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The housing market in Connecticut was one of the few economic bright spots in 2002 as it clearly buoyed the sluggish State and national economies. And, despite fears of the housing "bubble" bursting, the solid performance has continued in 2003. This article will take an in-depth look at last year's housing market and provide insights as to what can be expected for the remainder of 2003.
Production
The high number of housing permits authorized drove Connecticut's strong housing performance in 2002. According to final figures from the Census Bureau, the State issued 9,731 new dwelling units in 2002, the highest level in this decade and the third highest since 1990. Demolition permits collected by the Department of Economic and Community Development totaled 1,461 units. As a result, a net gain of 8,270 units was added to the State's housing inventory in 2002 and brought the statewide housing stock to an estimated level of 1.4 million.
The majority (87 percent) of new units were single-family homes with average valuations (cost of construction as recorded on the building permit) of $178,560 per unit, a 4.5 percent increase from a year earlier. The average valuations for all units (single and multi-units) stood at $162,800, a level five percent higher than in 2001. With very low inflation hovering around two percent for the last several years, the growth rate of construction costs certainly surpassed the rate of inflation and is reflected in the home sale prices.
Vibrancy
Falling interest rates, rising income, growing population, and promising appreciations have kept the demand high for housing in Connecticut. Yet there seems to be real fear-albeit unjustified-that a collapse in the housing sector is imminent. After all, when people refer to the "bubble bursting," what are they talking about? The phrase refers to an imbalance between supply and demand. As supply soars and demand dries up, then prices plunge, and the proverbial bubble bursts.
In fact, Connecticut housing supply is well under control, averaging about 9,100 new units annually. Clearly we are not overbuilding like we did leading up to the real estate crash in the mid-80's, when new units authorized numbered as high as 30,163 in 1986. Meanwhile, the demand for housing continues unabated as the State's population increases and household formation continues to occur.
Affordability
Connecticut is a high-income state. But are homes really affordable? The index developed by Connecticut Center of Economic Analysis (CCEA) defines homes as affordable if "mortgage payments are 25% or less of gross monthly income." Using this measure, the largest concentration of least affordable housing is in lower Litchfield and Fairfield Counties. The rest of the State remains largely "affordable."
Outlook
The outlook for the housing sector remains strong despite sub-par economic performance in other sectors. According to the most recent outlook from the New England Economic Project (NEEP) forecast, Professor Ed Deak estimated new home permits should number 8,834 for 2003, down slightly from 2002 levels due to anticipated rising interest rates, higher land and construction costs, and tougher zoning regulations. Ultimately, the resiliency of this economic sector will be tested in 2003.
A new, comprehensive study by the Connecticut Center for Economic Analysis (CCEA) at the University of Connecticut shows that the travel and tourism industry boosted the State's economy in 2001 by nearly $10 billion in gross state product. According to the study, travelers and tourists in Connecticut spent an estimated $9.9 billion in 2001, generating significant fiscal and economic activity, including:
The study shows that Connecticut's travel and tourism industry (fractions of many Connecticut industries, such as lodging, transportation, eating and drinking establishments, and retail) now employs more people (13.35%) than the State's manufacturing sector (12.95%), and its finance, insurance and real estate (FIRE) sectors (8.16%). In fact, it shows that travel and tourism employment has grown faster than manufacturing and FIRE employment for the past 10 years. In 1993, the travel and tourism industry generated about 56,000 jobs, or about one third of the current total.
This CCEA study expands the scope of establishments surveyed and includes results from a tourist and traveler intercept study that sets this work apart from earlier studies of Connecticut travel and tourism. The study presents the most comprehensive look at Connecticut's travel and tourism industry to date because it includes data from more categories than previous studies. In addition to lodging, campground and marina surveys conducted by CCEA, the 2001 study includes data from day-trippers and people visiting friends and relatives resulting from 6,000 field intercept studies conducted by Witan Intelligence Strategies, Inc. of Avon, CT. Other data sources included gross lodging receipts supplied by the state Department of Revenue Services (DRS), and the Travel Industry Association's (TIA) Travelscope Study. The literature review in the full report describes some of the significant work done in other states and countries.
The extensive data collected and processed through several methodologies provides travel and tourism expenditures by type of visitor, by category of expenditure and by Connecticut county and tourism district. These expenditures represent lodging and marina sales, wagers, transportation-related sales, retail sales, restaurant sales, and, amusement and recreation sales. In turn, these sales drive the economic impact of travel and tourism in Connecticut via their flow through the economy as they in turn purchase labor (pay wages and salaries), purchase intermediate goods and services (e.g., raw food products, accounting services), pay rent and taxes, and pay the cost of goods sold (retail goods). Subsequent rounds of spending by people receiving direct and indirect wages and salaries generate a multiplier for the original sales. The sum of these multiplied changes (tourism-related sales) across all sectors of the Connecticut economy represents the total impact of the travel and tourism industry in the State.
In 2001, in terms of spending by five visitor types, those staying in a commercial lodging establishment spent $2.8 billion; those visiting friends and family spent $1.7 billion; day trippers $4.9 billion, in campgrounds $189 million; and marina visitors $349 million.
Historical Growth and Relative Size
Real growth in Connecticut's lodging sales (gross receipts adjusted for inflation) between 1993 and 1999 averaged 8% and was slightly larger than the national growth rate for this industry as reported by the TIA. CCEA used DRS lodging gross receipts for 2000 and 2001, but CCEA did not calculate economic impacts for the year 2000 because there was no study for that year. CCEA calculates year-over-year trend growth based on constant 2001 dollars (adjusted for inflation) for lodging gross receipts not including exemptions.
CCEA assumes total tourism revenue, GSP and employment grow at the rate of historical lodging gross receipts relative to the 1999 actual study values. The negative real revenue growth (-3.18%) from 2000 to 2001 reflects the recession and the exacerbating effects of September 11. This in turn reflects the decline in business travel; however, the large increase in estimated total tourism revenue in 2001 reflects the broader scope of data acquired for this study and the putative increase in leisure travel.
Travel and tourism have had the highest employment growth rate relative to the manufacturing and FIRE sectors, while holding second place in output (value added) and sales growth relative to manufacturing and FIRE.
Tourism had the highest (imputed) direct employment in 2001 relative to the manufacturing and FIRE sectors in Connecticut!
The travel and tourism industry represents more than a fourth of FIRE's value added and about one fifth of Manufacturing's value added. The travel and tourism industry represents more than a third of FIRE's sales and less than one fifth of manufacturing's sales. In relative terms, Connecticut's travel and tourism industry employs a larger fraction of the State's workers than manufacturing or FIRE.
CCEA, in operation since 1992, is an outreach organization for forecasting and analysis, and publishes "The Connecticut Economy: A University of Connecticut Quarterly Review." For more information on CCEA, or to review the full study and others, visit http://ccea.uconn.edu.
Commissioner James F. Abromaitis of the Connecticut Department of
Economic and Community Development (DECD) announced that Connecticut communities authorized
1,143 new housing units in June 2003, a 46.2 percent increase compared to June of 2002 when 782
units were authorized.
The Department further indicated that the 1,143 units permitted in June
2003 represent a 24.8 percent increase from the 916 units permitted in May 2003. The year-to-date permits
are down 4.1 percent, from 4,796 through June 2002, to 4,598 through June 2003.
The Hartford Labor Market Area
(LMA) showed the largest number (289 units) and percentage (91.7 percent) increase of permits issued
when compared to a year ago. New London and Stamford LMAs also had
net gain of 35 units and 17 units respectively. For year-to-date, only
the Hartford and Torrington LMAs showed increases in permit authorizations.
Bloomfield led all Connecticut communities with 254 new units,
followed by Newtown with 27 and Danbury and Westport with 26. From
a county perspective, only Hartford County had a year-to-date gain of
22.9 percent.
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