BOCA RATON, Fla. — On the campaign trail, Jeb Bush has repeatedly emphasized his record overseeing Florida’s boom economy as the state’s governor. He says it’s an example of an economy that created a huge number of jobs and benefited the middle class — an example of what he could do as president. “I know how to do this,” he said in Maitland, Fla., on Monday.
But according to interviews with economists and a review of data, Florida owed a substantial portion of its growth under Bush not to any state policies but to a massive and unsustainable housing bubble — one that ultimately benefited rich investors at the expense of middle-class families.
The bubble, one of the biggest in the nation, drove up home prices and had many short-term benefits for the state, spurring construction, spending and jobs. But the collapse of the housing bubble as Bush left office in 2007, after eight years of service, sent Florida into a recession deeper than that in the rest of the country, and hundreds of thousands lost their homes.
“Who got hammered? Lower- and middle-class America,” said Marshall Sklar, a real estate investor who, like other well-off financiers operating in the state, has benefited from the wreckage.
Sklar recently won an online auction for a small stucco condominium in Boca Raton that a married couple had bought in 2004 for no money down. They borrowed against it as the state’s housing bubble inflated and then, like so many others, had to walk away heavily in debt when it burst.
After buying their busted dream, Sklar flipped it to a wealthy investor, banking a commission. His investor will probably earn a 12 percent return by renting out the condo. The value of the condo was redistributed upward, like so much of Florida’s housing wealth in recent years. “You took it out of the sheep and gave it to the wolves,” Sklar said after touring several houses he recently bought at bargain prices.
The story of this house and its owners is in many ways emblematic of much of the experience of Florida’s economy in the 2000s — a story that contrasts sharply with the record Bush recounts.
“We made Florida number one in job creation and number one in small-business creation,” Bush said in Miami as he announced his bid for the Republican presidential nomination. “One point three million new jobs, 4.4 percent growth, higher family income. . . . That is the record that turned this state around.”
As governor, Bush pursued a classic conservative economic strategy: He cut taxes and sought to limit regulations on businesses. In his 1999 inaugural address, Bush lamented “the crushing weight of taxes, regulations and mandates on Florida’s families and entrepreneurs.”
Bush signed billions of dollars’ worth of state tax cuts into law, including temporary sales tax holidays and reductions in corporate taxes.
His largest cuts were for taxes on investments. Critics said those cuts largely benefited the wealthy; supporters said they helped unleash more economic activity, which boosted poor and middle-class workers.
Bush also contracted out some state services to private companies, reduced the size of the state workforce, pushed limits on legal liability and curbed regulations on private industry. He attempted to diversify the state’s economy by spending $500 million to lure a biotechnology research facility.
Bush campaign officials say it is fair for the former governor to take credit for Florida’s growth under his watch but not blame for the downturn that followed. Under Bush, the Florida economy grew more than a percentage point faster, per year, than the nation’s.
“His overall economic record is impressive,” Kristy Campbell, a Bush spokeswoman, said in a statement. “The governor’s policies, including tax cuts, education reform and junk lawsuit reform, created a strong environment for job growth, which encouraged nearly three million people to move to Florida during his two terms.”
But economic analysis suggests that much of that superior performance — at least half of the difference between Florida’s growth and the nation’s — was driven not by any policy initiatives but by a rapid increase in housing prices. When those prices fell sharply, the state’s economy crashed.
It is a “huge stretch” for Bush to hold up Florida’s growth as a model for the country, said Stan Veuger, an economist at the conservative American Enterprise Institute who is not affiliated with any presidential campaign. “I don’t think you can replicate that growth, from a state with one of the hottest housing markets in the nation, in any sustainable fashion,” he said.
Consumer advocates in Florida say Bush’s administration did little to slow that run-up. Other states, such as Texas, had stricter lending standards for home buyers that minimized their housing bubbles and the damage from the ensuing recession.
In the four years after Bush left office, median income in Florida declined by $5,700 — more than a 10 percent drop and double the percentage drop for the nation as a whole. The typical Florida family’s net worth fell 60 percent in that time, according to the Census Bureau. In a state where so much of the economy revolves around real estate, and where many foreclosures that began years ago are only now winding through the court system, there are 200,000 fewer families who own their homes than there were in 2005.
Many of those families now pay rent to Wall Street firms. Institutional investors have bought up huge inventories of Florida condos and single-family homes, often at foreclosure auctions where they pay less than the assessed value of the properties. They’ve watched the value of those properties rise as the housing market heats up again — and they’ve charged escalating rents to people who no longer own their own homes. Florida metro areas have the largest concentration of investor-owned homes in the country, according to RealtyTrac data.
“This whole thing,” said Thomas Ice, a former corporate lawyer and real estate speculator who now represents hundreds of South Florida homeowners fighting foreclosure, “has been one of the great land grabs — transfers of property to the oligarchs — in the history of the United States.”
Florida’s economy has always revolved heavily around selling the state — to tourists, to retirees, to fellow Floridians — and Bush wasn’t the first governor to have climbed a real estate Matterhorn to economic success.
Housing prices rose 10 percent a year in Florida throughout Bush’s first term. By 2005, near the end of his second, they were increasing by 30 percent, more than twice the national average. Only a few other states were seeing such rapid increases. As Florida’s prices ballooned, so did the typical family’s net worth.
Sklar was a freshman at Florida Atlantic University in Boca Raton when he bought his first condo, for almost nothing down. The next year he borrowed against its value to buy another condo. By the time he graduated in 2005, he’d bought five or six more. In 2006, he cashed out his portfolio, clearing nearly $1 million in profit.
“You know the saying, when your cabbie gives you stock tips, sell?” he said. “That was happening” — but for house-flipping. “Teachers, police officers, they were buying and selling.”
State construction employment rose by 50 percent during Bush’s tenure, and real estate employment grew by 40 percent — twice as fast as in the nation at large. The boom helped attract the largest wave of new residents in state history, and rising home prices drove Florida consumers to spend a lot more money because they felt wealthier.
Economists at the real estate Web site Zillow analyzed the increase in housing value in the state from 1998 to 2006 and calculated, based on a conservative reading of economic research, that inflating prices explained about half of Florida’s faster-than-the-nation growth through the peak of the housing market.
It is “empirically inescapable” that “housing was a big part of the robust Florida economy at the time,” said Stan Humphries, Zillow’s chief economist.
Housing quit boosting Florida’s economy when price growth slowed to a stop in 2006, Bush’s last full year as governor. The state economy shrunk by an average of 2.4 percent a year from 2007 to 2010, while the nation averaged 0.3 percent growth.
“It just crushed retail,” said Brad O’Connor, director of economic research for the Florida Realtors group. “The uncertainty, and everyone being suddenly worried about being able to pay their mortgage, really affected the economy.”
While home prices fell, Sklar earned a real estate agent’s license and opened a brokerage firm. By 2012, he saw that prices were ready to rebound. He started buying properties again, both with his own boom-time windfall and with investment partners and associates in his brokerage. His biggest partner was a friend who had worked at a hedge fund before quitting to invest in Florida housing.
On a sunny weekday, Sklar was lounging in a cramped conference room, in jeans and a lavender polo shirt, talking into a cellphone to an investor and watching text messages scroll on a laptop screen. Time was ticking down on the county foreclosure auction, and Sklar beamed it onto a big screen over the table.
The condo’s former owners owed nearly $164,000 on it. Sklar’s winning bid with his investor was $87,000. The couple, wherever they are, will still be on the hook for the difference. The investor will immediately start drawing rental income.
“It was a good one,” Sklar texted the investor. “Best price in a while.”
Soon after, Sklar slipped into his white Toyota Prius to visit several properties his team is working to flip. It was a tour of housing carnage.
There was a low-slung pink stucco house in an immigrant neighborhood in Boynton Beach, next door to Boca Raton. Its owner was halfway through a $40,000 mortgage when she refinanced and borrowed money to add four bedrooms, a bathroom and a new roof. The money ran dry, the work was never finished, and the bank foreclosed. The woman now rents a one-bedroom apartment from Sklar. He’s finishing the extra rooms and is about to sell the house, for more than $50,000 profit.
There was a tan ranch-style on a street where several police officers live, a blue-collar neighborhood with canals running through it. A comedian had owned this house, laid Brazilian cherry floors throughout and filled it with leather furniture, a pool table and a six-figure kitchen remodel. Sklar bought it, post-foreclosure, for less than $200,000, and he expects to clear up to $100,000 profit on the resale.
Sklar’s own house is 3,600 square feet, near a lake but not on it, bought at foreclosure for $400,000 and now worth about $700,000. He also owns a boat, which he takes out spearfishing every Friday. It’s his only real escape from his dream-salvaging business.