One of the more under-told stories of the Bakken right now is the change in housing. A few years ago media outlets across the country were lined up to compare the Bakken’s housing prices to Manhattan and Beverly Hills, CA.
Well times have changed and so has the Bakken housing, in many regards. In fact, one could argue one of the biggest stories in the country right now is happening once again in the Bakken oil fields.
Recently, I sat down with Mike Marcil, owner of Orange Property Management and Homestead Property Management, to discuss some of the economic trends in western North Dakota. In addition to overseeing 209 rental units in Watford City, Marcil has business interest in a number of other companies in the Bakken.
“We have been having discussions about the outlook for keeping high occupancy in Watford City over the next five years,” Marcil said. “Right now, I believe there is a great opportunity that people are not aware of in that market. Rents are beyond affordable and incomes are higher than average.”
Marcil is right about both the rents and the incomes. According to study, released by Trove Technologies, North Dakota ranked No. 6 for discretionary income among all states. The study reflects regional differences in salaries, cost of living, and taxes to report the take-home pay of American workers across 778 different occupations. Discretionary income is defined as the income remaining after deduction of taxes, other mandatory charges and expenditures on necessary items.
“North Dakota is in the top echelon of states when it comes to enabling workers to keep more of what they earn,” said Michael Pao, co-founder of Trove Technologies, in a press release. “Our research finds that housing is substantially more affordable in North Dakota than the rest of the country, with housing expenses coming in at 25 percent lower than the national average.”
Marcil challenges the findings in the Trove Technologies report.
“North Dakota should be higher than sixth!” Marcil said light-heartedly after hearing the report’s findings. “We have deep insights and experience in this marketplace and I am one of the people the Minneapolis Federal Reserve calls for their monthly economic survey data.”
Marcil continued his impromptu challenge of the study’s ranking for North Dakota.
“We have owned and managed properties in Williston and Watford City since 2007 and we were the first builders of new apartments in Williston in almost 25 years,” Marcil said. “Wages have not gone down in western North Dakota but the rents and housing costs have. US average for housing costs are around 20%, in Watford City it is now around 7-10%.”
According to a recent survey Marcil’s company commissioned:
Single Family Housing
- Average rent for all single family in Watford City is $1,500
- Average furnished single family rent is $1,700
- Occupancy has remained consistently over 95% during the past 24 months in Watford City
- Single family rental prices peaked in 2014 at $3,500 to $4,500 per month
- Single family rental prices bottomed in 2016 at $1,200 to $1,500 per month.
Rental Housing
- Average rent for all apartment units in Watford City is around $985 per month
- Average furnished apartment unit rent is $1,200
- Occupancy has increased from 68% to 79% over the past 12 months in Watford City
- Multi-family rental prices peaked in 2016 between $2,200 to $2,500 per month
- Multi-family rental prices bottomed in 2016 at $850 to $950 per month
- Average multi-unit rental rates have remained flat over the past 12 months.
“When we entered the Watford City market in 2013 the rents were very high $3,500 to $4,500 for a furnished, new single family homes. As you might know in June of 2014, West Texas Intermediate Crude was at $109 per barrel,” Marcil said. “This was the peak of all economic activity in the region. By January of 2016, oil prices bottomed at $29.67 and this marked the bottom of the cycle. Even at the lowest point in the cycle in 2016 we were able to maintain high occupancy in our single family homes by lowering our rental prices.”
Marcil added that housing prices in the Bakken are effectively the same as Fargo, North Dakota’s largest city.
“What we witnessed across western North Dakota was people starting to move out of less desirable rental units like RV parks, campers, trailers, hotels, lodges and sub-standard apartments into high end apartments and single family homes for a highly reduced price,” Marcil said. “When leases came up the tenants figured out “quickly” they were in the driver’s seat and they negotiated hard for much lower prices. Landlords who got ahead of this trend (as we did) and lowered prices stayed full and those that did not suffered high vacancy loss.”
The same can not be said for investors. According to Marcil, investors and developers who were looking for “fast money” by cutting corners or providing terrible rental units are still suffering.
“On the high end of the market companies like Blackrock and New York based private equity investment groups overpaid for land, entitlement and construction and were stuck with low rates of returns on the high end units,” Marcil said. “Quality rental operators were the clear winners by having better housing at a much more affordable price. Ironically wages have not gone down significantly (less overtime to be sure) so the reduction in living costs has actually been a blessing to the people who are living in these communities long term.”
The disposal income is a huge story for the Bakken right now. There has been a significant push for an increased quality of life in western North Dakota. US Senator John Hoeven, ND Governor Doug Burgum, the oil and gas organizations and state officials have been touting the need to invest in western North Dakota’s quality of life. Well, here it is folks. The workers in western North Dakota now have the cash and low housing costs to take advantage.
“This extra disposable income allows them to purchase more consumer items, travel and do things like eating out more often,” Marcil said. “This trend of low cost rental housing is providing new opportunities for entrepreneurs and service works (restaurants, retail, automotive) to attract workers and set up shop.”
Marcil believes the big picture take-away is that the oil and gas industry is not going away and there will continue to be a long term workforce in the area for decades to come.
“We have seen a significant pick up in activity in Watford City over the past 12 months and now that crude is approaching the magic $60 per barrel number we anticipate things will get very busy in the spring,” Marcil said. “It will not be like the boom of 2011 – 2014 and for the most part investors have soured on putting more money into the market so if we see significant increases in activity we will see prices start to increase in the rental markets. Right now we are happy to see the occupancy levels rise in front of price increases.”
