Falling Oil Prices Threaten Houston Building Boom - Essay Example

Falling Oil Prices Threaten Houston Building Boom
The current fall in oil prices is raising serious economic issues in America. Apparently, the effects of low oil prices are now real in America and across the world. Economists have been analyzing these effects with a view of coming up with an informed approach on how to sustain economic growth in the current conditions. Unemployment is one of the notable effects of the falling oil prices in the world with various energy companies like Halliburton Co. and Weatherford International declaring their intentions to fire more than 23,000 Americans (Brown 1). Unemployment hinders economic growth in America. Ideally, unemployment has direct and indirect impact on other industries since it reduces the earnings and purchasing power of the unemployed. I believe the unemployment derived from the falling oil prices will have detrimental effects on the housing industry especially in Houston (Brown 1).
Most of the people fired or prone to firing by energy companies in U.S come from Houston. Ideally, savings from energy costs would increase consumer spending, create more jobs, and improve earnings that would enable more people to buy homes (Brown 1). As such, the housing industry would benefit indirectly from oil savings. Indeed, reduced oil prices would encourage young buyers to join the housing market thus raising the demand for houses in Houston. However, the continued drop in oil prices and the resultant unemployment changes the above economic dynamics and assumptions. Having flourished in Houston when the energy sector was experiencing immense growth, housing developers in Houston are now feeling the heat of the falling oil prices in America. Indeed, the demand for offices is on a downward trend in Houston subject to the anxiety, uncertainty, and limits derived from the oil prices that have been falling since June 2014 (Brown 1).
Developers planned and started many of the buildings in Houston in 2014 when there were high and stable oil prices (Brown 1). Indeed, by the end of last year, construction in many buildings was on an advanced stage raising questions on the uncertain demand for these building units. The housing industry has created many jobs for the builders at building sites and manufacturers in concrete and steel companies. However, the announcement by energy companies to fire about 23,000 employees with a significant number coming from Houston demeans the imminent supply of office units in Houston (Brown 1). Apparently, the reduced numbers of employees mean companies will reduce less office space thus jeopardizing the housing industry. An increased number of employers are subleasing office space.
The developers sourced loans from the banking sector to establish the many office units in Houston further aggravating the problems in the housing industry (Brown 1). The developers hoped to repay the loans from the foreseen demand of office space. The housing industry is now experiencing increasing vacancy rates, depreciation of property value, and defaults on housing mortgages by property owners. Consequently, the increasing vacancy rates leads to lower rents that motivates many employers to lease offices. Rents are falling with the continued drop on oil prices that coerce property owners to offer incentives. Apparently, Houston is one of the cities benefiting from the lower rents (Brown 1). In the short-term, many property owners in Houston will face economic challenges. However, the situation could improve with a rise in oil prices.
Works Cited
Brown, Eliot. “Falling Oil Prices Threaten Houston Building Boom.” The Wall Street Journal, Feb. 10, 2015. Web. 5 March 2015. Read More