The US housing boom that went bust on oil

North Dakota once struggled to accommodate a huge workforce that sprang up amid the shale revolution. As crude prices have tumbled, there are few left to fill the thousands of properties that were built to house them.

Partially completed buildings at the Williston Apartments luxury development in North Dakota. Too few residents can afford them with the oil boom gone. Daniel Acker / Bloomberg
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Chainsaws and staple guns echo across a US$40 million residential complex under construction in Williston, North Dakota, a few miles from almost-empty camps once filled with oil workers.

After struggling to house thousands of migrant roughnecks during the boom, the state faces a new property crisis: the frenzied drilling that made it the national leader in personal-income growth and job creation for five consecutive years has not lasted long enough to support the oil-fuelled building explosion.

Civic officials 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,” says 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.

Labourers 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.

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 $226m of debt since January 2011; about $144m is outstanding. Watford City issued $2.34m of debt; about $2.1m is outstanding.

Construction companies and investors went along for the ride.

“We didn’t build temporary housing on purpose because we viewed North Dakota as a long-term play,” says Israel Weinberger, a principal at Coltown Properties, which invests in multifamily property 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.”

The New York City company plans to complete 35 units in Watford City this winter and break ground on another residential project in March, he says.

The Bakken has boomed before. The first strike came in 1953, when thousands of transitory workers poured in. But a global crude-oil glut ended production abruptly in 1984 and the workers fled, leaving many municipalities deeply in debt.

Fracking’s success has created another glut and crude prices have fallen more than 50 per cent in the past year. Now North Dakota’s white-hot economy is slowing. More than 4,000 workers lost their jobs in the first quarter, according to the state’s labour market information centre. Taxable sales in counties at the centre of the nation’s second-largest oil region dropped as much as 10 per cent in the first quarter from a year earlier, data from the office of the state tax commissioner show.

As the migrant workers leave, their cast-offs pile up in scrap yards such as TJ’s Autobody & Salvage outside Alexander, about 40km 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,” says the yard owner Tom Novak. “It’s insane; there are empty campers everywhere.”

Cities and counties are rushing to change permitting policies and toughen zoning laws to outlaw or restrict temporary colonies. Commissioners in Williston – the nation’s fastest-growing micropolitan area between July 2010 and July 2013 – voted last week to consider requiring facilities that operate a total of 3,517 temporary beds to close by July. The annual per-bed fees Williams County requires camp operators to pay will double to $800 in May.

The goal is to force the remaining oil workers into residences that were on the drawing board when a barrel of oil was selling for twice as much as it is today.

“A lot of our investors would not have gone into this had they not had the understanding that, as permanent units went in, man camps would go away.” says Terry Metzler, the North Dakota operations manager for Granite Peak Development, based in Wyoming. Its many projects in Williston include a new Menards home-improvement store with more than 200,000 square feet and two $40m apartment complexes nearby.

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,” says Bill Caraher, an associate professor at the University of North Dakota in Grand Forks who has studied housing in the oil patch.

With the region’s drilling-rig count at a six-year low of 74 and roughnecks coping with cuts in overtime and per-day pay, the vacancy rates in Williams County man camps are as high as 70 per cent. Meanwhile the average occupancy rate of new units in Williston was 65 per cent in August, even as 1,347 apartments are under construction or have been approved there.

Officials in Watford City about 70km 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,” says Brent Sanford, Watford City’s mayor, during a tour of construction sites with names such as Emerald Ridge Estates and Pheasant Ridge. “I’m now hearing words like, ‘This isn’t sustainable.’”

That is 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 on to his mobile home, the only one with a mailbox in the 86-space lot, which is half empty.

Mr 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 is 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 says.

“I’m ready to go.”

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