent. Meanwhile the average occupancy rate of new units in Williston was 65 percent in August, even as 1,347 apartments are under construction or have been approved there.
Officials in Watford City about 45 miles away have issued 1,824 permits for apartments, duplexes and homes in the past 18 months after only three houses were built between 1980 and 2000. They are in limbo, worried about filling the units.
“This lag time is driving me nuts,” said Brent Sanford, Watford City’s mayor, during a recent tour of construction sites with names such as Emerald Ridge Estates and Pheasant Ridge. “I’m now hearing words like, ‘This isn’t sustainable.”’
Hope remains that the oil workers will stay and wait it out… but reality is showing that is false hope…
Housing experts say this goal may be illusory because oil roughnecks typically return to their home state when a boom is over.
“People who think they can convince these workers to live in apartments or suburban households are not understanding the nature of this economy,” said Bill Caraher, an associate professor at the University of North Dakota in Grand Forks who has studied housing in the oil patch.
That’s true for Daniel Krohn, who pays $650 a month for a space in the Rakken Arrow RV Park. A plywood lean-to that blocks the north wind is cobbled onto his mobile home, the only one with a mailbox in the 86-space lot, which is half empty.
Krohn, who installed piping on gravel pads where oil and gas is processed, came to Watford City in 2012 from Wisconsin with his wife, Angela; they had a daughter after the move. Now he’s unemployed and considering moving back home to a house with a $450 monthly mortgage.
“I can’t afford $1,000 or more for a one-bedroom and still feed my family,” he said. “I’m ready to go.”
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To The Fed – Well done… your tinkering has once again crushed the American Dream for another generation and enabled yet another inevitable bust after an entirely unsustainable boom where ‘wealth’ creation was nothing but transitory.