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Headin’ south

Going down/Wikimedia Commons

The exodus from Alaska continues; the long-running recession lingers; and Anchorage witnessed the biggest growth in new residential construction in five years.

Go figure. State Labor Department economist Neal Fried said he doesn’t know what to think.

Is it possible to grow while shrinking?

Well, maybe. Residents of the tiny Central Alaska community of McGrath several hundred miles north of Anchorage on the other side of the Alaska Range mountains have been joking for years about the community’s footprint steadily expanding as the number of residents steadily creeps down.

Home to more than 500 people in the 1990s, the old refueling stop for Lend-Lease pilots flying aircraft to the Soviet Union during the Second World War is down an estimated 316 hearty souls, a 30 body drop from the start of the decade.

But the population which once clustered tight along the Kuskokwim River is now spread out along 15 miles of road.

Crazy as it might sound, Fried thinks something similar could be happening in Anchorage as record low mortgage-interest rates encourage citizens in Alaska’s largest city to scale up and spread out.

It appears, he said, that “more million dollar homes than ever were built in Anchorage this year.

“This is happening all across the country.”

The phenomenon isn’t everywhere, but it is out there.

Pandemic upside?

“Second Homes Are Driving the U.S.’s COVID-19 Building Boom,” Barron’s headlined in November, citing a 24 percent October surge in home sales nationally.

Construction was up enough to cause problems in some locations. Lumber was in short supply in Anchorage at times this summer, and Newsweek reported that a national trend as Americans purchased new homes and “months-long quarantines enacted throughout the country caused a spike in do-it-yourself projects.”

There is no readily available data on second home sales in Alaska, but given Alaska is one of the best places in the world to vacation in the summer, there is no reason to believe the state wouldn’t follow the national trend.

Local real estates prices are reported to be up 5 to 6 percent in keeping with The Economists reporting on rich world conditions.

But Fried cautioned that “it’s not like we have a booming housing market” in the 49th state, noting that a significant part of the increase is clearly tied to a construction market that has been depressed since oil prices began slumping years ago.

“We had very slow growth in our housing market for a long time,” he said. “We didn’t build a lot for a long time.”

Some old housing in the market needing replacement, and some people homebound by lockdown clearly decided it was time for something new or better. The result was more of building spurt than a boom.

Still, even a spurt in home construction in an economy in recession and struggling with the pandemic is rather unpredictable.

“It is weird,” Fried said.

Headed south

Labor last week reported the state’s population “decreased by 3,048 people – 0.4 percent – from July 2018 to July 2019. This was the third straight year of decline for the state’s total population, which peaked at 739,649 in July 2016 and stands at 731,007 as of July 2019.”

Anchorage was the state’s biggest population loser, but its housing market might have been helped by a continuing increase in old folk. The number of Alaskans 65-and-older went up by almost 5 percent while the state population was going down.

Once the youngest state in the nation, Alaska has been steadily aging over the decades. With a median age of 34.6, it is now second behind Utah at 31 and fast closing on Texas at 34.8.

For comparison sake, the media age in Anchorage was 23.2 in 1970.

All indications are that the demographic trends continued into 2020 as tourism – Alaska’s largest employer, especially of the young – took a big economic hit due to the pandemic although there, too, there were some twists.

Fried noted that his son, who had been working in the tech industry in California, moved back to Alaska when it became obvious the days of work from an office would be on hold indefinitely.

“He works remotely here,” Fried said and has tried to entice former coworkers north.

There is a lot of speculation on what the pandemic push to working from home will mean long term. Some places have tried to boost their economies by promoting remote workers.

Finland, a European leader in tech, in November announced a “90 Day Finn” program promising those who qualified “a free, 90-day Helsinki relocation package.” The offer came at a time when the Scandinavian country was also boasting one of the lowest COVID-19 death rates in the world.

“Finland has seen a surge of interest in applications for residence permits from abroad in the past six months, following a wider global trend of the tech industry expanding away from traditional city hubs such as Silicon Valley, as tech workers search for a better quality of life,” Business Finland claimed on the prnewswire. 

“Birthplace of Nokia, the SMS and 5G, Finland is technology superpower and leader in cybersecurity thanks to its active cooperation between public and private sectors,” the pitch boasted.  “Salaries remain competitive with roles in IT amongst the highest in Europe.”

Selling Alaska

Alaska is no tech superpower, but Fried noted it does have a very high quality of life for those interested in outdoor recreation and offers a refuge from global warming. Climate models predict Juneau will become more like Seattle and Anchorage more like Juneau as the planet continues to warm.

The state has, however, done nothing to sell that image, and it is at this time not in the interest of Alaska residents to promote the state. The Alaska budget remains heavily dependent on oil royalties and taxes, the latter of which have crashed as oil prices have fallen.

The result has been annual state budget woes, and those are not helped by new residents demanding services in a state with no sales or income taxes to force new immigrants to help pay for education, health care, law enforcement, roads and more.

Which is not to say Alaska won’t once again become attractive to young people as it was in the 1970s.

“Are we going to benefit or not?” Fried asked. “It’s an interesting question with this whole remote working shift. Will Alaska be a beneficiary? I’m not sure yet.

“We lost a lot of jobs last year (2020) – 8 or 9 percent. It’ a deep recession.”

But younger Alaskans don’t seem to be panicking about it the way some older Alaskans have, and the psychological influences on economies can be huge.

The views of those who were in Alaska in the ’80s are colored by the oil crash of that era, Fried said.

“It caused a lot of economic trauma,” he said. The housing market collapsed. Condominiums were left empty all over the city. Neighborhood shopping malls were boarded up.  The people who lived through the period were left extremely nervous.

Fried was one of them and say friends from that time now regularly ask him “should I sell my house now?”  But that doesn’t seem to be a majority view.

“Most people arrived in the last 20 years and know nothing about it,” he said. “It’s a good time to sell. So maybe it’s a good time buy. Because of things like this, i’m not willing to predict” what happens next.

 

 

 

 

 

 

16 replies »

  1. Last Word. How do you get your information that forms the basis of your beliefs (value system)? Unfortunately most people don’t even realize who’s pulling their strings….

  2. “It’s a good time to sell. So maybe it’s a good time buy. Because of things like this, i’m not willing to predict” – so much for being an economist…

    • Steve O, to an earlier discussion:(stupid I know., but consider the source)
      “The Centers for Disease Control and Prevention (CDC) says to stem the spread of COVID-19, all Americans should wear a mask.

      The New York Times says if one mask works, maybe two will be twice as nice.

      “Football coaches do it. President-elects do it. Even science-savvy senators do it. As cases of the coronavirus continue to surge on a global scale, some of the nation’s most prominent people have begun to double up on masks — a move that researchers say is increasingly being backed up by data,” the paper writes.”

  3. Craig, I am glad you can get Neil Fried to talk to you. I wonder what my old acquaintance Gunnar Knapp has to say. When he was at ISER I believe he recommended an income tax in order to sustain the Dividend. I wonder if he still feels the same way?

    • Think about how many millions were spent to support that Socialist pogram! Yes, a pogram, not a program. Indefensible at this point. Maybe Gunnar had no part in it. I hope that is the case.

      • Oops by “pogrom” I meant “persecution of a minority group”. Not Jews per se.

    • I believe ISER’s opinion was that an income tax would be less harmful to the economy than cutting the Dividend or cutting State government”. What blind ignorance! I will give you better advice at half the price! LOL I just shake my head that government funded institutions can issue propaganda like that. How can unsubsidized and unfunded opposing opinions fight back against it?

  4. What you claim is somewhat true. But you don’t list the downside of Socialism which among other things creates “perverse incentives” for self-defeating behavior. The Finns are a mature homogeneous culture. Much different than Alaskans in particular.

  5. A shrinking Alaska economy means a shrinking Anchorage economy means a shrinking population. Our economy has already shrunk (shrank, shrinked) by billions per year. It seems likely that it will shrink by billions more this year The end of the Dividend (which I support) and the continuing exodus of population is the natural real-world result This is a necessary step in re-building the future of the State. I hope we don’t need an oil tanker to hit a reef or other natural or man-made disaster to bail us out again.

    • Problem chris,
      The way i see it is.To rebuild the state requires selling something,or a service that others want (exports).
      And that alone wont do it,high royalties due the state are necessary as well.
      We could probably find something to sell, but the hefty royalties would be a problem.
      And we dont want to pay taxes to live in basically an uneconomical part of the world,so we’ll just spend down our savings and not worry to much about making course changes (till we really have to).

      • Til we really have to? What more will it take? The State went into deficit spending starting 5 years ago and exhausted all our emergency budget reserves. Now it is projected that we will still have a deficit with a zero Dividend. Raiding the Permanent Fund (beyond the statutory 5%) is now on the agenda. Unthinkable…..

      • From my conservative point of view, the healthiest thing we can do is be very happy with a very low income tax and also the old “school tax”. None of this can be done without ending the Dividend first. We are incredibly fortunate that we have a Permanent Fund to partially subsidize the cost of our State government. I’ll leave the debate over oil taxes and downsizing the government for a later date….cheers

      • Chris,
        All those points sound good.
        Certain factions get all wadded up over revenue nomenclature.You can call it whatever you want;inc tx,sales tx,prop tx,or “smaller dividends “,X reserve acct.
        But the bills are what they are,and they will get payed.Or you can just let things go to sh*t
        Our crude still has value,but when you go from 25% of countries production to ~5%,thats all you need to know.At this point its not just a production problem.

  6. I guess the Finns high taxes, healthcare for all, and cradle to grave system of govt isnt as bad as you once thought. Glad to see you’ve bought in.

    • I bought in Phil because Finland is Capitalist country and not the ttpical “utopian” Socialist chithole. I think your are confusing Finland with Venezuela and all their Socialist prosperity. Next……

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