Is North Dakota At Risk Of A Development Bubble?

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For those of us living in or near the oil patch, watching as hotel after hotel is built has become a common sight along with development of new housing and businesses. But are we in danger of supply of housing supply – hotel rooms, apartments and homes – outstripping demand?

“Minot hotel occupancy is down,” reports CBS affiliate KXMC, “and more hotels are slated to open in the spring.”

There are a lot of new hotels opening in the spring. During the height of the oil boom it was all but impossible to get a hotel room in Minot or, even worse, Williston. Now things have eased. Most hotels in Minot aren’t full any more, and I’m told that booking a room in Williston is pretty easy these days too.

With news that the state’s economy, and tax revenues, are moving to a slower rate of growth it appears as though we’re past the “boom” phase of the oil boom, and that’s probably what’s driving slackening demand for hotel rooms.

That’s not a great thing – I suspect a lot of these hotels which have been built in the western part of the state over the last couple of years will end up going bust – but the question is, will this oversupply problem go beyond hotel rooms?

The State of North Dakota has put a lot of money into subsidizing housing development, on top of what local governments have spent. In fact, Governor Jack Dalrymple wants to increase a state housing incentive fund up from $15 million last year to $50 million in the coming biennium.

The state House, wisely, stripped $30 million of that funding from the governor’s proposal, but the larger point is whether or not the state ought to be speculating in land development with taxpayer dollars.

A bubble in development in the state, given the rapid growth of the oil boom, probably couldn’t have been avoided. But we’re in jeopardy of making that bubble worse by subsidizing housing development in the west. The state ought to pull out, and let the private sector take the risks.

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • KJUU

    Glad to hear it’s easier to get rooms in Williston. Maybe I’ll actually visit now, which is kind of the point of a hotel. Not to be used as living quarters, but for temporary stays.

    • caeslinger

      Great point. It’s hard to say there’s a development bubble, when currently there are still exorbitant rates on hotels and rent.

      If you are making the argument that some day that these hotels may be running at 50% capacity, we’ll all agree probably. But that still doesn’t mean there was a development bubble. The investment came into the area when they realized they would be an immediate return on the investment – enough to pay for it in a very short time and not have to worry about future vacancy rates. Those future rates are just gravy – no matter how weak they will ever be.

      • http://sayanythingblog.com Rob

        Let’s not pretend as though those hotels won’t be abandoned when they become unprofitable.

        And as i noted in the post, some level of a bubble wasn’t going to be avoided. But I worry that subsidies for housing development are going to create a bigger bubble than what would have otherwise existed.

        • http://nofreelunch.areavoices.com/ Kevin Flanagan

          Not to worry; the government can always turn them into welfare housing like they have before. The results are never pretty.

          • http://Sayanythingblog.com The Whistler

            UND bought a ratty hotel from a city council member at top dollar and turned it into a dorm.

  • whowon

    Seems Dickinson is already feeling some of that, built many hotels that are no where near full now.

    • http://sayanythingblog.com Rob

      Exactly. Minot is in the same boat.

  • http://nofreelunch.areavoices.com/ Kevin Flanagan

    What’s the break even point for these properties?

  • Lynn Bergman

    All good points. Additionally, the agricultural land bubble is now expanding to the point of bursting on the great plains. Commodity prices are beginning to loose ground, just as one could have expected with the housing bubble. The legislature and Governor appear to have no idea that any one of these bubbles can devastate our economy… that ignorance is why they are raising spending by one fourth per biennium. But who pays?

  • nimrod

    Maybe the prices will become somewhat less inflated now, so this is good news.

  • Waski_the_Squirrel

    I got to hear from an oil patch mayor about all of the construction in his city. His view was that permanent construction was better than temporary.

    The question I had was what happens to the permanent construction after the boom. He didn’t have an answer.

    I have lived in towns that overbuilt during a previous oil boom. Everything was overbuilt and the towns didn’t have the population to maintain what they had. Abandoned houses were another issue.

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