Almost two years after the start of the worst oil price crash since the 1980s, affluent Houston residents are among the hardest hit. This is mainly because the compensation for oil and gas executives is made up mostly of shares that have taken a nose dive, which has impacted housing prices. While overall sales of single-family homes have dropped only 2 percent, the sales of houses above $500,000 have gone down as much as 9 percent. In River Oaks, a Houston neighborhood well known for its mansions, the average sales price of a house has dropped from $2 million to $1.3 million since the middle of 2014. Median house sales prices are already down more compared to the previous oil slump in 2008 and 2009 when prices dropped about 16 percent. Paige Martin, a Keller Williams broker who specializes in the neighborhood said, “When oil does well, River Oaks does well. When oil does bad River Oaks does bad. Not everybody can afford a $10 million house.”
Though Houston’s economy is more diversified than it was in the 1980s when the city shed 13 percent of jobs, it remains the home to more than 5,000 energy-related firms. More than ever before, the pay of oil and gas executives is contingent on the energy market. In 1992 US lawmakers passed a law that encouraged performance-based pay and since then the share that stock options take up in a compensation package has climbed ever since. According to Dave Bixby, head of the Houston office for Pearl Meyer compensation consultants, “70 to 80 percent of CEO compensation is in stock on average for oil and gas companies. As a result, they are far more exposed to commodity price cycles.”
Luxury car sales are also lower in Houston than in other parts of the country. Earl Hesterberg, CEO of Houston-based Group 1 Automotive Inc, said, “If you’re working for an energy company, you see all this stress around you, it might nick your purchase confidence, even if you are fairly high income.”
Another sign of the downturn can be found at Ouisie’s Table, a well-known River Oaks restaurant that know offers an “Oil Barrel Bargain” which is a three-course meal for the price of a barrel of oil, currently hovering around $30.
Oil executives are not the only ones struggling, many blue collar jobs have disappeared too, both in equipment production and in middle management for oil exploration and production. Matthew Clemonds, who previously mapped for pipeline companies, is now an Uber driver to give you an idea.
Both NAI Partners, a real estate consultancy company, and government data shows that overall job growth has slowed significantly, housing starts are down and subleasing of new office space is increasing. However, the local economy shows signs of resilience, as evidenced by the fact that 20,000 jobs were added last year, bringing employment just over 3 million. “This is the best oil price downturn we have ever had,” said Ted Jones, chief economist at Stewart Title Guaranty Company. “We still have more jobs than we have ever had in history.” Bill Gilmer, a University of Houston economist, points out that ever since 1969 Houston has consistently ranked among the fastest-growing US cities. Meanwhile, in the energy sector, about $50 billion is slated for investment in new petrochemical plants to take advantage of cheap supplies.