Boom Town Effects of New Oil and Gas Exploration on Local Housing Markets

Boom Town Effects of New Oil and Gas Exploration on Local Housing Markets

Kurt Usowski, Deputy Assistant Secretary for Economic AffairsHistorically, members of Headquarters staff have performed or directed most PD&R research. During summer 2011, however, a group of PD&R’s Field Economists initiated a research effort to examine how technological improvements in gas and oil drilling have affected housing markets. A group of five Field Economists and two Regional Economists formed the Gas and Oil Task Force (GOTF) to share information about eight areas across the country where booms in energy exploration have had significant effects on local housing markets.

Technological advances such as horizontal drilling and hydraulic fracturing have increased extraction capacity for oil and gas — not only in areas such as Midland-Odessa, Texas, where drilling began almost a century ago, but also in places where drilling was not previously financially feasible such as North Dakota, northern and western Pennsylvania, and south Texas.

Many of these new exploration areas are rural counties or small metropolitan areas far from large population centers. Exploration activity attracts large numbers of temporary workers with incomes significantly higher than those of existing residents. As exploration activity ramps up, this surge of high-income workers quickly fills all available motel rooms and vacant housing, creating a tremendous demand shock in these small markets.

Although many energy boom areas have seen tremendous growth (including single-year increases in the employment rate of as much as 41 percent in Williams County, North Dakota, and 27 percent in Dimmit and LaSalle counties in Texas), much of the employment and population growth in these areas is temporary. Typically, data collected on temporary or mobile workers are usually reported by place of permanent residence or by the site of the permanent facility of their employer rather than by current place of work, creating challenges for researchers attempting to analyze housing markets in energy boom areas. Census and employment data may show little or no change over time, yet hundreds or even thousands of workers can be coming into an area for weeks or months — using community resources, straining infrastructure, and spending money.

Oil and gas exploration-induced housing demand shocks have impacted HUD’s clients. Local advocacy groups and public housing authorities reported tight housing markets, dwindling supply, and an inability to operate HUD’s rental subsidy programs. Such strong demand encouraged many landlords to terminate leases with local tenants and instead rent to energy exploration workers at much higher rates. In North Dakota, at least two affordable projects opted out of HUD rental subsidy programs, doubled their rent charges, and filled quickly. Regional Administrators and Field Office Directors have reached out to HUD partners, advocacy groups, and other interested parties to better understand the issues and work on solutions. HUD field managers are convening housing alliances, issue groups, and task forces to resolve these issues despite the lack of data.

In December 2012, the Office of Policy Development and Research’s Quarterly Housing Market and Research Update included a panel discussion among two GOTF members, three Regional Administrators, and the director of the Columbus, Ohio Field Office. The discussion covered the latest developments in energy exploration areas nationwide and HUD’s responses to the needs arising in these areas.

For an in-depth discussion of market issues, see “New Oil and Gas Drilling Technologies Bring Significant Changes and Challenges to Housing Markets” in the August 2012 issue of U.S. Housing Market Conditions.

The effects of the energy boom on housing markets are still evolving and vary by location. Data constraints limit the usefulness of traditional methods of housing market analysis. With continued analysis, research, and experience, GOTF is committed to developing a methodology for assessing the effect of oil and gas production on an area’s existing housing stock and housing demand as well as on HUD programs and resources.