The Post has a look at the ongoing economic meltdown in Phoenix today, which mirrors conditions in other sunbelt boom areas around the nation. Key stats: the state of Arizona is facing a $1 billion budget shortfall. Output is expected to contract in the region this year, where last year it grew by 7 percent. And 13,000 homes are in foreclosure in Maricopa County. That’s a lot of homes.

But here’s the scariest part:

[H]ousing is the biggest component of the local economy, with construction accounting for nearly one in 10 jobs, or about 50 percent more than the national average.

“Our economy out here is based on residential growth. That’s our engine,” said William A. Gosnell, a principal in Lee & Associates, one of Phoenix’s largest commercial real estate firms. But with housing inventories and foreclosures up and prices down, residential construction slowed to a crawl, crippling the overall economy in the process.

How could housing come to represent such an enormous part of the economy? For the last decade, Maricopa County increased its housing stock by at least 3 percent per year–that’s in the neighborhood of 40,000 to 50,000 new homes per annum. In 2007, well after the housing bust had descended upon the area, the county still approved permits for 30,000 new homes. The Los Angeles metropolitan area, by contrast, home to four times as many people as Maricopa, approved 10,000 fewer units in 2007.

So you have an enormous housing overhang in an area where the economy was kept afloat by the massive housing construction sector, which may not have a whole lot to do for the next few years. And these were not compact developments. The fiscal burden of extending infrastructure out into these sprawling new neighborhoods is significant, and the budget to fund that infrastructure depended upon steady economic growth and rising housing values, which have evaporated. The only possible way to fix the situation would be to continue importing people from elsewhere, but population growth is slowing in Phoenix. No surprise there; how attractive is a cash-strapped, slow growth state where many neighborhoods are entirely for sale or in foreclosure?

This is not the first such news piece I’ve seen like this on one area of the sunbelt or another, and it won’t be the last. The bottom line is, many of these southern and western towns were growing at incredibly fast rates despite economies that weren’t prepared to absorb so many workers. The only way this was sustainable was through the artificial housing economy. Now that that’s collapsed, these places are finding themselves with serious fiscal imbalances, difficult to maintain sprawl, hundreds of ghost streets, and a lackluster economy. In the past decade and a half, millions of people have fled high cost, but economically robust places to live in Phoenix and similar towns. I suspect that much of the pain of the housing boom will not be the immediate distress in credit and financial markets, but the long-term issues of this bizarre misallocation of labor.