A Closer Look at Coastal Georgia's Growth and "ghost markets"
Nearly everyone living in coastal Georgia has noted how much the area is growing. Common sense tells us that the new shopping centers,
subdivisions, and roads are indicators of increasing population. Local officials are even accusing the Bureau of Census of making
"low-ball" population estimates, since growth seems higher, plus state and federal funding is often proportional to population.
But what do we really know about population growth, which is not necessarily increasing at the same rate as construction, subdivision,
and land sales? Though no special study has been done here, nationally we have some insight about the distinctions between population
and other activities that suggest growth.
According to a recent article in USA Today about national real estate activity, "Nearly 28% of homes bought last year were for investment
purposes, and an additional 12% were vacation homes... Most of the buyers were baby boomers in their top earning years, looking toward
retirement and hoping to build wealth or find a more desirable place to live. More than three-fourths of the buyers had no interest
in renting their property. About 20% said it would one day be their retirement home."**
Assuming these proportions apply here in coastal Georgia, this means that 40 out of every 100 homes being built are not the primary
residence of the buyer, and, even stranger perhaps, 30 of those homes will not be rented out by their owners, and therefore will be unoccupied.
This means that even if we assume full occupancy of all of the homes constructed that are not bought for investment, resident population
is increasing at only about 70% of the rate of new housing being permitted. For example, if a new subdivision has 200 lots and all lots
are built on and sold, no more than about 140 will have residents, assuming we have the same real estate market profile as the nation.
Another wild card is how many lots are sold and change hands before they are built upon. Although no research has been done, we have heard
reports of many lots in permitted subdivisions standing vacant for years before they are ever needed as homesites. This suggests that there
is what might be called a "ghost market" for real estate, which inflates actual demand by adding speculative investment.
Just how much artificial demand is created by speculation depends on the perceived prospects for making a profit by buying lots and/or
structures and reselling them.
As long as there are buyers willing to pay more than the current owner, or enough people who believe that there will be such buyers,
speculation flourishes. With more extra income available for investment, a relatively stagnant stock market, and the prospect of
handsome real estate profits, development speculation has become rampant.
The proportion of real estate transactions and land sales that are based on this speculation is unclear, but surely substantial.
What is clear is that the level of development activity (land clearing, subdivision, and even construction) is well above actual
population growth, including part-time residents. This means that the actual need for land, housing, and commercial structures is
considerably less than what is being marketed.
This ghost market is of concern to those of us troubled by unwise or poorly planned development because it unnecessarily increases
the area of land being prepared for sale, bringing a host of related adverse environmental impacts. By imposing an artificially
urgent demand for real estate, more erosion is being generated, resulting in increased contamination of wetlands and waterways.
Likewise, more natural landscape and drainage features are being altered in ways that cause flooding of properties already developed.
But even to the less environmentally conscious, there may be unsettling issues raised by speculation. For instance, of all the apparent
demand for roads, sewers, and water supply, how much is really needed, where, and when? Providing these amenities prematurely can induce
still more speculation, since areas served by public facilities tend to gain greater market value. Thus, a disturbing share of development
may be driven as much by financial gaming as by real population growth and related needs. Much of this imprudent activity is no doubt
unintentionally subsidized and condoned by tax-payers when their local governments indulge speculation, or even promote it, by readily
approving development and new infrastructure.
It is probably impossible to eliminate all speculation in any market, including real estate, but surely there are ways to reduce its most
extreme risks. These risks include not only environmental harm, but also financial penalties for both tax payers and unlucky investors.
If permit applicants were required to demonstrate the need for their projects based on a legitimate market analysis, it could help curb
the reckless 'gold-rush' nature of many current development practices.
As a matter of public policy, elected officials need to give this issue thoughtful consideration and try to come to grips with their obligation
to serve coastal citizens. To do this will require the means to carefully distinguish between well-planned growth and unbridled speculation.
To the greatest extent possible, decisions about land use-and the public infrastructure that supports it-need to be guided by improved
methods of analysis that avoid the pitfalls of the ghost market. Unless new policy is adopted to control speculation and its consequences,
we can expect still more casual approval of projects that produce quick profits at the public's expense.
** Quoted materials from: USA TODAY, April 5, 2006.
Special thanks to Patty McIntosh, director of the Coastal Office of the Georgia Conservancy, for providing the article referenced.
Development Activity & Estimated Population
Growth
In 11 Counties of Coastal Georgia -
1999 - 001 (3 years)
Number of housing units permitted - 12,500
Estimated units occupied @ 80 % - 10,000
Estimated population @ 3 per household - 30,000
Estimated average annual population growth - 10,000
Estimated annual rate of population growth* - 2.0%
Estimated lots approved (unbuilt, as of 2006) - 40,000
* based on an estimated regional population of 500,000
Data source: Georgia County Guide, University of Georgia, 2004
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