Texas’ largest metro areas continue to be some of the country’s fastest growing, and housing availability and affordability is a well known problem in those areas.
A new study out this week from the state comptroller’s office gives us more details on just how tight the housing markets are all across the state. Costs have gone up the most around Brownsville, Sherman and Killeen.
Overall, across Texas, the median home cost jumped nearly 40% between 2019 and 2023. The report found Texas needed to add 300,000 more homes to keep up with demand.
Much of the data in the report referenced research by Texas A&M Real Estate Research Center. Daniel Oney is the center’s director of research, and he joined Texas Standard to discuss the finding. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: Well, the issues of housing availability and affordability have been big news since the pandemic, but available home inventory in Texas has been falling for some time. How did we get into this situation?
Daniel Oney: The short answer is, it’s a matter of supply and demand. That’s what every economist is going to tell you.
The reason housing is unaffordable is that we haven’t built enough housing. And there’s way more people seeking that housing than there used to be.
This is no doubt a statewide issue, but are there certain areas that are being hit harder by this housing shortage?
Yes. The markets that have been growing rapidly are often markets that have real estate constraints. Maybe there’s not as much land in the central cities. Maybe there are stricter regulations about the amount and type of housing that you can build.
So you could say that it’s tough in the big four metros in Texas. But, really, affordability is challenging in almost every metro area in the state, even some smaller ones.
Well, politicians from both sides of the aisle have proposed ways to create more housing. You mentioned some of those restraints. So they’ve talked about things like changing zoning rules and lowering property taxes. What could be done from a legislative perspective to ease this problem?
There are things that policymakers can do to help on the supply side. I would maybe back up for a second because you’re not going to understand housing demand without the supply piece. So, I can talk for a second about that.
It’s long standing. As the recent comptroller report pointed out, we decreased the amount of housing that we build per year in the nation and in Texas after the financial crisis. And there’s different ways of measuring that. But in Texas, for instance, by some calculations that we’ve done, maybe we’re 15% short of where we would have been if we had kept on the path of the 1990s and the 2010s.
So are there other factors here that specifically affect Texas? The rate of the growth of the population, for example?
Texas is one of the destination states. It’s been true before COVID. COVID just accelerated some trends that were already going on.
But throughout the southeast in the U.S., Florida, Arizona, the mountain states, they’ve all been receiving more people. There’s been net domestic migration. There’s been more international migration. So Texas is unusual in that we’re bigger. So we just have bigger numbers. But the rates are similar.
And going back to the supply side piece, construction costs are higher. You know, it’s more expensive to build homes. Inflation’s not going up as fast as it was, but most labor costs and most material costs really haven’t come down. And so to address the supply side issue, what can policymakers do?
Housing is viewed as an asset and it’s incredibly political. I use an analogy when I talk to audiences: If someone came to you and said the stocks in your portfolio were too expensive, “I can’t afford to buy them. I want to find a way to lower the value of your portfolio so I can buy those stocks…” Most people wouldn’t be receptive to it. And that’s in fact the way a lot of homeowners are.
Everybody is interested in affordability. They’re sympathetic about people not being able to get into a home, right? But most people really don’t want the value of their home to go down. So that’s the catch-22 that I think politicians are stuck in. They want to act, but if the voters don’t want them to act, there’s not much they can do.
I’ve heard reports of a lot of older people staying in place and aging in their homes. But maybe they’ve got a bigger space than they need. So there’s a cycle of availability that’s not really happening for young families. Is that what you’re seeing in Texas, too?
People’s housing preferences tend to be pretty consistent from generation to generation. You used to hear that Millennials just want to rent. But once Millennials start entering the housing market, they do that the same way Baby Boomers or Generation X did. So it’s a life cycle thing.
And what we’ve seen is home prices have gone up 45% in Texas in the last five years. That’s for single family homes. Single family rental units have only gone up 27% and apartments have only gone up 17%. And that’s partly due to the increasing supply.
There’s a lot more multifamily being built, but there’s not necessarily that many more people that want to live in that type of unit. So it puts even more pressure to go out and compete for those single family units.
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Well, what are the long term effects on Texans who are now spending more of their earnings on housing?
Yeah, that’s a great question. If people’s incomes are not growing as fast as home prices increase, then it crowds out other things. So that’s less money for Texans to spend at retailers with service businesses. And then overall, it can make Texas less competitive.
You go back 15, 20 years ago and Texas was, hands down, more affordable than places in the southeast U.S. and places in the Midwest. But there are many major cities, places like Atlanta or Chicago, that if you adjust for the income levels there, housing is more affordable than our big cities in Texas now.
So that’s something people will think about when they’re deciding if they want to move to start a new business in Texas. It’s a little check mark against us.
Is there room for optimism? Are we moving very slowly in the right direction or not so much?
There’s room for optimism always. And it is moving slowly. So I think we need to do multiple things.
To use a little alliteration, we need more density of housing in some places. We need more diversity of housing. And I think we need to disperse that housing.
So most of the growth in Texas in recent years has been in the big four markets. We talk about the Texas Triangle. In fact, 86% of all the population growth is in those four big cities. Only 13% is in all of the other 21 metros combined. And that means the vast majority of Texas is only earning about 1% of our population growth.
If you could find policies to encourage growth and development in our smaller cities, I think that’s one piece of the puzzle. It takes pressure off the big markets. But I think you need all three. You need more housing, everywhere. And you need different types of units so that you can accommodate these new types of households such as single people and the elderly.
