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Cost of living, wages don't add up

3/20/2014

Cost of housing, wages don't add up

Cost of housing, wages don't add up

It is no secret that Hays has been in a real estate bubble for some time and it appears the closure of Montana Mike's last November might eventually prove to be the canary in the coalmine in bursting that bubble.

In addition to the closure of Montana Mike's due to unreasonably high rent demands, a string of businesses have fled The Mall in Hays for the exact same reason. It now sits half-empty, embarrassingly abandoned inside, with dozens of businesses (including many large national chains) ran out of town by rent demands so extraordinarily high they border on comical.

Most recently, Carlos O'Kelly's announced it is also leaving Hays as a result of unmanageably high rent and real estate costs.

None of these businesses were failing businesses. None of them were mismanged or poorly run. These were all established, successful businesses unnecessarily forced out by an overheated local real estate market, and taking dozens of local jobs with them.

And this does not include the countless other businesses that recently have considered coming to Hays, but ultimately were chased off by real estate costs so high they simply are impossible to make work on paper with respect to the area demographics.

Nor does it include the countless young individuals and families from Hays who have been forced to move to bigger cities because they simply cannot afford to live in or move to Hays considering income potential in relation to the cost of living. This trend is startlingly clear in the most recent U.S. Census, in which the city's longstanding population boom ground to a screeching halt in the 2000s. Between 1980 and 2000, the city's population grew by well more than 20 percent, whereas between 2000 and 2010, the city's experienced essentially no population growth at all.

The basic affordability measure used to determine the cost of living for a certain area is what is known as the "price-to-income ratio." This ratio is part of the math most businesses use to determine the appropriate costs to build and operate in a given area. It is also what economists use to determine if a particular area is experiencing a housing bubble.

It should be no surprise that the price-to-income ratio for Hays indicates real estate is grossly overvalued. The average person in Hays earns just $24,000 a year (U.S. Census, 2010). Yet a typical new construction home in Hays will cost you well over $200,000. That math simply does not work. In addition, with asking prices that easily can exceed $1 million for a single prime commercial lot (just the vacant lot), it also should be no surprise that most businesses that consider coming to Hays don't consider it for long.

While certainly it can be argued Hays has a strong "pull" or "draw" factor from surrounding communities, that doesn't change the basic math. All of the surrounding communities that are using Hays as their retail hub have demographics and income levels similar, if not lower, than Hays. Unfortunately, there is simply no economic foundation to support current real estate prices.

In other words, Hays cannot continue to offer Johnson County cost of living with Ellis County jobs and wages. It's that simple. Something eventually has got to give. It is not a matter of if the Hays real estate bubble bursts -- it's when, and that is not necessarily a bad thing.

Ryan Schremmer

Gorham

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