Is North Dakota At Risk Of A Development Bubble?

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.