(Bloomberg) -- Chain saws and staple guns echo across a $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 real-estate crisis: The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn’t lasted long enough to support the oil-fueled building explosion.
Civic leaders 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,” said 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.
Laborers 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 $226 million of debt since January 2011; about $144 million is outstanding. Watford City issued $2.34 million of debt; about $2.1 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," said Israel Weinberger, a principal at Coltown Properties, which invests in multi-family real-estate 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-based 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 percent 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 Labor Market Information Center. Taxable sales in counties at the center of the nation’s second-largest oil region dropped as much as 10 percent in the first quarter from a year earlier, data from the Office of the State Tax Commissioner show.
As the migrant workers leave, their castoffs pile up in scrap yards such as TJ’s Autobody & Salvage outside Alexander, about 25 miles (40 kilometers) 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,” said owner Tom Novak. “It’s insane; there are empty campers everywhere.”
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