In this week’s Economic Report, Dr. Rick Harper discusses an unexpected rise in new home sales, explains why it may be time to reexamine the Consumer Price Index and when BP oil spill relief funds could start funding projects in the area.
Beating expectations, new home sales rose 3.1 percent in September and Harper said that the increase shows conflicting signs in the home sale market.
“We’ve talked in recent weeks about the surprising drop in multi-family housing starts,” Harper said. “We’re in a period of flux – sales generally in new and existing homes are not growing as rapidly as they were a couple of quarters ago.”
In Florida, however, there’s not enough supply to meet demand, which seemed impossible because of decades of inventory five years ago.
“In some hot markets, we’re actually seeing a shortage of inventory and that’s exacerbated by the fact that Florida lost about 53 percent of its construction jobs from 2006 until 2010,” Harper said. “Many of those people are gone having left the state to stay in construction or they’ve gone into other fields of endeavor. The constraint is skilled subcontractors and we see prices rising as a result of expensive inputs and because the Fed is keeping interest rates so low that those low monthly payments get capitalized into higher housing costs.”
Despite this, over the last several months new and existing home sales have levelled off, Harper said.
Florida’s minimum wage recently rose by five cents and Harper said that the Consumer Price Index is a key factor in determining when and if increases happen.
“If you’re going to give a cost of living adjustment, it should be tied to the change in the cost of living,’” Harper said. “However, it sure doesn’t feel good if you’re a senior and you’re only looking at a couple of dozen dollars increase in the annual payment for Social Security and it doesn’t feel good if you’re at the bottom end of the wage scale and only looking at a five cent increase in Florida’s minimum wage.”
And when confronted with rising costs of necessities, these small increases don’t stretch far, Harper said.
“If you look at the bundle of goods and services that people buy, things that many lower income households consider to be essentials such as education, such as healthcare, the costs of providing services is going up more rapidly than manufactured goods,” Harper said. “Microwaves are less expensive now than when we first bought them decades ago and the same is true for all manufactured goods from computers to audio equipment, etc. It’s really the price of services that is rising.”
For example, Harper said that if you are an elderly person who uses more health care services, your living expenses are definitely more than what the Consumer Price Index would suggest. Harper said that it might be time to revamp how the index itself works.
“I would certainly be in favor of having a separate one for manufacturing versus the cost of services. That’s a well-known dichotomy and if you look at the Consumer Price Index overall, it is actually held down by manufactured goods and pulled up by the cost of education and health care services,” Harper said. “Health care is about 18 percent of the U.S. gross domestic product right now, so it makes sense to differentiate because people consume vastly different of goods and services out there.”
Community stakeholders recently met to determine how BP oil spill relief funds are spent through non-profit Triumph Gulf Coast.
“Triumph Gulf Coast was set up in Florida statute several years ago in 2011 to assist Northwest Florida in regional economic transformation,” Harper said. “There are a number of meetings occurring around the area looking at projects potentially to be funded with these BP economic damage dollars to the state of Florida.”
The statutes specify that 75 percent of the funds be used to support economic transformation of the area. Florida’s Great Northwest and The Haas Center, as well as consulting firm TIP Strategies, are collaborating to conduct the meetings.
“Some of the issues that have come up are about infrastructure – about the lack of affordable downtown housing. And then there’s everything from soup to nuts – faster internet access, four laning roads, putting in new bridges to cross the bays in the region,” Harper said. “It’s fascinating to look at the proposals that are out there, however the board of Triumph Gulf Coast won’t be officially constituted until the legislature appropriates those BP damage dollars. I’d expect to see them empowered sometime around the second week of May and that money may be able to start flowing late in 2017.”
Dr. Rick Harper serves as associate vice president for research and economic opportunity at the University of West Florida and oversees the University’s Center for Research and Economic Opportunity. He can be reached at email@example.com. CREO staff writer Mike Ensley contributed to this report. He can be reached at firstname.lastname@example.org.
This article is part of a collaboration between WUWF and the UWF Center for Research and Economic Opportunity.