Saturday, July 4, 2009

The Big 80s in Dayton

The big recession and Michael Jackson’s recent passing brings to mind the 1980s, when there was another big recession and Jackson made it big, really big. And how did that decade play out in Dayton, economically speaking?

Taking an Economic Pulse via Building Permits.

One way to measure economic activity is by employment and unemployment. Another indirect way is to look at construction; the expansion of the built environment in response to demand, speculation, and financial incentives (such as tax laws governing depreciation and the availability of credit). The way Daytonology will do this is via building permits and construction employment, the assumption being that the volume of permits reflect the local and national economic climate (even if the permits didn't lead to actual construction).

The Texas A&M real estate center maintains an excellent web-page on historical stats, which is the source for the numbers here. The numbers are incomplete for non-residential permits as they start in 1980 and extend only to 1995 for non-residential permits. Residential permits extend to 2009. Yet this is enough to measure peaks and troughs of the 1980s and early 1990s .

And, since the numbers are for the entire metropolitan area one can take a regional pulse using the building economy as proxy.

Office Permits.

Graphing out the office permits, and laying in the two large recessions that bracket the decade. The steep “Double Dip Recession” of the early 1980s killed the stagflation of the 1970s but also helped kill a lot of manufacturing, and was a key event in moving to a non-union, low wage economy. The early 1990s end of the Cold War recession was a key part of the Clinton election campaign (leading to the campaign staff catchphrase “It’s the Economy, Stupid!”). The effects of that recession were a bit delayed, locally, really hitting after the “official” trough.

As for office permits, one can clearly see a spike in activity at the end of the decade, which, incidentally, was the period just after I-675 opened to traffic, The 1980s was a boom time in real estate, but the boom came late to the office construction market in Dayton. Some of the products of the late 1980s boom: Newmark, Lexis/Nexis, the Colonel Glenn developments and the build-out of the Route 725/I-675 corridor in Washington Township. Other suburban landmarks were built earlier in the decade, like the Prestige Plaza tower near the Dayton Mall and some of the high-rises on Poe Avenue (along I-75) north of Dayton. The last two skyscrapers downtown, One Dayton Center and the old Citizens Federal tower, were part of the late 1980s office permit spike.

Retail Permits.

This was a very good decade for retail growth nationally, and the Dayton metropolitan area was no exception. The Dayton Mall area saw major strip center and big box development, which extended east down Route 725 to Centerville. The first Wilmington Pike/I-675 strip centers opened in this decade, as did Cross Pointe in Centerville.

The 1990s would see retail construction activity in Greene County, at Fairfield Commons and Wilmington Pike, perhaps accounting for the recovery out of the early 1990s recession

Retail and office construction in the 1980s was responding to the financial climate of the decade, particularly two tax laws (1981 and 1986) that affected depreciation of commercial real estate and a generous lending climate near the end of the decade. The boom did bleed over a bit into the industrial and warehouse markets.

Industrial Permits

People were still building industrial and warehouse space during the 1980s, in fact the high spike for this time of construction permit came at the end of the decade, before dropping again to relatively low levels.

Everything Counts in Large Amounts

Borrowing from the Depeche Mode hit of that decade, we put the non-residential trends together for the big number and also separate them to compare.

Adding the trends together, and laying in the I-675 construction period. A big construction project in its own right, I-675 improved accessibility on the edge of the urbanized area. Property that was held in speculation at the interchanges went under development after it was certain the highway would be built

Separating the three non-residential permit types and comparing the numbers. The peaks of residential and retail construction were a bit off, with office peaking a bit later in the decade.

Robert Bartley, the editor of the Wall Street Journal, called the 1980s the Seven Fat Years and they certainly were in Dayton for non-residential construction (compared to the nadir of the double dip recession). The 1980s (and the 1990s) gave physical form to the suburbia we know today, as well as adding two skyscrapers to the downtown skyline.

Housing Permits

The Texas A&M site has a longer range of housing permits for the Dayton metropolitan area, taking those numbers to 2008.

Graphing residential and non-residential one can see that multi-family housing seemed to be tied more to the business cycle, with troughs corresponding to recessions. It’s interesting that the 1990’s boom didn’t see a peak as high as the 1980s, and activity pretty much collapsed in the 2000s, signaling a very anemic multifamily market in that decade.

Single family housing peaked around 1987 and again in the early 2000s before collapsing in the latter part of the decade as the local economy slid into recession. It appears that the big run-up in the 1980s resulted in a somewhat stable plateau until the collapse after 2005. Notably, the “It’s the economy, stupid” recession of the early 90s didn’t drop single-family activity to the depths of the double dip recession.

Construction Employment

The above were graphs of construction permits, not actual construction. One way to measure construction activity is by looking at construction employment. Using historical (pre 1997) and current (1998 and later) databases one can measure construction employment in the metro area from 1977 to 2006, a 29 year range. The only issue with this is that it would measure employment for public works construction, too (roads, utilities, schools, etc).

One can see the 1990s run-up here, and also a second peak around the time of the 9-11 recession, before a bumpy slide down during the 2000s. 2008 and 2009 are not shown but employment has dropped into the 10,000-12,000 range with the recession (around 1985-1986 levels), erasing the construction job gains of the past 20 years. Still not as low as the trough of the double dip recession.

Since this time series goes back into the 1970s and knowing there was a steep recession in 1974, perhaps one is seeing the 1970s peak in 1979-1980, which seems quite low compared to subsequent peaks. Perhaps an indication on how anemic and stagnant the local economy was during the 1970s, when the metro area lost around 17,400 people.

The 1980s and 1990s peaks actually improved on the 1970s when it came to construction employment, even as population growth was relatively minimal (15,300 in the 20 years between 1980 and 2000).

Of course, population is an imperfect gauge of housing permits or homebuilding, as the market might be more responsive to household creation (as well as the credit market and the speculative environment) not raw population numbers.

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