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Becoming China: From Shale Malinvestment Boom To "We Are Overbuilt" Bust
Nothing highlighted a malinvestment-driven "if we build it they will come" boom (and subsequence complete bust) better than China's so-called "ghost cities." But now, thanks to The Fed's "lower for longer" enabling of every and any zombie company in the world, many previous oil-boomtowns across Texas and North Dakota are facing a real-estate crisis. As Bloomberg reports, the former bustling "man-camps" of towns like Williston, ND are now desolate with hundreds of skeletons or wood & cement as predictions that fracking would sustain production and a robust tax base for decades have failed completely.
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. As Bloomberg reports, 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.
Everyone levered up on this "no-brainer"...
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 million is outstanding.
and many remain delusional...
"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."
Fracking’s success has created another glut...
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.”
But they are still building...
With the region’s drilling-rig count at a six-year low of 74 and roughnecks coping with cuts in overtime and per-diem pay, the vacancy rates in Williams County man camps are as high as 70 percent. Meanwhile the average occupancy rate of new units in Williston was 65 percent in August, even as 1,347 apartments are under construction or have been approved there.
Officials in Watford City about 45 miles away have issued 1,824 permits for apartments, duplexes and homes in the past 18 months after only three houses were built between 1980 and 2000. They are in limbo, worried about filling the units.
“This lag time is driving me nuts,” said Brent Sanford, Watford City’s mayor, during a recent tour of construction sites with names such as Emerald Ridge Estates and Pheasant Ridge. “I’m now hearing words like, ‘This isn’t sustainable.”’
Hope remains that the oil workers will stay and wait it out... but reality is showing that is false hope...
Housing experts say this goal may be illusory because oil roughnecks typically return to their home state when a boom is over.
“People who think they can convince these workers to live in apartments or suburban households are not understanding the nature of this economy,” said Bill Caraher, an associate professor at the University of North Dakota in Grand Forks who has studied housing in the oil patch.
That’s true for Daniel Krohn, who pays $650 a month for a space in the Rakken Arrow RV Park. A plywood lean-to that blocks the north wind is cobbled onto his mobile home, the only one with a mailbox in the 86-space lot, which is half empty.
Krohn, who installed piping on gravel pads where oil and gas is processed, came to Watford City in 2012 from Wisconsin with his wife, Angela; they had a daughter after the move. Now he’s unemployed and considering moving back home to a house with a $450 monthly mortgage.
“I can’t afford $1,000 or more for a one-bedroom and still feed my family,” he said. “I’m ready to go.”
* * *
To The Fed - Well done... your tinkering has once again crushed the American Dream for another generation and enabled yet another inevitable bust after an entirely unsustainable boom where 'wealth' creation was nothing but transitory.
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The Chinese BUST will come in the form of quadruple-D boobs. ;-)
Looney
Shame on you Dirtens.
How could Good theft be bad investment?
Israel Weinberger, a principal at Coltown Properties, which invests in multi-family real-estate developments
This is my shocked face
very similar story here in the coal areas of QLD.
I'm doubling down on my long gulag trade - now I know what they plan to use those hovels for.
What, no H/T?
Obama will solve the problem, as usual. North Dakota, prepare for buses filled with Somalis, Ethiopians, Saudis and Turks, all claiming to be Syrians. The line for food stamps, housing assistance and welfare forms to the right.
Not sure why ZH had such a hard on to drive shale out of business. But in any event, the reason was not as predicted - low prices will do this to any industry, not just oil. When prices come back, so will the boom.
I'm headed up later in Oct to buy some of those stinky RV and start a RV park. Looks like Putin is going to ratchet prices higher very soon.
It's not about driving anyone out of business, it's about the Fed manipulating the price of money which in turn gives bad signals to business who are able to borrow when in fact they shouldn't have been able to borrow to begin with.
This has nothing to do with wanting anyone to fail, it's about the machinations of a Fed that has no understanding of the consequences of their actions.
They all woke up one day from a 5 year bender and said, "Shit, this is North Dakota! Let's get the fuck out of here!"
welp.. was only matter of time..
IMF raises red flag about Canada’s ‘overheated’ housing marketehh
You can distill vodka from 'rotting potatoes ', waz up?
Add one dead mouse,,,soup!
Big problem is that there are no jobs for them back home, either.
unless ya want to work for 13 / hr. and be the new normal broke, paycheck to paycheck and a suitecase of pabst blue ribbon... joe twelver returns home to the same shithole he tried to leave, only broker and broken. thanks ya fuckeen coooocksuuuckers...
It's a golden age for the repo game
Yeah, Chinese jump from ghost cities to homes in California. From one loss to another.
Plus California will rape them on taxes.
So I guess the weather wasn't enough of a draw to keep them?
Oh well.
Too late to build a casino?
How about the International Frackin' History Museum & Amusement Park?
The new subbies will be the high end FEMA camp.
Somebody's got to pay for those new sewers and water lines.
debt by a 1000 cuts...hy debt is 10 times larger than equity. Total ww debt has increased $58 trillion. EBIAD has not increased in line w debt. so there will be many failures over the coming year as we unwind the debt that was used for uneconomic projects. ND is just a small fraction of the pain that will be reaped upon us.
Oil has been boom/bust forever...
Unfortunately most are no longer from agrarian roots, and have no concept of living within one's means, and storing away excess in times of feast - for the times of famine that inevitably follow.
The only excess in the Bakken has already been spent on escorts, coke, and monster trucks. Now, the trucks are on blocks, the escorts are on the street corner, and the coke is crystal meth cooked up in an RV with a dead mouse in the sink.
This left off the part of the article where it is stated the governments, having been bought off by the real estate developers, are now making man camps illegal and/or economically impossible to force the remaining and future workers into these ghost cities.
Statists gunna state.
$650 for a frikken rv parking spot in frikken north dakota? hoary shit.
Very similar story here in the coal areas of QLD australia.
$650 a month will get you 3000 sq ft with all the fixins' in a few years in North Dakota.
In NJ where we used to live (and even now according to people still there), there are empty homes all over the place. The only difference is that banks are NOT putting FOR SALE or FORECLOSED signs on them. They are maintaining them but keeping the off the market. To put them on the market would hasten a total real estate market collapse.
Yet USA media keep printing these rubbish articles of a "recovery" and a "boom", both of which are nonsense. USA IS BECOMING CHINA. It is a very scary thought but a true one. Not only economically, but in other respects as well.
North Dakota, I here the winters are sublime there.
If lime=zero then yes, sub lime.
Why the Party controlled US Gov't can resettle thousands of Muslims and Niggers on Section 8 to fill those vacancies. Easy pesy
There is no helping those people, they know everything. At least Watford City was smart enough not to put their ass in to hock like Williston, in addition to all the other stupidities Williston built a rec center with at least a 70 million dollar price tag (not sure if they went over). The sad thing is this is their 3rd oil boom/bust in that area (one in the 50s and one in the 80s).
Just goes to show that most people are hopelessly stupid in the absense of a media system that holds their hand informs them of their every interest.
Do not read many stories about how shale oil & fracking is going to be America's ticket from evil mideast oil imports...a new America with a new energy source...it really did look promising and it was a great party time for the boom cities...guess we will have to wait 5-10 years for the authoritative & true story of what really happened..I am sure they will find a chain reaction of events which just ended badly..
WTF people! Fracking detroys ground water. Fuck fracking! Do something else. Sorry.
"said Israel Weinberger, a principal at Coltown Properties,"
Anywhere there's a profit to be made....
Someone here did not read Steve SRSrocco St. Angelo...
You have been warned before, don't you?? (even if shale's continues production? How long before it depletes??)
http://news.nationalgeographic.com/news/2014/12/141219-fracking-oil-supp...
Here the own report from EIA about investing in that stupid ventures.
http://www.eia.gov/petroleum/weekly/archive/2015/150923/includes/analysi...
Here the matured debt that shale's comp's must service.
http://www.eia.gov/todayinenergy/detail.cfm?id=22992
Can't it be sustained when debt services eats the majority of your operating cost??
That bloodbath? You ain't see nothin' yet..
Barry the Barrell Bomber scored a huge own goal ordering the Saudis to drop oil prices however the American Banks stand to profit greatly from all the coming business failures scooping assets for cents on the dollar........
Can't even find anybody who wants to take the governorship any more. Jack's calling it quits, they know. Going to be fun watching the retail overbuild in Bismarck collapse, way too many of them. The food wagons are already pushing out from the patch into their territory. Over all, it isn't going to make a dent, it was mostly localized. Biggest bloodbath will be in state government, the rats are already scrambling, they forced the initial infrastructure subsidization on us when we all knew the game. A state this small they're going to get tared and feathered, than the ag sector can accelerate it's death throes once again as they reattach the now bloated blood sucker.