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Home ownership key

BY RANDI F. MARSHALL | randi.marshall@newsday.com

November 11, 2007

In the months after the World Trade Center terrorist attacks in 2001, New York City and the nation were rocked by economic turbulence. Businesses suffered, jobs were lost and tourism dropped. Experts estimated the attacks cost the city $80 billion and 100,000 jobs.

Long Island fared far better. Even as the city lost jobs, the Island gained them and soon consumer spending and home value growth buoyed the economy to new heights. While wages remained slow-growing, home prices took over as a main driver of economic growth.

That reliance on home ownership had kept the Island's economy strong for the past decade. But it may make the region more susceptible to an economic downturn in the months and years to come, as housing sales slow, prices fall or remain stagnant, mortgages fail and equity shrinks, experts say.

As a result, even though Long Island isn't seeing the same foreclosure numbers that other parts of the country are experiencing, the ripple effect may ultimately hit the area's economy harder.

"Long Island's economy is more exposed to the housing mess," said Mark Zandi, the chief economist at Moody's Economy.com, in West Chester, Pa. "The links between the housing meltdown and the economy are numerous."

Zandi pointed to the construction and service sectors of the economy, and the number of overall jobs related to housing. Indeed, Zandi's research showed that housing is responsible for 11.2 percent of Long Island's total employment, higher than New York's 8.7 percent.

From 1999 to 2005, the Island saw double-digit home price appreciation every year. Consumers would borrow off that ever-growing equity, using it for new cars, home improvement, jewelry and even day-to-day living. And since consumer spending makes up two-thirds of the region's economy, the impact was widely felt.

That, of course, was true throughout the nation as housing boomed. But the Island is in a more unique position, thanks to a combination of the area's high cost of living and housing prices, its reliance on retail and consumer spending and its lack of large businesses with extensive corporate spending.

"It was a dependence on the fallacy that you can spend your non-cash equity in housing on other things," said economist Martin Cantor, who directs Dowling College's Long Island Economic and Social Policy Institute. "It was going on all over the place, but it was more heavily done on Long Island."

At the time, industries from retail and tourism to construction and remodeling reaped the benefits. Remodeler Sal Ferro, the owner of Alure Home Improvement in East Meadow, noted that as others in the city and elsewhere suffered in 2001 and 2002, his business and others on the Island continued to grow. And remodeling, an industry that is now seeing a slowdown, played a huge role in the region's overall economic gains, he noted.

"We were very insulated on Long Island, because we had the strength of housing values to fall back on," Ferro said. "We don't have that right now, but we'll find something else."

There's the potential for limited wage gains or corporate spending to provide a buffer - but neither has as much impact as the consumer, experts said.

And already, Long Island's job market has begun to slow, creating just 5,600 jobs in the 12 months ending in September. By comparison, a year ago the job growth from September 2005 to September 2006 was 8,100. In 1999, Long Island grew by more than 40,000 jobs in the same period.

Yet, said New York State Labor Department market analyst Gary Huth: "I'm not convinced it [the housing slowdown] is going to be a real drag on the economy."

He explained that the growth in commercial construction and other industries may offset a residential downturn.