Market downturn ripples through local economy
Veteran developer Rob Wolverton’s analysis of the local real estate market and the city’s breakdown of sales tax revenue illustrate how the sharp decline in residential construction has stunted Columbia’s economy.
There was what Wolverton called “an astonishing” 34 percent decrease in new-home construction during the first half of this year and an 11 percent drop in the number of homes sold. During the same period, Columbia experienced a 17 percent decline in city sales tax revenue from the construction and home-improvement sectors.
As building activity slows, Columbia faces less work for architects, engineers, subcontractors, Realtors, title examiners (and everyone else involved in the home-buying process), fewer paychecks, fewer purchases at home-improvement retailers such as Lowe’s, lower payrolls and less sales tax revenue.
“This means that the reduction in residential construction is a major contributor to the drop in sales tax revenue we have experienced over the last several months,” Wolverton wrote in his analysis. “In addition, the reduction in residential construction has resulted in a decrease in wages paid, which then reduces money people have to spend elsewhere in our economy. ”
Wolverton calls the downturn a correction and not a crisis—because the fundamentals of the market remain strong and the extraordinary building boom of the past four years was simply unsustainable.
The market is returning to normal, but for the rest of the year, at least, the pain will continue for builders with old inventory, Wolverton said.
In summarizing the proposed budget for the fiscal year beginning Oct. 1, City Manager Bill Watkins said the trend of lagging sales tax growth “may linger for another year or two.”
Sales tax revenue, an indicator of the local economy’s overall health, was $9.6 million through the end of May, up just a fraction from this time last year.
Watkins lowered the estimated sales tax revenue growth for the upcoming fiscal year to 2.5 percent. The revenue had lagged behind projections this year, after totaling about 8 percent, 6 percent, 3 percent and 4 percent in each the previous four years.
Wolverton, a partner in R. Anthony Development Group, has been analyzing the local real estate market since 1995.
The group’s neighborhood developments include Arcadia, Park at Arcadia, the Auburn Hills community, The Cascades and its newest undertaking, Madison Park, a residential development of Chapel Hill.
Wolverton began doing the research for personal use to identify market niches, ascertained by looking at housing statistics such as supply by price range and absorption over time.
Wolverton began sharing the analysis with builders and bankers, and he now sends his reports to about 100 people.
“It had a big impact on how we run the business,” he told CBT. It helped Wolverton predict the real estate market slowdown two years ago and compelled the company to cut back on projects.
“A lot of established builders have greatly cut back to allow the market time to clean itself out,” Wolverton said. “The excess of inventory is going away, although it’s not going away as fast as people want it to.”