Other Stories Behind Texas’ Housing Supply

Wednesday, July 20th, 2016 and is filed under Housing Starts

Each month, the economists at the Real Estate Center at Texas A&M University (TAMU) issue a Housing Insight Report, filled with plenty of information about the Lone Star State’s economy and housing. The latest report (this one covering February 2016), shows how certain factors show why demand continues to outpace supply.(1)

Oil prices and export decreases led to a slow-down in the Texas economy. Additionally, the Residential Construction Leading Index (which measures changes in the residential construction business cycle) fell. Yet, single-family construction permits, total Texas housing sales, and housing sale prices increased. So even with increased housing permits, sales and prices, new construction starts for homes was down.

One reason, of course, is lack of skilled labor, a topic that we’ve covered in our blogs before. But there are other reasons as well, according to panelists at the Dallas Federal Reserve’s recent conference, “Finding Shelter: Assessing Texas Residential Real Estate Amid the Oil Slump.”

David Brown with Metrostudy indicated that the inventory of housing-specific land acquired during the Great Recession had been “burned off,” meaning developers require new land. That new land requires zoning and permitting approval, a process that is increasingly bogged down.

The administrative slow-down is partly due to lack of personnel available for the overwhelming demand.  The panelists reminded participants that during and after the recession, cities and towns slashed budgets, which also meant a layoff in personnel.

But increasingly difficult land-use regulations are also an issue, which makes lenders such as Gary Graham with Affiliated Bank unhappy. Plowing through those regulations for approval requires a lot of time. “We like to see projects (subdivisions) move from cradle to sale within three years,” he said. “As time lengthens, so does our risk.”

Brown indicated that a slowdown in starts can also be attributed to a scarcity of lots for houses valued at $250,000 and less. As such, between the labor shortages, zoning and shrinking availability of certain sites, “In talking to builders, we’re finding that it typically takes 30-45 days longer, on average, to complete a house,” Brown said.

Thus while continued demand is there, thanks to a good economy (oil economies excluded), getting the housing lots approved, and the construction started and finished will mean demand continues to outpace supply for the foreseeable future.

[1] James P. Gaines, Louis B. Torres & Wayne Day (2016, March). Texas Housing Insight — February 2016. Retrieved April 21, 2016, from Real Estate Center at Texas A&M University.