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Connecticut Economic Digest: July 2000 issue
Housing Sector Remained Strong in 1999 | Industry Clusters | Housing Update | A Closer Look at Worker Displacement

Housing Sector Remained Strong in 1999
By Kolie Sun Chang, Senior Research Analyst

The number of State housing permits issued in 1999 was just under the 1998 level, which was the highest number of permits authorized in the last decade. As the lead agency in housing issues, the Department of Economic and Community Development keeps track of monthly new residential permits and other housing related matters. The following analysis will describe different aspects of the Connecticut housing sector.

Housing Trend Analysis

In the mid 1980s, the real estate sector was booming in Connecticut and in one year alone the State issued over 30,000 new residential permits. Permit activities then declined each year until 1991. The housing industry was hit the hardest in the early 1990s when the economic recession caused corporate layoffs, high unemployment, and low consumer confidence. Newly authorized permits plunged to 7,700 in 1991, but have climbed back to a peak of over 11,000 units in 1998, the highest level of permits issued in the past decade. Permit activity was sustained in 1999 at 10,637 units.

Comparing 1990 to 1999, new housing permits authorized increased almost 32 percent at the State level. Among the counties, Tolland, Middlesex and Fairfield Counties outpaced the State level with percentage increases of 121 percent, 116 percent and 44 percent respectively during the same period. Windham County was the only county to post a decrease, from 422 units to 392 units.

Total Housing Production and Demolitions

According to the latest release from the Bureau of the Census, Connecticut issued 10,637 new permits in 1999, the second highest in the decade. In terms of single family permits issued, there were 9,249 units in 1999, the highest volume since 1990. Construction of duplex and 3 or more unit housing has decreased over the years. Statewide multi-units were down 39 percent from 2,284 units to 1,234 units. Fairfield County had the largest percentage increase of single family units, a 133 percent increase, from 753 units authorized in 1990 to 1,758 units in 1999. Windham County had the smallest increase of six percent in single family housing permits authorized during the same time.

DECD recently conducted its annual survey of Connecticut's municipalities to collect demolition information. This year's effort yielded an 85 percent response rate. The City of Hartford had the largest volume of demolitions, 288, followed by Bridgeport with 274, Waterbury with 146, and New Britain with 108. (The City of New Haven did not reply to our survey.) This vigorous demolition activity will translate into more new permits authorized and more new buildings constructed in the long term.

Construction Value and Home Sales Prices

The cost of construction has been on the rise over the past decade, especially for single-family units. The average construction cost for a single-family unit was $148,435 in 1999, a 36.4 percent increase from $108,849 in 1990.

The median sales price of single family homes was $136,000 in 1996 while the average price was $194,593. In 1998, the median price of new homes was $145,000, representing an increase of 5.1 percent from 1996, while the average price increased by 10.6 percent to $215,173. The increasing divergence between the median and average sales prices is a sign that more very expensive homes are being sold, boosting the average. Home sales also jumped significantly, by 27.8 percent, from 1996 to 1998 due to the robust economy, including strong job and income growth, low mortgage rates and near-record high consumer confidence.

Rental Rates by Bedrooms

Regional Financial Associates' (RFA) estimates that 61 percent of Connecticut's housing stock was owner occupied at the beginning of the last decade, and homeownership increased slightly to 62.3 percent by the year 2000. Conversely, the share of rental units declined from 31.8 percent in 1990 to 27 percent in 2000. The vacant unit share increased from seven percent to 10.6 percent during the same period.

The statewide average rent for a 3-bedroom unit went from $712 in 1990 to $801 in 2000, a 12.5 percent increase over the decade. Currently, Fairfield County leads all counties with the highest average rent of $977, compared to the lowest rent in Windham County of $631 for a 3-bedroom unit. New London County showed the highest rental rate growth from $620 monthly to $748, followed by Hartford County, Middlesex County and Litchfield County. New Haven County showed the smallest growth of 5.4 percent. The rental data suggests that higher rents may be a factor behind the aforementioned increase in homeownership.

Conclusion

In conclusion, permit growth was sustained. New housing authorizations increased. Seven out of the eight counties showed a production increase over the decade. A large number of city demolitions suggests that revitalization is occurring. Homeownership continued to grow. All signs point to a strong housing sector.


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Industry Clusters
Cities Championed

On May 16, 2000, Governor John G. Rowland announced a $5 million statewide strategy to promote inner-city revitalization through business development. The strategy is the outcome of the Connecticut Inner City Business Strategy Initiative, a year-long partnership of the Governor's Council on Competitiveness and Technology, the Department of Economic and Community Development (DECD), and the Initiative for a Competitive Inner City (ICIC). Through this initiative,  local leaders in Hartford, Bridgeport, New Britain, New Haven, and Waterbury developed market-based strategies to increase the income, wealth, and employment opportunities for inner-city residents by promoting business development.

Over 200 corporate, government, and nonprofit leaders in the five target cities have been actively involved with guidance from the Initiative for a Competitive Inner City (ICIC), a non-profit organization founded by Harvard Business School Professor Michael E. Porter. Leadership teams in each city developed strategic action plans based on a careful assessment of their inner city.

Each city's efforts were led by a City Champion - a local CEO who led the city's Advisory Board, composed of 20-25 business, government, and community leaders who provided feedback on research findings, oversaw strategy development, and led the transition to implementation.

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HOUSING UPDATE
May Permits Up 11.9 Percent from April

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development announced that Connecticut communities authorized 863 new housing units in May 2000, a 2.6 percent decrease compared to May of 1999 when 886 units were authorized.

The Department further indicated that the 863 units permitted in May 2000 represent an increase of 11.9 percent from the 771 units permitted in April 2000. The year-to-date permits are down 11.2 percent, from 4,284 through May 1999, to 3,804 through May 2000.

New Haven County documented the largest number of new, authorized units in May with 172. Hartford County followed with 162 units and Fairfield County had 160 units. Danbury led all Connecticut communities with 32 units, followed by Southington with 27, and Avon and North Haven tied at 16.

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A Closer Look at Worker Displacement
By Joseph Slepski, Research Analyst

Why do workers lose their jobs? This is a seemingly simple question with seemingly straightforward answers, but not so fast... Job loss can result from a variety of personal and outside factors. Personal factors include things like skill competencies, work ethic, attitude, etc. Outside factors can include business downsizing and restructuring. Why do these cutbacks occur? To answer that question, the entire economic picture for an area must be reviewed. For this discussion, let's look at the State of Connecticut.

40,600 Jobless

With a labor force approaching 1.7 million people, Connecticut has recovered quite nicely from the recession of the early nineties. Current employment is at 1,694,600, which is the highest level ever. The unemployment rate is 2.4 percent, which is near a record low. While these numbers show that Connecticut is doing very well, there are still 40,600 people who don't have a job. In this economic environment, why do people lose their jobs?

Shifts in the Labor Market

As mentioned earlier, payrolls are at record levels. The dynamics of the market, however, have changed. At the end of the eighties, more than a fifth of all workers were employed in factories; currently, manufacturing comprises just sixteen percent of total employment. In terms of numbers, employment levels in factories have declined by nearly 80,000 since 1990. In Connecticut no other industry was hit by the recession as hard. In contrast, employment in the transportation, communications and utilities sector has increased by nearly ten percent during the last ten years, while employment levels in the service sector have grown by a whopping twenty-seven percent.

Worker Displacement

According to a study conducted by Steven Hipple of the United States Department of Labor, Bureau of Labor Statistics and published in the July 1999 Monthly Labor Review, worker displacement rates in manufacturing industries in 1995-96 were running at 5.1 percent nationally, which was by far the highest of all industries. On an occupational level, blue-collar workers had a displacement rate of 3.5 percent as opposed to a 2.9 percent displacement rate among workers in white-collar jobs. Mr. Hipple's study reported the following reasons for job loss: fifty percent of those who lost their jobs cited plant or company closures, thirty percent had their position or shift abolished, and the remaining twenty percent lost their jobs due to insufficient work.

These trends appear to be true in Connecticut also. While overall employment has gone up by 25,800 in the last year, a closer look shows that 4,600 jobs were lost among the manufacturing industries. Various manufacturers in Connecticut have eliminated jobs due to the previously mentioned reasons, as well as for other reasons including unprofitability, declining sales, fewer contracts and increased global competition.

Mr. Hipple's report also offers some positive comments on what happens to workers who lose their jobs during a period of low unemployment. He notes that having robust national and local economies does provide relief to workers who find themselves out of a job. According to Mr. Hipple's study, the median period of joblessness was 7.6 weeks. The rate of reemployment ranged from over eighty percent for those without a high school diploma to ninety-three percent for those with a college degree. The new jobs had a slightly lower (four percent) rate of pay, though.

Those who have experienced joblessness may often switch industries in an effort to regain employment. In today's economy, those who formerly worked in factories will find a greater number of jobs available in the trade and the service industries, which are the fastest growing. Indeed, many employers are having great difficulty filling existing positions in these industries.

Citing the previously mentioned study, it should be noted that over half of the factory workers who lost their jobs had been in their position for under three years. But even short-term employees tend to have higher earnings in manufacturing jobs than do many workers in trade and service industries. Some workers will remain unemployed trying to find a job with a salary that better compares to their factory income. There are indications that many individuals who are taking early retirement offers from companies downsizing for economic reasons are looking for other types of work. Receiving retirement income gives these people added flexibility for accepting another line of work. This factor should make the transition to a different industry somewhat less difficult than it might be for those who need to fully replace their past salary.

Conclusion

While the information mentioned in this narrative does not give all of the answers to all of the questions about job loss, it does provide a few interesting facts. Connecticut residents have lost and will continue to lose jobs in good times and in bad. Presently, however, the statewide economy is strong enough to absorb these cutbacks and provide new opportunities for those who have been displaced.

SOURCE: Connecticut Center for Economic Analysis, University of Connecticut. Developed by Pami Dua [Economic Cycle Research Institute; NY,NY] and Stephen M. Miller [(860) 486-3853, Storrs Campus]. Stan McMillen and Jingqui Zhu [(860) 486- 3022, Storrs Campus] pro provided vided research suppor support.

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Published by the Connecticut Department of Labor, Office of Research
Last Updated: October 15, 2002