Dissecting the Job Market

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A longstanding premise of mine has gone as follows: to argue that housing will continue to flourish because of San Diego's strong economy is circular reasoning, because in reality the economy owes much of its purported strength to the housing boom.

I thought it would be fun (that's right, fun) to chart out some of the characteristics of San Diego's job market during the big housing boom. I have designated as my starting point the year 2000, chosen primarily and somewhat arbitrarily as a "neutral" year for residential real estate. The depths of the mid-90s housing bust were well behind us, housing mania was still a couple of years away, and home valuations were in the middle of their historic range. San Diego's housing market was, in other words, neither too hot nor too cold. It was just right.

For the purposes of this analysis, I distinguished between four different categories of jobs. The first three are what I call the "housing beneficiary sectors." They consist of the following Bureau of Labor Statistics supersectors: Financial Activities (a supersector that includes both the real estate and mortgage lending sectors); Retail Trade (because retailers profited greatly from the housing wealth effect); and Construction (because those condos aren't going to convert themselves).

The fourth and final category is "everything else": all jobs falling outside the construction, finance, and retail supersectors.

The first chart indicates that, as expected, the housing beneficiary sectors grew much more rapidly than the rest of the economy. Over the six years in question (including estimated final figures for 2006), construction employment increased by 38 percent, finance and real estate employment by 18 percent, and retail employment by 10 percent. Employment everywhere else grew by a comparatively meager 6 percent.

Clearly, job growth was skewed towards those sectors that benefit when housing is hot. However, to really get an idea of housing's impact on overall employment, we need to look not at percentages but at the actual number of people put to work in these sectors.

The next chart shows that the housing-dependent industries have indeed been a significant (and, in 2002-2004, the primary) source of overall employment growth, although the non-housing economy has lately begun to reassert itself.

In total, the construction, finance, and retail sectors have provided 49 percent of all jobs created in San Diego since 2000.

Bullish real estate pundits constantly point out that, having weaned off our early-1990s dependence on the defense and aerospace industries, San Diego's diverse economy is no longer dependent on any job sector. The numbers would seem to indicate otherwise--that San Diego has acquired an economic dependence on housing itself.

-- RICH TOSCANO