by David Stanowski
20 November 2007
Some people have been touting the fact that Galveston has been going through a real estate "boom", for the last 3-4 years, because they claim that this has been "good for the City". It certainly is true that this period has seen a lot of new construction, and rehabilitation of existing structures, as well as rising real estate prices. The housing units that are being added will increase the tax base, but they also will require new infrastructure, and their owners will increase the demand on city services.
Rising prices create a gain, on paper, for those who have owned real estate for awhile, but they also increase their property taxes, and insurance premiums, and make it more difficult for many people to afford to live here. In addition, adding more expensive housing units, at a rapid pace, is likely to change the character of the City.
Those who are profiting from this real estate "boom" are soliciting support to continue their "growth policies", by maintaining that developing real estate is good for the economy, as a whole. Unfortunately, a "boom" in a vacation-home market rarely produces an economic "boom" in the local economy.
The process of building and rehabilitating real estate increases the economic activity, where it is taking place, but if many of the construction workers do not live in the city, where they are building, their income flows somewhere else. Unlike most other businesses, construction jobs are not long-term in nature, so they do not help to build a strong foundation for the local economy.
In addition, since the owners of these new vacation homes do not have a job, or a business, on The Island, their economic impact is rather limited. They do not become part of the local economy, they merely spend a small portion of their income, in Galveston, when they use their second home.
A robust economy will show growth in real economic output, and real incomes, as well as growth in the number of jobs. There is no data on the total output of the Galveston economy, but the data that is available paints a pretty clear picture.
In the 1870's, Galveston had a higher per capita income than most other cities in the entire world! In 2005, Median Household Income was $30,500, compared to $42,139 for the State of Texas, and $46,242 for the entire country!
It should be clear by now that the extensive real estate development that took place, over the past quarter century, has not reversed the decline in population, or the number of jobs, and there is no evidence that the more recent real estate "boom" has had a major impact on the economy, either! For this reason, it would be foolish to expect future real estate development to help bring the performance of the Galveston economy in line with the rest of the state.
In the 19th Century, Galveston had a very robust economy, but more recently it has been in a decline since 1995-2000, and there is some evidence that it may have peaked as early as 1985, as the 1980's oil boom faded. This city can re-discover its former greatness if it turns its attention to attracting new businesses, helping new businesses get started, and maintaining a pro-business environment.
The only thing that will turn this economy around is a shift in focus from real estate development to business development!
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