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Will housing boom go bust?

At stake for the county: millions of dollars. Pasco is more dependent on housing than any other area in Tampa Bay.

© St. Petersburg Times
published August 25, 2002

Like a lot of other Pasco folk, Jimmy Keys makes his money on home building.

Housing starts are up 20 percent in Pasco this year, and Keys sees new subdivisions spread like weeds near the Keys Concrete headquarters in Odessa. He expects sales this year to hit $38-million.

Naturally, Keys is preparing for the worst.

"We can't expect that one year is going to be better than the next, forever," he said. "There will be a downturn."

Keys has plenty of company. Economists, developers and real estate agents throughout Tampa Bay nervously watch the housing boom, wondering if the real estate bubble will be the next to burst.

If it does, Pasco is in trouble.

Pasco is more dependant on housing than any other area in Tampa Bay. Home building accounts for about 9 percent of the county's jobs and personal income, according to a recent study by the University of South Florida. By comparison, it's 6 percent in Pinellas.

If a recession or building moratorium slowed home building by 20 percent, 3,237 Pasco jobs would vanish. So would about $104-million in personal income.

In Pasco, "It would be pretty brutal," said Don Lombardi, national coordinator of the land services group for CB Richard Ellis. "Housing and development is always in a cycle. Right now, we're at a strong part, and it will become less. It always does. So when it's lower, those people won't be working."

That's why Keys paid cash for his last two plants, which together cost nearly $4-million.

"We could have grown a lot quicker," he said. "But I just don't buy things unless I can afford them, or have a reasonable debt level."

Every decision he makes takes into account 1991, the year the housing market hit the skids, and his company was just $40,000 away from going under.

"We almost went broke," said Keys, president of the 23-year-old company.

* * *

Fears that the housing boom will go bust are nationwide.

How long, economists wonder, can the increase in home prices outstrip the increase in personal income?

Between 2000 and 2001, personal income in Tampa Bay rose 4.3 percent, according to USF's Center for Economic Development Research. During that same time, the median price of homes in Tampa Bay shot up 12 percent.

The only way to sustain the boom, some experts say, would be for interest rates to drop or personal incomes to rise dramatically. Neither appears likely.

* * *

Right now, all residential builders can see is a flood of new orders.

Pasco County issued 2,432 building permits for single family homes in the first six months of this year. That's up by 20 percent from the same period a year before, and the highest half-year figure in well over a decade.

Susanna Madden, president of the Greater Tampa Association of Realtors, already predicted that the market was near a peak. Of course, that was two years ago.

"The market was so very good and we were selling more houses, and I just knew that it would come down," she said. "But it didn't. It stayed good. Things will change, obviously, but who is to say when. I think there was a crack in my crystal ball."

Steve Hedrick can't believe his own eyes.

"I never thought I'd see a market like this in my lifetime," said Hedrick, construction manager for Suarez Housing. "We've had 10 straight good years, and historically in home building, about every four or five years, we're holding up "Will build for food' signs."

But like Madden and others, Hedrick is "always looking for those clouds on the horizon. But right now I don't see any. We've been saying that eventually it's got to come to an end. I just don't know when, unless something hits us broadside."

He expected Sept. 11 to be that hit. But after the terrorist attack, business was slow for just two weeks. "Then it was right back to where it was," he said. "Kind of a shocker."

* * *

Pasco has qualities that may sustain housing growth, even when interest rates do rise: the county has room to grow and home and land prices tend to be 30 percent cheaper than in Hillsborough and Pinellas.

For instance, even as housing starts dropped 27 percent in Hillsborough in the second quarter, they rose 21 percent in Pasco.

Another qualifier: for as long as Florida has sunshine, there will always be retirees migrating here, driving growth.

* * *

So what's the answer?

Build more industry to diversify Pasco's tax base and provide high-quality jobs that do not depend on the housing market. Bring in employers that pay lots of taxes, but don't tax infrastructure.

Experts say the corporate movement to Pasco is inevitable: Retail and services follow rooftops. Business move to places where there are critical masses of people that could make up a potential workforce. Pasco finally has those masses: 50,000 people already commute from the county to work. With the Suncoast Parkway and State Road 56, people now have good access to Tampa.

But that corporate movement has been slowed by the sluggish economy.

"People are very cautious and want to make sure that they could afford to make the move, before they make the move," said Mary Jane Stanley, executive director of Pasco's Economic Development Council.

There are about 1,000 acres for industrial use in Pasco, but "as the residential continues to develop, it's going to continue to be a challenge to figure out where to site our industrial uses," she said. "Now, what we're really looking to have happen with the new growth is to become more of a market for office parks. In the past, it's been residential and industrial."

But that may be tough.

Existing office markets offer plenty of available, cheap spaceemptied out by massive layoffs and cutbacks.

About 22 percent of the office space in Hillsborough and Pinellas is now vacant, and nearly 10 percent of industrial space is vacant, said Larry Richey, senior managing director at Cushman & Wakefield, a real estate services firm.

"That's not good," he said.

In the best of times, vacancies are about half of what they are now in both sectors.

"As bad as it gets is about what we're looking at right now," Richey said. "Until we see a significant portion of the available space in the bay area absorbed, it's going to be difficult even with lower-priced and affordable land to justify building new products."

Since there's so much available space, it's going for bargain prices. That's where companies are going to move and expand first.

"When you compare (the available space in Hillsborough and Pinellas) to the cost of building new, even in a less expensive market in a more remote location, moving to the more remote location simply doesn't happen," Richey said. "People generally make a decision to stay near the already existing critical mass."

Just ask Dan Morris. He works for the Hogan Group, which is developing Suncoast Crossings at the southeast corner of State Road 54 and the Suncoast Parkway.

The plan originally called for an office park with 1.2-million square feet of class "A" office space. Morris said Hogan has scaled that back.

Plans "changed because of lack of demand," said Morris, Hogan's vice president of retail development. The project will include hundreds of homes and retail space. It's too soon to say how much office space will be developed there. But it will be under 1-million square feet, and it won't be an office park, he said.

Developers of Cypress Creek and Suncoast Corporate Park, both expected to have office components, say they just started marketing the properties, so it's too early to gauge interest.

But Gene Santella, a senior associate with @DUTTERealty.COM, is optimistic about the prospects. He is marketing Suncoast Corporate Park at the southwest corner of State Road 52 and the Suncoast Parkway.

"We know that you've got to absorb the space that's vacant and put the infrastructure in place," he said. "But we're 35 minutes from the airport, we've got good housing and a good labor pool. I'm not concerned. I think our timing is going to be perfect."

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