Y B5BUSINESSTHE NEW YORK TIMES FRIDAY, AUGUST 28, 2009

wave of speculative residentialand commercial development.Overbuilding, in turn, acceler-ated the region’s already rapidpopulation growth.

In essence, many people beganmoving to Phoenix and otherparts of the Sun Belt to buildhouses and stores for the nextwave of people who would movethere. Now, that influx hasslowed or, in some places,stopped entirely.

“We’ve been on a growth sugarhigh, and you know what hap-pens when a sugar high runsout,” said Scott Smith, mayor ofMesa, Ariz., a once-small Phoe-nix suburb that has become thenation’s 38th-largest city. “Whenit stops, the punishment is se-vere.”

Now, the long-term prospectsfor these regions are cloudy.

Their political leaders thinkthat migration from the Rust Beltwill inevitably rebound, in turnreviving residential construction.But some experts are skeptical,warning that a housing boomthat was fed by reckless lendingwill prove difficult to resuscitate.

“Places that were built on realestate speculation or as retire-ment and second-home commu-nities are going to have a hardertime, unless they double downand begin to build real econo-mies,” said Richard Florida, theurban theorist and author.

Even those who are relativelybullish on recovery for the for-mer hot spots, like David Den-slow, a professor of economics atthe University of Florida, doubtthat the extraordinary populationgrowth seen in past decades willreturn anytime soon.

“Growth will never be what itwas in the 1990s, and by nostretch of the imagination what itwas in the early 2000s,” Professor

Denslow said. “That is gone.”It is clear in retrospect that in

parts of the Sun Belt, the econom-ic dependence on constructionreached unhealthy levels in re-cent years.

In Orlando, Fla., for instance,construction and real estate ac-counted for almost 33 percent ofall economic output by private in-dustry in 2006, compared with anational average of about 20 per-cent, according to data from theUnited States Bureau of Econom-ic Analysis. In the Miami, LasVegas and Phoenix metropolitanareas, as well as California’s SanBernardino and Riverside coun-ties, it was near or above 30 per-cent.

By contrast, in the Dallas-FortWorth area, 18 percent of eco-nomic activity was in real estateand construction at the peak ofthe housing bubble. In Charlotte,N.C., it was just 15 percent.

Those cities have suffered dur-ing the recession, but not asmuch as the former boomtowns.Home prices in Charlotte aredown only 11 percent from theirpeak, compared with 54 percentin Phoenix. And Charlotte’s joblosses, while severe, are alsospread almost evenly across sev-eral sectors. That is unlike Phoe-nix and Las Vegas, where joblosses in construction have faroutstripped those in other indus-tries — down by 45 percent fromtheir peak in Phoenix, for in-stance.

In Arizona, the constructionjob losses helped drive the unem-ployment rate to 9.2 percent thisJuly, up from 3.7 percent thesame month two years ago. Flor-ida and Nevada, with unemploy-ment at 10.7 percent and 12.5 per-cent respectively, are also strug-gling with high rates of jobless-ness.

While central Arizona has oth-er economic pillars, including asubstantial technology and aero-

space industry, some experts sayonly a revival in residential con-struction can provide enough em-ployment to return the region tostrong growth.

“I really think we have to startbuilding houses again to get theeconomy rolling,” said MarshallVest, a University of Arizonaeconomist who has written close-ly watched economic forecasts ofthe state for more than 30 years.

A strong housing recoveryfaces serious obstacles in all theformer Sun Belt hot spots, how-ever. Among them is the prospectthat the population growth towhich they have long been accus-tomed is stagnating, or even be-ginning to reverse.

Florida’s population shrank re-cently, for the first time since1946. According to estimates bythe University of Florida’s Bu-reau of Economic and BusinessResearch, the state lost morethan 58,000 residents in the yearleading up to April 2009.

According to estimates by de-mographers in Clark County,Nev., Las Vegas also experienced

population loss, about 9,000 peo-ple from July 2007 to July 2008.The shift amounts to a seachange for the city, which hashad average population growth of5.2 percent annually since 1991,one of the highest rates in thecountry.

(Other population estimatesfor Las Vegas, including those bythe Census Bureau, show somegrowth during this period, in partbecause the formulas used toproduce them are less responsiveto rapid change in housing occu-pancy rates. Local demographershave adjusted their methodologyto account for the increased num-ber of homes built but never oc-cupied, or left vacant by foreclo-sures.)

Stagnant and falling popula-

tions will further complicate ef-forts to dispose of the large in-ventory of unsold homes in theseregions. The housing markets inall of them are saturated withforeclosures.

Even after housing inventoriesreturn to normal levels, buildersface another hurdle: a bankingindustry that has been burned byconstruction bets in these formerhot spots.

“I think the lenders are goingto be very, very cautious,” saidJack Kyser, founding economistof the Kyser Center for EconomicResearch in Los Angeles.

Indeed, the role irrational lend-ing played in driving economicgrowth in these regions was pro-nounced. Speculation led to aspree of overbuilding, drawingthousands to cities like Las Vegasand Phoenix for constructionjobs. As these new arrivals them-selves bought homes, the build-ing boom took on a life of its own.

Retail spending surged, spur-ring a wave of commercial realestate development, in turn fur-ther lifting the construction in-dustry. “We had growth based ongrowth,” said Keith Schwer, di-rector of the Center for Businessand Economic Research at theUniversity of Nevada, Las Vegas.

When the boom ended, thou-sands of people were caught inthe aftermath.

Brandi and Eric Wynne, withfour children, bought a new homenear Buckeye, Ariz., one of themost distant Phoenix suburbs, in2007. Not long after they closedon their house, Mr. Wynne, 33,lost his job installing cabinets innew homes, and the couple fellbehind on their mortgage.

On a Friday afternoon thisJuly, Mrs. Wynne, 28, sold bric-a-brac in a yard sale while her hus-band packed boxes inside. On thecurb sat a large yellow movingvan. The bank was seizing thehouse the next Wednesday; by

that time, the family would be ontheir way to St. Louis, where theyhad decided to move.

“This was our dream home,”said Mrs. Wynne. “Now we’regiving it back.”

The bust has also hit the immi-grant-heavy working-class neigh-borhoods in the inner city. TheArizona Department of HealthServices, using a formula basedon birth trends, estimates thatabout 120,000 to 260,000 Hispan-ics have left the Phoenix areasince late 2007. Falling school en-rollments and rising apartmentvacancies in Hispanic neighbor-hoods also suggest a large out-migration is under way.

Gilberto Preciado’s home fur-nishings store, located in a work-ing-class Hispanic neighborhoodin central Phoenix, catered to theimmigrant market, selling thingslike bedroom sets and refrigera-tors. The flow of new arrivalsslowed sharply in the summer of2007, Mr. Preciado said, and bythe beginning of 2008, peoplewere leaving the neighborhood,as job losses in the building traderippled through the broadereconomy. Food City, a grocerystore in his strip mall that hadlured many shoppers, closed inJuly.

“Construction, the service in-dustry — all that started tricklingdown,” Mr. Preciado said. “It wasa domino effect.”

Mr. Preciado worked at his fa-ther’s furniture store during thelast severe downturn, in the early1980s, before striking out on hisown 15 years ago. By his esti-mate, even the 1980s recessionpales in comparison with today’sproblems.

“Back when I opened up thebusiness, I knew there were go-ing to be bad days,” he said. “Inever expected it to be this bad,though. I’ve never seen anythinglike this before.”

PHOTOGRAPHS BY JOHN COLLINS RUDOLF FOR THE NEW YORK TIMES

Gilberto Preciado owns a furniture store in Phoenix. “Back when I opened up the business, I knew there were going to be bad days. I never expected it to be this bad,” he said of the downturn.

Housing Expansion in the Sun Belt Fueled Growth, but Ends in DesolationFrom First Business Page

Brandi and Eric Wynne bought a home near Buckeye, Ariz., butMr. Wynne lost his job and they fell behind on the mortgage.

Experts say theydoubt that thegrowth of the pastwill return soon.

Dependent on Real EstateAs the real estate boom peaked, some cities’ economies became heavily dependent on construction and real estate, which may make economic recovery in those areas more difficult . . .

. . . while in some other cities, like Charlotte and Houston, real estate’s role in the economy was half as much.

Source: Bureau of Economic Analysis THE NEW YORK TIMES

METROPOLITAN AREA

SHARE OF AREA’S PRIVATE-SECTORG.D.P. FROM CONSTRUCTION ANDREAL ESTATE, 2006

Orlando-Kissimmee, Fla. 32.7Sacramento-Arden-Arcade-Roseville, Calif. 31.5

San Diego-Carlsbad-San Marcos, Calif. 30.1

Riverside-San Bernardino-Ontario, Calif. 29.2Las Vegas-Paradise, Nev. 29.1Miami-Fort Lauderdale-Pompano Beach, Fla. 29.0

Phoenix-Mesa-Scottsdale, Ariz. 27.5Los Angeles-Long Beach-Santa Ana, Calif. 24.3

New York-Long Is.-Northern New Jersey 21.8

United States (metropolitan areas) 20.5

Dallas-Fort Worth-Arlington, Tex. 18.5

20.2

San Jose-Sunnyvale-Santa Clara, Calif. 17.2

Charlotte-Gastonia-Concord, N.C.-S.C. 15.0

Houston-Sugar Land-Baytown, Tex. 14.2

%

Minneapolis-St. Paul-Bloomington, Minn.-Wis.

nounced it’s confident it has a fixand it has a new schedule, theyturn around and disappointagain,” said Scott Hamilton, man-aging director of the LeehamCompany, an aviation consultingfirm. “This is now the show-meprogram. Boeing has to get theairplane in the air.”

In June, Boeing again pushedback its test-flight schedule aftertests found additional stress insmall areas where the wingsmeet the plane’s body. On Thurs-day, Boeing executives said theywere working to reinforce theplanes with new fittings, andwould repeat the tests that origi-nally revealed the problem be-fore they undertook a test flight.

“We have a high degree of con-fidence in the fix and the time it’lltake,” Mr. McNerney said.

This month, Boeing acknowl-edged it had ordered an Italiancompany to halt production onsections of the jet’s fuselage afterdiscovering small wrinkles intheir carbon composite covering.

The setbacks have come at apainful moment for airlines andaircraft manufacturers. Businessand leisure travel is down andfreight shipments have dwindled,probably pushing airline losses to$9 billion worldwide this year, ac-cording to the International AirTransport Association.

In June, the Australian airlineQantas announced it was cancel-ing 15 orders for the Dreamlinerand delaying 15 more orders forfour years, a move that the air-line said would save $3 billion.

On Thursday, Boeing also saidit would take a charge of $2.5 bil-

lion, or $2.21 a share, because thecompany could not find commer-cial buyers for the first three testplanes. It said it still hoped to findbuyers for its fourth, fifth and

sixth test airplanes.Boeing said it would count the

$2.5 billion write-off as a cost ofresearch and development, andwould have no effect on the com-pany’s cash position. Some WallStreet analysts have estimatedthat Boeing has spent some $10billion in research and develop-ment of the 787, which could bringin more than $100 billion in sales.

While some analysts wereskeptical about whether Boeingcould stick to its timetables as itruns the planes through a batteryof tests, investors were heart-

ened by the promise of a takeoff. Shares of Boeing rose $4, or 8.4

percent, to $51.82.Analysts said that Boeing

could begin to restore any lostconfidence and ease worriesabout costs of the program bymeeting its latest deadlines.

“The adage that time is moneyis never better seen than here,”said Howard A. Rubel, an analystat Jefferies & Company. “The de-lay has cost them orders. It hascost them a marketing advan-tage. But is it fatal to the pro-gram? Highly unlikely.”

Boeing Plans Dreamliner Test Flight by Year’s End

By NICOLA CLARK

Rapidly using its cash and un-able to stem a decline in revenue,Ireland’s former flag carrier AerLingus softened its stance onThursday toward a possible dealwith Ryanair, the discount airlinewhose hostile takeover bids it hastwice fought off.

Aer Lingus said its net loss tri-pled to 73.9 million euros ($105.5million) in the six months to June30, from 21.5 million euros a yearearlier. It conceded that its bank-ers were refusing to provide newloans to finance its operations.

The situation puts significantpressure on Christoph Mueller —who takes the helm as chief exec-utive on Tuesday — to wring outfurther savings and ferret outnew revenue, or face losing its in-dependence.

Sean Coyle, the company’schief financial officer, said Thurs-day that he expected Ryanair,which already owns almost 30percent of Aer Lingus, to contin-ue to pursue a takeover of thecompany. But Mr. Coyle, a formerRyanair executive, stopped shortof saying management wouldseek such a tie-up, saying onlythat he had “no idea” if share-holders would resist a third ap-proach from its rival.

Aer Lingus has fiercely resist-ed offers from Ryanair, sayingthat they significantly underval-ued the company. Ryanair’s mostrecent offer, last December, val-ued Aer Lingus at 1.40 euros ashare. The stock closed Thursdayat 50 euro cents, down 0.6 per-cent.

Ryanair, which is barred by

European takeover rules frommaking another bid for Aer Lin-gus until January, did not addressthat possibility Thursday.

Ryanair’s chief executive, Mi-chael O’Leary, instead called onthe Irish Stock Exchange and theIrish Takeover Panel to explainwhy they allowed the Aer Lingusboard to reject its last takeoveroffer in December “on the basisof patently false claims aboutgrowth and profitability.”

An Aer Lingus spokesman,Enda Corneille, dismissed Mr.O’Leary’s claims that manage-ment misled shareholders aboutthe health of the company eightmonths ago.

Analysts said Aer Lingus wasunlikely to be forced into thearms of a suitor soon. While thecarrier’s net cash position hasfallen by almost 50 percent overthe last 12 months, it still hasabout 440 million euros.

“This is not an Austrian Air-lines kind of scenario,” said Ste-phen Furlong, an analyst forDavy Stockbrokers in Dublin.Austrian Airlines was forced thisyear to accept a takeover by theGerman flag carrier Lufthansa asits cash dwindled and debtsmounted.

The European Commission isexpected to approve that deal bythe end of the month.

For the first half, Aer Lingussaid revenue fell 12 percent, to555 million euros, with averagefares for the period dropping by17 percent. Fuel costs rose 10 per-cent, to 189.6 million euros, inpart because of a stronger dollar,while other operating costs fell 5percent, to 458.4 million euros.

If Ryanair Bids for It Again, Aer Lingus May Be Tempted

Jack Healy and Jeff Sommerdiscuss the latest schedule for

the long-delayed Boeing 787Dreamliner in Today’s Business, adaily podcast.nytimes.com/business

ONLINE: SETBACKS AT BOEING

From First Business Page

ELAINE THOMPSON/ASSOCIATED PRESS

Employees working near the wing of a Dreamliner. Stress findings have delayed the production.

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