Attack of the toxic housing bust

Ripple alert: Florida and California blame real estate market for a big hit on January tax revenues.

Published February 12, 2007 7:38PM (EST)

Florida tax revenues were down in January for the third straight month, a whopping $108 million under budget predictions. The reason, according to one expert: Florida's severe housing bust. The result: likely budget cuts for Florida's new governor, Charlie Crist, reports the South Florida Sun-Sentinel. (Thanks to the Housing Bubble Blog for the link.)

Amy Baker, the coordinator for the Office of Economic and Demographic Research, attributed the drop in sales taxes to a "spillover effect" from a slumping housing market.

With fewer new homes being built and sold, sales of everything from shingles and sheet metal to washers and dryers are suffering, she said. "[That] is having some feedback into sales taxes," Baker said.

Looking for evidence that the housing bust is affecting the overall economy? Try Florida, where I hear that you get can a really good deal on swampland right now. But is Florida, with its long history of run-amok real estate development, a harbinger for what is to come elsewhere, or a special case?

Florida's housing woes are manifold: insurance rates are sky-high, prompting extensive government intervention. Foreclosures are spiking, leading one opinion columnist to urge Gov. Crist to declare a one-year-moratorium on new foreclosures. The special case theory is attractive: Few states have encouraged developers to act with as much freedom as Florida, and few have seen more frenzied bursts of speculative flipping. Now the state is paying the price.

But Florida is far from alone. Just for kicks I plugged "state tax revenues California" into Google News, and what do you know, just this week, the Sacramento Bee reported that California also witnessed significant revenue shortfalls for January, which the state controller blamed on the real estate and construction industries.

Florida and California together add up to a nice fat slice of economic activity in the United States.

Bloomberg financial columnist Carolyn Baum has a smart overview out today that includes the following nugget:

The ripple effects of the housing slowdown aren't confined to the financial sector, according to Asha Bangalore, an economist at the Northern Trust Corp. in Chicago.

"Production in housing-related industries has dropped sharply in the past year," she says. "For example, production in furniture, household appliances and carpeting has fallen for five straight quarters."

A reasonable person might conclude that layoffs in these industries will compound the declines in residential construction, Bangalore says.

"Housing and housing-related employment made up a little over 40 percent of all payroll employment from November 2001 to April 2005," she says. "Employment in residential construction declined in nine out of the 10 months ended January 2007," with 104,000 jobs in residential specialty trade contracting lost since the February 2006 peak, according to the Bureau of Labor Statistics.

Revenue shortfalls in both Florida and California, while at the same time the subprime lending market is getting hammered. Let's just hope oil prices don't spike again.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

MORE FROM Andrew Leonard

Related Topics ------------------------------------------

California Globalization How The World Works