When the economy is built on housing

THIS is why we need to forever move past the idea of housing as an economic engine. An extreme case, but an illustrative one, the New York Times today tells the story of the suburban area surrounding Fort Meyers, Florida.

The area got its start in the 1950s when a Chicago pest control baron, Lee Ratner, and several partners bought thousands of acres of farmland and plotted about 100,000 lots. With Fort Myers, 15 miles to the west, developers left little room for schools, parks or even businesses.

What they sold was sun and quiet living.

“They used to bring 20 busloads a day,” said Bob Elliott, a former salesman for Mr. Ratner’s company who struck out on his own in 1982. “We had 300 customers, seven days a week.”

By 2000, the lots had been sold, but most stayed empty. Only about 30,000 people were living in an area roughly four times the size of Manhattan. The builders really started to arrive in 2004, setting up model homes on Lee Boulevard next to Mr. Elliott’s office with the faded wooden sign that said “$50 lots.”

Bill Spikowski, a city planning consultant in Fort Myers, said that because Lehigh Acres had so many parcels and few restrictions on what could be built, smaller companies battled for customers. From 2004 to the end of 2006, developers completed 13,183 units in Lehigh Acres — nearly doubling the total stock of 15,216 that existed in 2000, according to Lee County figures.

Residents remember the boom for its noise, with dump trucks lining the streets and power tools heard in nearly every neighborhood. Housing prices doubled, then tripled, and jobs were plentiful, nearly all of them tied to real estate.

Signs of trouble were ignored. “Sometimes houses would sell three or four times in a few months, and no one would move in,” Mr. Elliott said.

Then in 2007, it all went quiet. Houses stopped selling. Foreclosures multiplied. The median home price in the Fort Myers area dropped to $215,200 in December 2007, from a peak of $322,300 in December 2005. It had fallen to $106,900 two months ago.

Work disappeared with the profits. According to the federal Bureau of Labor Statistics, Lee County lost a higher percentage of jobs (8.8 percent) from June 2007 to June 2008 than any other county in the nation. Unemployment in the county rose to 9.8 percent in November, from 3.5 percent in March 2007.

This is why we cannot go back to the way things were. Calls for 4% mortgages and other steroid injections for the suburban economy are foolhardy, and will only prolong the pain.

Think about it, our economy for the last 50+ years has been based almost exclusively on the idea that building ever outward (and selling all the accessories to go along with it, namely 3-4 cars per family to be rotated out every other year or so) would power our economy.

It’s unsustainable, and today’s market is the proof. One way or another things will come crashing down; the free market always balances out in the end. The sooner we take our lumps and get back to basics the better off we’ll be, the longer we draw out the old way the more tremendous and painful the final collapse will be.