Date: August 08, 2008
Wes Curtis, Director
Southern Utah University Office of Regional Services
CEDAR CITY — Home prices may have to fall by as much as 20 percent to jumpstart Utah’s dwindling construction market and relieve a crisis in affordable housing, Wells Fargo Bank’s chief economist said Friday at the 21st annual Utah Rural Summit.
The current housing crisis will likely be exacerbated by a projected 3-percent population growth in the second half of 2008, said Kelly Matthews, Wells Fargo executive vice president and chief economist.
“It’s not that we’re building too many homes,” Matthews said. “It’s that we’re not building enough affordable homes.”
Matthews’ address concluded the two-day summit hosted by the Utah Center for Rural Life on the campus of Southern Utah University. Approximately 150 people attended the conference, which SUU Director of Regional Wesley Curtis called “another tremendous success.”
Other events Friday included a keynote address about rural education from Rich Kendell, former Utah Commission of Higher Education, and workshops devoted to agriculture, water, energy, entrepreneurship, conflict management and regional planning.
On Thursday, Lt. Gov. Gary Herbert and Utah Agriculture & Food Commissioner Leonard Blackham discussed a state government plan to spend $2 million eliminating cheatgrass and other natural fuels that contribute to wildfires.
Other Thursday events included addresses from Matt Crow, deputy assistant secretary for the U.S. Economic Development Administration, and Salt Lake Tribune political cartoonist Pat Bagley, as well as a presentation about the $750,000 State of Utah/USU Socio-Economic Study.
In Friday’s concluding address, Matthews said the dearth of affordable housing comes at a time when resident construction permits are down 60 to 65 percent statewide, which has contributed to a job growth of less than 1 percent in the first half of the year.
“And how do we correct an affordability problem?” Matthews asked. “The average selling price of many properties will have to be discounted to sell. If prices are reduced aggressively — 15 to 20 percent — we can get on with the business of building new homes at affordable rates.”
Matthews characterized the nation’s current economic downturn as an inflation problem brought on by global demand for crude oil.
However, he added, “Wells Fargo does not anticipate a traditional recession.”
The higher cost of crude oil has sparked inflation in all other sectors of the economy. It’s that inflation, Matthews said, that has forced prices down over the past several days by decreasing demand.
As demand based on higher cost has decreased, so have prices — down to $117 per barrel by Friday morning.
In the coming weeks, Matthews said he expects the price of crude oil to continue falling, perhaps as low as $100 per barrel.
In the next six months, he added, “it’s critically important to our economy that crude oil and gasoline prices continue to edge lower.”
At the same time, Matthews said, he worries that lower prices will spark growth, construction and investment that will increase demands and send oil prices skyrocketing all over again.
“There are decisions to be made about reducing our dependence on foreign oil,” he said. “Some of them are taking place in the political arena. As we face the coming general election, we have to decide what kind of energy policy we want for the future.”
Although he’s not predicting a recession, Matthews said neither the nation’s economy nor Utah’s is out of the woods yet.
“There’s still some pain to go, but I’m confident that we can come out of it in the next year,” he said.
In his address, Kendell stressed the importance of an educated workforce throughout the state.
“There is no future for a non-skilled worker unless you want to be on the bottom rung of the job ladder,” he said.
As the global economy continues to change, Kendell said, “the big advantage will be for those states with a highly skilled workforce. The era of the high-wage, low-skill worker is on its death march, if it’s not already over.”
Utah’s economy will require thousands of skilled workers in the next decade, Kendell said. Whether students attend universities, community colleges or trade schools, some form of advanced training will be vital to securing higher-paying jobs.
Non-skilled workers will not survive economic downturns intact, he added.
“The skilled worker — the master electrician, the journeyman plumber, the construction manager — will be able to survive,” Kendell said. “The non-skilled worker will be the first laid off during hard times.”
Research shows a growing disparity between literacy and numeracy among U.S. school-age and adult populations, he said.
For that reason, Kendell said he stresses literacy at an early age and rigorous programs of study during a student’s high school years, culminating in graduation.
“A student who leaves high school without a degree is headed for poverty,” he said.
In his welcoming address Thursday, Herbert told summit attendees the state will spend $2 million to prevent wildfires. The money will be spent in 10 fire-management projects in nine Utah counties.
The federal government spent some $40 million to revive 363,000 acres consumed by the Milford Flat fire last year, Herbert said, so the Legislature’s of $2 million to prevent fires made economic sense.
Blackham said the program will involve eliminating cheatgrass, juniper and other natural fuels and replacing them with fire-resistant grasses that don’t burn as hot.
“That will make fires more manageable,” he said.
John Keith, Utah State University professor emeritus of economics, discussed results of the socio-economic study, a 10,000-subject survey of Utah residents conducted in a cooperative effort between USU and Utah’s Public Land Policy Coordination Office.
The survey included questions about watershed management, wilderness designation, grazing, and off-road vehicle impact.
Keith urged that the information be used as the Bureau of Land Management designs resource-management plans for six rural Utah districts.