The boom in natural-gas drilling during the past several years may be best known for the controversial extraction procedure known as hydraulic fracturing (fracking), but there is no doubting the economic benefits to areas in which the red-hot shales are located.

The areas surrounding the Eagle Ford Shale in west Texas, the Bakken Shale in North Dakota and Montana, and the Marcellus Shale in Pennsylvania, eastern Ohio, and western New York have created thousands of jobs.

In the past, many of those working on oil and gas rigs housed themselves in camps, because the work was temporary; they’d work in the fields for a few months, go home for a bit, then return to work at the same or another site.

But that trend has changed. The shales are so vast that the work has become more permanent, and workers want to live relatively near their worksite. This has led to increased housing demand in secondary and tertiary markets such as Midland–Odessa, Texas; Williston and Dickinson, N.D.; East Stroudsburg, Pa.; and Binghamton, N.Y.

Small in Size, Large in Stature
Though the markets are small, they’re outpacing the major metropolitan statistical areas (MSAs) in factors such as rent growth. Midland–Odessa is leading the nation’s MSAs in several categories. Annual effective-rent growth in the metro was 6.3 percent during the first quarter of this year, a slight deceleration from 7.3 percent in the first quarter of 2013 but still healthy. The MSA’s 97.5 percent occupancy rate is one of the highest in the country, while first-quarter 2014 revenue growth of 5.4 percent also topped the charts.

The Eagle Ford Shale has created, since drilling started exploding in 2011, a renaissance in an area devastated by the oil bust of the 1980s. Eagle Ford’s website says the shale has produced 160,000 new jobs in the past six years. One of the primary beneficiaries has been Midland–Odessa, which, located north of the shale, has attracted many of the families working on it.

Though Midland–Odessa has healthy employment and apartment market fundamentals now, the metro couldn’t escape the Great Recession. The MSA lost an annual average of 5,000 jobs (a decline of 7.9 percent) from the second quarter of 2009 to the first quarter of 2010. During the same period, apartment effective rents dropped by 7.1 percent. Furthermore, during the downturn, occupancy averaged 92.7 percent, well below the market’s long-term average occupancy of 95.1 percent.

Then, word of early success in the Eagle Ford Shale started spreading, and energy companies pumped up their drilling. That resulted in annualized job growth at or above 8.0 percent for six straight quarters from the first quarter of 2011 to the second quarter of 2012, surpassing the pre-recession annual job growth rate of 7.0 percent seen during the third quarter of 2006. Annualized effective-rent growth, meanwhile, was at 12.1 percent or above from the first quarter of 2011 to the third quarter of 2013, peaking at 22.3 percent in the fourth quarter of 2012.

The robust annual rent growth seen during the early and late recovery periods returned to more sustainable levels, 7.3 percent and 6.3 percent, during the fourth quarter of 2013 and the first quarter of this year, respectively. The deceleration in rent growth is partly a function of deceleration in job growth, as employment growth, too, simmered down from its robust growth rates, to 1.7 percent and 2.0 percent, respectively, during the same period.

Another reason for the slowdown could be attributed to new supply. Some 1,172 units were delivered in Midland–Odessa during 2012 and 2013, with another 1,453 units expected to come on line by the end of 2014, reflecting an 8.2 percent growth in inventory.

Home of the Nation's Highest Rent
Meanwhile, 1,300 miles due north, at the site of the Bakken Shale, Williston, N.D., was recently found to be the most expensive place in the nation for apartments, with an average rent of $2,394. Nearby Dickinson had an average rent of $1,733 per month. The two cities in between were California’s San Francisco and San Jose, and both North Dakota cities had higher average rents for similar space than typically high-rent markets such as New York and Los Angeles.

iStock/Keith Szafranski Caption

And developers can’t build housing fast enough to meet the demand. Williston’s population has more than doubled in the past four years, from 14,716 to about 33,000, according to a city-sponsored study. Dickinson has seen similar growth and has a population of nearly 27,000. An apartment complex in Dickinson opened to 100 percent occupancy in December, and some new properties planned for 300 units could grow to about 800, according to local sources.

The Bakken Shale boom has even affected apartment markets 300 miles away. In Rapid City, S.D., the planning director notes that many of the shale workers rent in Rapid City. They work in the fields for two or three weeks, then come home for a week. A total of 11 building permits for apartment properties were issued from 2008 to 2011, according to public records. Some 28 such permits were issued in 2013 alone.

East, Also, Gets in on the Boom
In the eastern part of the nation, the Marcellus Shale has been a prime source of new jobs. Much like what’s occurring at the Bakken and Eagle Ford shales, the new jobs—and growing population—are pushing housing demand.

Axiometrics figures from East Stroudsburg, Pa.—just south of Marcellus—showed an annual effective-rent growth of 22.5 percent in the first quarter of 2014. Binghamton, N.Y., had about 98.5 percent occupancy at the end of 2013, though much of the rental market represents student housing for Binghamton University.

The Pittsburgh MSA is also a center for Marcellus Shale jobs and housing, but that market is quite diverse and is affected by industrial employment as well. Still, leaders in Steel City have been quoted in local publications as saying the Marcellus Shale has contributed to a boom in housing.

More than 2,000 units are in production or have been recently delivered in Pittsburgh, which could be one reason occupancy there dropped, from 95.3 percent to 94.5 percent, in the first quarter of 2014. Effective-rent growth was 1.5 percent in the quarter, below the national average.

In short, small markets such as Midland–Odessa, which has seen high peaks and low valleys during oil booms and busts; sleepy little towns such as Williston and Dickinson; and small industrial cities such as East Stroudsburg have been ignited by natural-gas drilling.

Apartments in these locations are being built faster than people can move into them, and many areas are expected to continue growing.

KC Sanjay is senior real estate economist at apartment market research firm Axiometrics, headquartered in Dallas.