Comparing Housing Markets: Baton Rouge and Lafayette, Louisiana
Two recent Comprehensive Housing Market Analyses (CHMA) focused on the metropolitan areas of Lafayette and Baton Rouge, Louisiana, in the Southwest region (HUD Region 6). The Southwest region is composed of Arkansas, Louisiana, New Mexico, Oklahoma, and Texas. This region as a whole has been undergoing an economic expansion since 2011, which has spurred employment growth and led to rising home and apartment sales and decreasing vacancy rates in most major markets. Although the region as a whole has experienced economic growth, rates of growth have varied throughout the region. This article examines this variance in economic growth by looking at the effect of declining oil prices on the Baton Rouge and Lafayette metropolitan areas. The Baton Rouge report was published in August 2016 and the Lafayette report was published in October 2016.
As was widely reported, Louisiana experienced severe flooding in August 2016, which caused extensive damage to the Baton Rouge housing market area (HMA) and, to a lesser extent, the Lafayette HMA. Early estimates from the Office of the Governor of Louisiana calculated $8.7 billion in total damages, $3.8 billion of which involved damage to residential housing structures. In response to the flood damage, HUD has awarded $1.66 billion to Louisiana through the Community Development Block Grant Disaster Recovery Program to assist the communities most heavily impacted by the flood. HUD’s Economic and Market Analysis Division is monitoring the impact of the flood and will produce a report estimating the demand for housing in the area because of the flood. The Baton Rouge report referenced here will serve as a baseline to measure economic recovery in the area.
Economies Before the Flood
Before the flood, the Baton Rouge and Lafayette metropolitan areas were experiencing different economic effects resulting from decreased oil prices, and their housing markets reflected these differences.
In 2016, the Baton Rouge HMA had an estimated population of 839,100, growing 0.7 percent annually since 2010. The HMA economy was also growing; it added 7,700 jobs for an increase of 1.9 percent over the previous 12 months and increased its payrolls to 409,800 — the highest ever for the area. These employment gains were attributed largely to growth in the energy, manufacturing, and transportation sectors. The Baton Rouge HMA is located on the Mississippi River and serves as a major port in the transportation sector. Petroleum and coal products were the second-largest export in the area as of 2012, according to the most recent data. The increase in exports has had residual effects on other industries. The manufacturing sector continued to expand, adding 300 jobs during the 12 month period. Decreased energy prices have allowed local petrochemical firms to compete internationally, increasing the demand for workers in manufacturing and construction. Local chemical manufacturers such as the Dow Chemical Company and CF Industries Holdings, Inc., expanded their facilities in the area to meet demand, and ExxonMobil is planning a $200 million expansion in the area.
The Lafayette HMA population has been growing at an annual rate of 0.9 percent since 2010 and has an estimated population of 493,900, roughly 40 percent smaller than the Baton Rouge HMA. Population growth in the area is greatly influenced by the energy sector — as oil prices increase, workers move to the area for work in extraction, and as oil prices fall, workers leave the area.
Unlike the Baton Rouge HMA, the Lafayette HMA economy has been in decline, and much of the HMA’s economic downturn can be attributed to the decrease in oil prices since 2014. The Lafayette HMA lost 9,500 jobs from September 2015 to September 2016, bringing payrolls down to 208,400, and the unemployment rate increased by 0.8 percent to 7 percent during the 12- month period. The Lafayette HMA is in an oil-rich area of southern Louisiana, and four of the top 10 employers are in the mining, logging, and construction sector, which includes oil and gas extraction companies. Many workers in this industry have been laid off and have left the area in search of employment, because the decline in oil prices has reduced the need for extraction workers.
The differing impact of decreased oil prices on these two HMAs is reflected in their housing markets. In the Baton Rouge HMA, the sales housing market is balanced, with sales totaling 10,400 from July 2015 to July 2016. During the same period, the area saw 2,000 new home sales, an increase of nearly 9 percent over the preceding 12- month period. The estimated vacancy rate is 1.5 percent, which is down from 1.8 percent in 2010. Employment and population growth have contributed to a balanced sales market in the HMA. Since 2010, the number of households in the HMA has increased annually by 2,700, or 0.9 percent, and is currently estimated at 317,200.
Since 2010, renter households have made up roughly 60 percent of total household growth compared with 41 percent during the previous decade. The relative increase in renter households is attributed to tighter mortgage lending and an increased propensity to rent. The rental housing market in the area, which includes single-family homes, mobile homes, and apartment units, is balanced, but the apartment market in the area is slightly tight.
The sales housing market in the Lafayette HMA is balanced, with 4,225 total sales from September 2015 to September 2016. During the same period, there were 990 total new home sales, a 16 percent decrease from the previous 12 months. The estimated vacancy rate is 1.2 percent, down from 1.5 percent in 2010.
The area’s rental housing market is currently soft with a vacancy rate of 8.6 percent, down from 9.1 percent in 2010. The apartment market is also balanced, and the apartment vacancy rate has increased as energy workers look elsewhere for employment. These high vacancy rates can be attributed to energy sector workers leaving the area in search for employment. The high vacancy rates have slowed construction in the housing markets as well.
The Baton Rouge and Lafayette HMAs illustrate the differing impact of the energy sector on two different economies. The recently published CHMAs of the Baton Rouge and Lafayette HMAs highlight this impact. The CHMAs examine the economic situations of each HMA in greater depth, noting the growth and decline of many sectors within each HMA and their effects on local housing markets.