Posted 2/18/14 (Tue)
By Neal A. Shipman
Here’s a real shocker. The highest rents in the country aren’t in major metropolises like New York, Los Angeles, or Chicago. They are in the oil patch cities of western North Dakota.
While this is not a late breaking news story for those of us living in places like Watford City, Williston, Stanley and Tioga, which are in the heart of the oil boom, apparently it is suddenly big news to the national media.
According to the web site Apartment Guide, the average monthly rent for a 700-square foot entry-level, one-bedroom apartment in Williston is $2,394, which tops rents in San Jose and San Francisco. The same apartment would cost $1,504 in the New York area, $1,411 in the Los Angeles area or $1,537 in the Boston area.
While Williston has the distinction of having the highest apartment rates in the nation, Watford City can’t be far off those rates. But then again, since there really aren’t enough apartments in Watford City for a web site like Apartment Guide to deal with it, it’s not surprising that this community, which is also struggling with exceedingly high rental rates for housing, didn’t make the list.
While the national media was quick to highlight the high rents, their stories did very little to address why the rents here are sky high. And without addressing the underlying issues, the national media is doing a disservice to the people who are following those news sources.
There are a lot of factors as to why rents in the oil patch are the highest in the nation.
First, it is a matter of supply and demand. Most of the cities in the oil patch that are seeing these high rental rates had just enough housing to serve their communities prior to the boom. Building apartments and homes to meet the housing needs of the tens of thousands of new workers who are flocking to the oil patch to find high paying jobs doesn’t happen overnight. So when there is high demand for a scarce commodity, prices go up.
Second, there is the greed factor. And, yes, greed does exist in the oil patch. Anyone who can charge someone $100 or more a night to sleep in a tiny camper or a man camp room is greedy.
But that is where the first two factors become intertwined. If a worker is receiving $100-plus a day from his employer in subsistence pay and they have to have someplace to live in order to work and earn the “big oilfield” paycheck, they are willing to part with a significant portion of their subsistence pay. And the landlord is glad to help out with the accommodations.
Third, housing investors in the oil patch aren’t looking long-term. And that factor is another big reason that no matter what is built in the way of apartments in the oil patch, you won’t find rents comparable to what is being charged in most other major North Dakota communities. The majority of the people putting up apartments in oil-impacted communities are looking for a two- to three-year return on their investment as opposed to a 15- to 20-year return elsewhere. When owners want that kind of immediate return, rents are going to be high.
Fourth, land costs and infrastructure development costs in the oil patch are as high, if not higher, than in metropolitan areas. Long gone are the days that land sold for a few hundred dollars an acre around Watford City. Now land prices rival commercial land prices in Fargo and Bismarck. Couple high land prices with the cost of bringing water, sewer, electricity and roads onto the site and rents have to be high enough to cover those investment costs.
And fifth, there are no federal or state programs that allow for “affordable” housing to be built in small communities, such as Watford City, Stanley and Tioga. While those funding sources exist in all of the state’s larger cities, the inability of these communities to build apartments and affordable housing options for non-oilfield workers will be one of the biggest issues facing them in the coming years. Retail businesses, professional businesses and restaurants, whether existing or new, need to be able to attract and hire employees. But without affordable housing, retail growth will be stymied.
As is with so many other issues, the oil boom is forcing some very select communities that are being the most impacted, and the people who are living there, to deal with a new set of challenges that are not being faced by many others in North Dakota or in the United States.
High rents are just one of the issues. And hopefully, with more homes and apartments being built, rents will drop to more normal rates.