Orlando-based economist Hank Fishkind of Fishkind & Associates comes off a bit like Groucho Marx. He's got a dark, thick moustache and a sly smile, along with a rapid-fire manner of speaking and the wit to keep an audience engaged. But his number-crunching overviews of the Florida economy are no joke. Fishkind is the go-to economist for Florida media, government, developers and economic development officials. He was in Sarasota recently to speak about the economic outlook through 2009, a talk sponsored by Hennessy Construction Service and Sarasota/Manatee BUSINESS.
And what was his message? Fishkind believes that we're in for a soft landing in 2007, despite how much the bursting of the real estate bubble hurts right now. We'll see recovery in 2008 and strong growth in 2009. The wild card in his prediction, he warns, is the price of gas. Not only have we been forking out more dollars at the pump (although we've had some relief lately), but our utility bills have gone up and deliveries are more expensive, signs that inflation is creeping in. Since many of our visitors and second-home buyers come from states that are either in recession because of higher fuel costs, such as Michigan and Ohio, or, at the very least, are feeling the pinch, such as Illinois and Indiana, our economy will also feel the effect in fewer numbers of visitors and purchases.
As far as housing goes in our market, Fishkind says there's "terrible overbuilding in the condo market," particularly in Sarasota. "A $500,000 to $1 million condo in downtown Sarasota? What's the rationale?" he asks. The bright spots in Sarasota's market are the 2050 plan-"a seminal event," he says, although he wonders how the addition of slower growth advocate Joe Barbetta to the Sarasota County Commission will affect the composition of the commission and the projects it approves east of I-75-and the tendency of higher prices in Naples and the lack of land in Lee and Collier to push people into south county.
Commercial real estate-office and industrial, particularly-remains strong in both counties, and Fishkind sees plenty of opportunities in Manatee's commercial market. Stay away from apartments, he says; they are the riskiest segment of the market.
After Fishkind's presentation, we questioned him in more detail about the local market.
The mood among many businesspeople and residents in the region is fairly pessimistic compared to a year ago. Are you sensing that? Transition is never pleasant, and we are in transition from a period of rapid economic growth in the nation and this region to a period of more normal levels of growth; that transition is always difficult to manage. It's at these inflection points that management really counts.
Why is management more critical now? When business activity is rising rapidly, management has an easier time because the premium is on execution and servicing the flow of business. When business contracts, it's much more difficult to manage costs and market share. Motivating staff is more difficult; cash flow is difficult. This is exactly the period where companies have difficulties. The real estate markets are much more vulnerable, but all businesses have their challenges during periods of slower growth. The situation is exacerbated during this transition because we have the impacts of very high and unpredictable insurance costs and substantial increases in property taxes.
Do you see any relief from higher property insurance costs? No, I don't think prices for insurance are going to come down. They're going to continue to rise over the next two years. I do think we'll see some stabilization in the market for commercial property owners, and I do think the legislature will expand Citizen's mandate.
What about relief from higher property taxes? There is a great constituency among voters to preserve Save Our Homes and to continue to shift property tax burdens to anybody but themselves.
How will that affect commercial, investment and second-home markets? It will hurt the market. It won't destroy it, but it will be less attractive. By that, I mean less profitable, less valuable. High rates of property taxation and high levels of property insurance translate into less operating income for an operator of commercial property and therefore lower values. The same thing will apply to second homes, in that someone who would want to purchase sometime in the future will take into account the property taxes and insurance. It will change our real estate market more than slightly, but it certainly won't be a debacle. It's a bit more challenging for a mature market like yours, since there's not a lot of waterfront to go on anymore. So someone who wants waterfront will look at your waterfront and then may also look at Panama City Beach.
We keep hearing that people are leaving the state because of housing costs. We know the rate of school enrollment has slowed down statewide and locally. Is this a long-term trend? There's no doubt that people are leaving the state, but the reality is population growth was higher this year than it was on average over the last 10 years. So this idea that Florida is emptying out is preposterous. The reality of lower growth in student enrollment is more a reflection a changing household size than anything else. Certainly in particular spots the conversion of a large apartment complex to condominiums will affect student enrollment in the short run. In Sarasota I do think it is a housing pricing issue. Those who can afford to be here tend to be those with more money and fewer children. Those with more children are going to be pushed to Manatee and DeSoto.
Sarasota and Manatee have a number of affordable housing initiatives on the table. Will affordable housing get built there? When the market softens there is opportunity, but it requires substantial actions on the public and private sector side to produce more affordable housing in an unaffordable marketplace. I'm sure there's a lot of good will all around but most people are unwilling to support their local leadership to do the things necessary to produce affordable housing. It's a waste of time. Ineffective. Sorry to be so harsh, but that's the reality. They're platitudes that tend to make people feel better. There's a colossal unwillingness to effectively deal with this issue. It's worked lots of places but there's just a lack of will to allow it to work in Florida, because here people think it will compromise their property values somehow.
More so than in Michigan or Kansas? Yes.
Why? I don't know. Maybe because we have more older and wealthier people. We know how to construct more affordable housing; we just don't have the will to do it. Density is a four-letter word. Smaller unit sizes are unacceptable to the neighboring residents. You need more units per piece of land to get the cost of land down. You need smaller units because lumber costs the same in a big house as it does in the small house.
Will wages eventually catch up to make housing more affordable? Over time, but slowly in a market like this that is not strong in economic development.
You are negative about condo construction in this region, particularly in downtown Sarasota. Will prices drop and more people default on their loans? Yes and yes. Some people won't close and will walk from their deposits because they weren't planning on living in those units anyway. Over time and at the right price, eventually people will live in them. If you're going to have a second home in Florida, it's a small niche that will want to live in downtown Sarasota.
What will happen to new projects that haven't been built yet, such as Sarasota Bayside, Pineapple Square and Benderson's Bank of America project? They will be delayed or canceled. It will be very difficult in today's market for them to achieve the presale necessary to be able to get their construction loans.
Cost of living, housing for employees and accessibility-roads.
What are the biggest challenges facing the region right now?
The biggest opportunities? Non-residential.