Upstate New York real estate market is stable for now: Values are holding their own

Upstate New York real estate values are holding their own in the recession. Properties below the threshold of $5-$10 million have been more stable than those above due primarily to local and regional upstate New York banks being financially solid relative to the larger national and international banks. The strong part of upstate New York has long been the relatively good balance between supply and demand. However, there are some threatening signals. Private sector companies in upstate New York have decreased employment. Since early 2000 the Rochester region has lost approximately 3.5% of its jobs, the Buffalo region 3.4%, and Syracuse 1.5% respectively. Albany and the mid-Hudson area has been significantly better. Part of the forecasted continued job loss in the private sector is due to faulty government policy. New York State and the federal government's strategy to combat the recession is focused on expansion of public sector jobs or private sector union jobs. My congressman recently stated that he can't believe the substantial construction of new offices in Washington, D.C. to accommodate more government jobs. Similarly, there appears to be continued overall increases of public employees in New York State. Government jobs are expanding at the expense of the private sector. One of upstate's most successful companies over the past five to ten years was Pioneer Credit Recovery, Inc. created almost 1,000 jobs during the last 10 years in Wyoming and Genesee Counties. Pioneer had a potential expansion of up to 500 new jobs planned a few years ago in Batavia (Genesee County). This never materialized and the Batavia operation will now be closed with the loss of 100 jobs. These back office jobs will now be handled by the U.S. government's Internal Revenue Service. These 100 jobs and certainly the potential of 500 jobs would have been a substantial boost to Batavia and Genesee County. Instead, these jobs will now be government Pioneer's jobs in Perry and Arcade in Wyoming County are also at risk. The government unions are not as efficient. Many government union jobs pay significantly over similar private sector skilled jobs when pension and health care benefits are considered. Inefficient government jobs being created over private sector jobs will only create more taxes. In the Pioneer Credit Recovery, Inc. example, federal taxpayers will be picking up the slack. At the same time, the loss of existing and future jobs will harm the economic base of Batavia, Genesee County and Wyoming County. Microchip maker AMD's $4 billion project in Saratoga County has started. However, there is one catch. New York State will reportedly subsidize this project at a cost of $1 million per job or a total cost of $1 billion. Reportedly, the cost of the project will be increased because there is a project labor agreement which mandates that approximately 76% of the construction jobs effectively must be unions. Some municipalities in New York State have mandates which stipulate projects over $250,000 to be done by companies having an approved apprentice program. This essentially eliminates non union companies. Erie County executive Chris Collins rolled back a similar program in Erie County but the unions are pressuring the legislature to reinstitute it. There is a bill in the state legislature to require prevailing wages to be paid on all industrial development agency (IDA) projects. This will further hurt employment and real estate activity. Union membership is almost 25% in New York State and growing. The growth is being fueled primarily by public sector jobs. These are examples of either creating government jobs or creating private sector union jobs which drive up the cost of all project costs in which the taxpayers are responsible. This is a violation of basic economic principles which apply in a recession that taxes should be decreased not increased. In summary, although upstate New York real estate has remained relatively strong, state and federal policy will weaken this sector in the long run. John Rynne, MAI, SRA, is the president and owner of Rynne, Murphy & Associates, Inc., Rochester, N.Y.