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Burst of oil bubble will work out well for some

 

Posted 4/12/16 (Tue)

By Kevin Killough
The news about jobs sounded pretty grim at the last Tioga City Commission meeting.
Dennis Lindahl, economic development coordinator for the city, discussed how 30 rigs translates into only about 3,600 direct and indirect jobs in drilling for the entire oil patch. 
Meanwhile, rents continue to stay high, Lindahl said. This is hampering the growth of other businesses outside oil drilling and production, which can afford to pay workers much higher wages than a lot of other industries.
As that industry shrinks, there is a widening gap between wages and rents in Tioga.
“We need the rents that are commensurate with a person’s wages,” he told the commission.
Optimism
Speaking after the meeting, Lindahl expressed some optimism about the economic outlook for the area. Opportunities are springing up in the wake of the slowdown that would not have arisen if oil prices were still at $100 a barrel.
As an example of this, Lindahl pointed to 42 Grill, which will soon move to a new location with the new name 42 Bistro. The restaurant had been operating in a building that was thrown up in the early days of the boom and didn’t meet codes.
The owner found it difficult to afford the inflated prices of available commercial space. That all changed when the Bucking Buffalo abandoned its recently built space, and the company that manages it offered much more reasonable terms. 
Now a long-time Tioga establishment will continue to operate. 
Recently, representatives of apartment developers asked the Tioga Commission to close down RV parks to help support tenancy rates at apartments, which have fallen considerably over the past year. 
Many expressed potentially dire financial situations as a result of their low occupancy rates.
Lindahl said the area could see some foreclosures and boarded-up properties, but this is part of the process of a bubble coming to some normalcy. 
“The market has to figure itself out,” he said. 
He said in the heyday of the early boom, state projections of growth were put at some 80,000 people expected to make the Bakken their home over the next several years. 
Many developers based their investments on those rosy numbers, but these projections did not factor in possible changes in commodity prices. And they lacked an understanding of the nature of the workforce that was swarming in to seize job opportunities.
“They never really investigated their markets,” Lindahl said. 
Not moving here
To illustrate what’s happening in the housing market, Lindahl presented to the commission the North Dakota State University research of Nancy Hodur and Dean Bangsund. 
They completed a study earlier this year that surveyed 15 firms that represented 8,100 workers. 
The survey asked non-resident workers about their interest in moving to North Dakota and what prevented them from doing so if they did or why they wouldn’t move here if they didn’t. A total of 1,668 workers responded to the survey.
Only about one in five of those who responded to the survey had any interest in moving to North Dakota. Of those that did, housing costs were the biggest impediment to doing so.
The other four out of five who did not want to move to the state also cited housing costs as a reason they didn’t, but the desire to stay close to family and friends also influenced their decisions. 
Far less important to either group is any perception schools were of low quality or a lack of amenities in the community. Weather is also less of a concern for either group. 
The 80 percent that didn’t want to move to North Dakota overwhelming lived in employer-provided housing, which is most often crew camps. 
The survey found those that did want to move to North Dakota also lived in temporary housing like crew camps and RVs, but they were more likely to live in apartments than their counterparts who didn’t want to move to North Dakota.
Bakken 2.0
The housing stock was developed based on the idea workers would prefer apartments over crew lodges, and demand for apartments and single-family housing would grow with the population. 
But the NDSU research suggests this was never the case. 
While the collapse of rents and possibility of foreclosures looms, Lindahl said in discussions after the meeting this isn’t entirely a bad thing. 
While production has leveled out, it still hovers around 1 million barrels per day. Unemployment remains low. 
The demand for apartments is low among oil workers, but other businesses will find it easier to establish and grow if rents do fall to levels that meet area wages for more industries.
“It’s what I call Bakken 2.0,” Lindahl said.
This not only makes it easier for employers to reduce labor costs since employees can afford to live on less, it also means more affordable commercial space, such as the case for the 42 Grill.
Lindahl said the new economic landscape will mean greater “local participation” in the market. and possibly. less out-of-state investment. 
This could pan out to a better quality of life for residents as businesses will be more invested in the communities they operate in.
“It’s a great outlook,” Lindahl said.