Texas Housing Prices On The Rise - Texas A&M University
A REVIEW OF THE TEX AS ECONOMY FROM THE OFFICE OF G LE N N H E GA R, TEX AS COMPTROLLER OF PUBLIC ACCOUNTSMarch 2018FISCAL NOTESTexas Housing Prices on the RiseTEXAS MANUFACTURING6STATE REVENUE WATCH11By Courtney KingMAJOR METROS SEE MUCHHIGHER COSTSFor years, Texas has built a reputation as a placewhere families can live well for less, with several of itsmetropolitan areas consistently ranked among thenation’s most affordable. The economic success of ourcities is changing that picture, however, and accordingto the Federal Reserve Bank of Dallas, the rise in Texashome prices has outpaced that of the nation as a wholesince 2011.Similarly, a recent Texas A&M Real Estate Centerstudy indicates that Texas housing prices have beenrising faster than the state’s personal income. Theserapid price increases aren’t occurring uniformlythroughout the state, of course, but in all they mayreduce Texas’ traditional cost of living advantage.“On the demand side, Texas home prices arecurrently driven by the state’s growing economy,” saysDr. Ali Anari, research economist at the Texas A&M RealEstate Center. “Texas created jobs at an annual rate of2.5 percent from December 2016 to December 2017 —higher than the nation’s employment growth rate of1.4 percent.”G LE N N H E GA R, TEX AS COMPTROLLER OF PUBLIC ACCOUNTSTexas also continues to experience explosivepopulation growth, gaining nearly 1,100 people perday. According to recent Census estimates, four of thenation’s five fastest-growing large cities (those with50,000 or more residents) are in Texas — Conroe, Frisco,McKinney and Georgetown, all of them located withinthe state’s largest metropolitan areas.RISING BUILDING COSTSTexas homebuilders are struggling to meet thestrong demand for affordable single-family homes.One problem they face has been a lack of skilledconstruction workers following the housing bust of theGreat Recession. Between 2007 and 2013, the nation’sbuilders lost more than 2 million workers, and only40 percent of them ultimately returned to the industry.The Federal Reserve Bank of Dallas reports that Texas’residential construction job count fell more than totalemployment during the recession, and took more timeto rebound.CONTINUED ON PAGE 3FISCAL NOTES, MARCH 2018 1
A Message from the Comptroller CHEMICALSometimes, success bringsits own problems, and therapid growth of Texas’ mosteconomically dynamic citiesprovides a case in point: in astate that has long touted itslow cost of living, affordablehousing is getting hard tofind in some areas. In thisissue, we take a look at increasing home prices in Texas.Texas weathered the housing crisis that sparked theGreat Recession relatively well. The market for Texashomes largely held steady, avoiding both the boom321,100 55.5 Billion 108,000 36.6 BillionDIRECT & INDIRECT EMPLOYMENTPRODUCTMANUFACTURINGSTATE SUBSECTOR GSPAVERAGE ANNUAL WAGEThe Comptroller’s office hasidentified 18 manufacturingsubsectors within the TexasEXPORTSeconomy. This manufacturingSources: U.S. Bureau of Economic Analysis, Regionalsubsector creates productsEconomic Models, Inc., Emsi, U.S. Department ofCommerce International Trade Administrationessential to our daily needs, suchas cleaning and beauty products, pharmaceuticals, agriculturalfertilizers, dyes and paints, adhesives, plastics and much more.DIRECTJOB AVERAGE TEXASJOBSCHANGESALARIES2016 2010-20162016CHEMICAL PRODUCTMANUFACTURING:BIG IN TEXAS78,845 12% 108,397SUBSECTOR TOTALS / 2016and the bust. In more recent years, however, averageBASIC CHEMICALS35,37614% 123,588Texas home prices have begun climbing faster thanRESIN, SYNTHETIC RUBBER AND ARTIFICIALSYNTHETIC FIBERS AND FILAMENTS10,24222% 119,391the nation’s — and faster than our personal income.PESTICIDE, FERTILIZER AND OTHERAGRICULTURAL CHEMICALS2,872-4% 85,120The rise in prices isn’t uniform, and many areas of thePHARMACEUTICALS AND MEDICINE11,50220% 103,186state remain a bargain by national standards. But whenPAINT, COATING AND ADHESIVES5,7658% 77,775SOAP, CLEANING COMPOUNDSAND TOILET PREPARATION4,272-15% 67,2828,81711% 89,002coupled with high property tax rates, the soaringcost of homes in some of our largest cities is a causefor concern.In this issue, we also highlight Texas manufacturing.I recently completed one of our “Good for Texas”tours, meeting with manufacturers around thestate to announce the results of a study my officerecently completed. We estimate manufacturingcontributes 218 billion annually to Texas’ gross stateproduct and employed about 845,000 Texans in 2016.But manufacturing also stimulates and supports a wideOTHER CHEMICAL PRODUCTS AND PREPARATIONSource: EmsiThe basic chemical manufacturing industry is highly concentrated in Texas.Its share of total employment is 2.87 times greater in Texas than in the U.S.In 2016, 67 percent of all U.S. petrochemical production jobs were in Texas.SUBSECTOR EXPORTS FROM TEXASMEXICOCHINABELGIUMBRAZILJAPANSOUTH KOREANETHERLANDSCOLOMBIAvariety of other businesses; more than a quarter of allSINGAPORETexas jobs depend on it, directly or indirectly.ALL OTHERAs always, I hope you enjoy this issue!IN TEXAS,THIS SUBSECTOR'SINFLATION-ADJUSTEDGDP ROSE BY 60PERCENT BETWEEN1997 AND 2015,COMPARED TO U.S.GROWTH OF 20PERCENT.CANADASource: U.S. Bureauof Economic AnalysisGERMANY05%10%15%20%25%Texas exported 36.6 billion in chemical products in 2016, makingthis subsector the state’s second-largest export market.Source: U.S. Department of Commerce International Trade AdministrationCONCLUSION G LENN HEGARTexas Comptroller of Public AccountsChemical manufacturing contributes 55.5 billion to Texas’ grossstate product (GSP), the most of any manufacturing subsector.Industries in chemical manufacturing have seen increasedproduction and employment in recent years, fueled by lower costsfor natural gas, their main feedstock. Employment has remainedstable since early 2015.To see more in-depth Texas manufacturing data, manufacturing/If you would like to receive paper copies of Fiscal Notes, contact us atfiscal.notes@cpa.texas.gov2 G LE N N H E GA R, TEX AS COMPTROLLER OF PUBLIC ACCOUNTS
Texas Housing Prices on the RiseCONTINUED FROM PAGE 1The shortage of carpenters, masons and othercosts are rising more than twice as fastskilled workers led to higher wages, which increase theas the average American’s ability to paybottom-line price of homes. And construction workerfor a home.pay is rising much faster in Texas than in the nation asRising costs associated witha whole. Inflation-adjusted average hourly earnings inbuilding have made the development ofTexas’ construction sector rose by more than 20 percentmoderately priced housing difficult andbetween 2011 and 2016, versus just 4.7 percent for theless profitable for homebuilders. As aU.S. construction sector — and nearly four times theresult, single-family home construction5.9 percent growth in Texas’ total average privateis skewing away from “entry-level”sector earnings.housing and toward larger, moreThe cost of land itself is another factor.expensive — and more profitable“Land costs account for 20.4 percent of Texas home— homes.DR. ALI ANARIprices, historically the highest percentage [we’ve seen]The stock of entry-level homesResearch Economist,and up from 14.1 percent in 2000,” Anari says. And Texas’is most limited in the state’s majorTexas A&M Real Estate Centerland price index, a measure of the extent to whichmetropolitan areas, although anland prices change over time, indicates prices areabundance of homes is available at higher price points.increasing quickly. “Since 2000, the Texas land priceAccording to the Real Estate Center, sales of homesindex for single-family homes has increased bypriced from 300,000 to 399,000 have been rising since122 percent, compared with 95 percent nationally,”2012, while sales of homes priced below 200,000 havehe says.been either flat or declining.Government regulation plays a role as well.Again, however, this is primarily a phenomenon ofAccording to the Texas Public Policy Foundation,the state’s largest metropolitan areas, as recent pricemany Texas cities have reacted to rapid growth bydata indicate (Exhibit 1).enacting strict zoning codesEXHIBIT 1—ordinances controlling landuse and construction — thatMEDIAN PRICES, NEW AND EXISTING SINGLE-FAMILY HOMES, 2017remove tracts of land fromdevelopment, driving updemand and prices.Where building can takeplace, the cost of regulatory 163,250compliance contributes toAmarillohigher prices. Such costs caninclude permit, hookup and 114,900“impact” fees, environmentalWichita Falls 163,000 155,000 137,500surveys, requirements forSherman-DenisonLubbockTexarkanaspecific building materials 145,000and much more — all wellDallas-Fort Worth 154,000Longview-ArlingtonAbileneintentioned, but all adding toMidland 188,000 150,000the bottom line.Tyler 177,950 168,000 170,000El PasoWacoOdessaA 2016 study by theSan Angelo 154,000 229,900National Association of HomeKilleen-TempleCollege StationBuilders estimated government-Bryan 150,000regulations account for nearlyBeaumontAustin-Round RockPort Arthura quarter (24.3 percent) of 233,386 214,900Houston-The Woodlandsthe final price of an averageSan Antonio-New Braunfels-Sugar Landnew single-family home. And 165,500Victoriabetween 2011 and 2016, theseregulatory costs rose by nearly 189,90030 percent, while the nation’s 168,500Corpus ChristiLaredoper capita disposable incomeincreased by just 14.4 percent. 139,900In other words, regulatoryMcAllen-Edinburg-Mission 125,807 255,000 255,000 299,900Source: Texas A&M Real Estate CenterBrownsville-HarlingenFISCAL NOTES, MARCH 2018 3
Texas Housing Prices on the RisePerhaps unsurprisingly, the booming Austin-RoundRock area had the highest median home price in 2017,at 299,900.But while Austin has the highest median price, ithasn’t seen the fastest price increase. That distinctionfalls to Grayson County’s fast-growing Sherman-Denisonmetro area, which saw an 83 percent increase in itsmedian price between 2011 and 2017 (Exhibit 2),although that price remains well below the state median.Exhibit 2 excludes only one of the state’s five largestmetro areas, McAllen-Edinburg-Mission. This border-areacommunity offers some of the state’s most affordablesingle-family homes, with a median price of 139,900 in2017. But even its median price has risen fairly briskly, at30.6 percent between 2011 and 2017.It’s worth noting, however, that Texas housing stillremains a bargain compared to many other areas of thenation. According to the Real Estate Center, for instance,in November 2017 the median sale price for existingTexas homes was about 218,000, while the medianprice realized for new homes was nearly 286,000. TheNational Association of Realtors, by contrast, reportsthe nationwide median price for existing homeswas 248,200 in November 2017. In the same month,according to the Census Bureau, the median U.S. pricefor new homes was 334,900.RISING RENTAL MARKETSTexas has a large rental housing market. The TexasState Affordable Housing Corporation reports about38 percent of Texans are renters; these include theEXHIBIT 2FASTEST GROWTH IN MEDIAN PRICE OF SINGLE-FAMILYHOUSING, TEXAS METRO AREAS, 2011-201752%Metro AreaTexas MedianSherman-DenisonDallas-Fort Worth-ArlingtonAustin-Round RockHouston-The Woodlands-Sugar LandCollege Station-BryanSan Antonio-New BraunfelsMidlandWacoHOUSING COSTS VERSUS INCOMECorpus ChristiSan Angelo0%20%40%60%80%Note: Texas A&M Real Estate Center began trackingsingle-familyseparatelyin 2011.Note: TexasA&M RealdataEstateCenter begantracking single-family data separately in 2011.Source: Texas A&M Real Estate CenterSource: Texas A&M Real Estate Center4 majority of the state’s newcomers. Inevitably, the samefactors affecting demand and sales prices have boostedrents in some regions.Market conditions contributing to high rentsinclude a limited supply of land zoned for multifamilyuse and high development costs. As with single-familyhousing, high costs incentivize developers to buildproperties designed to yield higher returns. Accordingto a recent study by Harvard University’s Joint Centerfor Housing Studies, most of the new multifamilyconstruction under way across the U.S. is at thehigher end of the market, with low-rent units growingincreasingly scarce in major cities.Growing demand from higher-income households,such as relocating professionals, also can push renthigher.The Austin, DFW and Houston metro areas currentlyhave the highest median monthly rents in Texas(Exhibit 3), as does Midland whose energy-relatedindustry is surging back after the oil price slump.Together, these areas have helped push the medianTexas rent to 956, even though rents trend lower inmost other Texas metro areas. The U.S. median rent wassimilar, at 981 in 2016.Austin-Round Rock also leads the state in its rate ofrent increase, followed by smaller metro areas includingAbilene, Lubbock, Odessa, Midland and San Angelo(Exhibit 4). With the exception of Midland, however,each of these smaller cities had median gross rentsbelow the state median, as seen in Exhibit 3. The state’smedian rent rose by 17.6 percent between 2011 and2016, easily outpacing the national rate of 12.6 percent.G LE N N H E GA R, TEX AS COMPTROLLER OF PUBLIC ACCOUNTSHigh housing costs pose challenges for householdsand for the state’s economy. The cost and availabilityof affordable housing can determine a family’s accessto work, education, shopping and more. It also affects
employers’ ability to hire and retain qualified workers,which in turn can influence where companies choose tolocate and expand.Although Texas’ housing affordability remainsfavorable compared to other states, high housing costsin some regions force many households to make serioustradeoffs. These often include commuting farther towork each day, postponing or forgoing homeownership,living in more crowded housing and spending a greatershare of income on housing.And these trade-offs are particularly challenging forhouseholds with low incomes.EXHIBIT 4TEN FASTEST-GROWING MEDIAN MONTHLY GROSSRENTS, 2011-201612.6%MSA*United States17.6%TexasAustin-Round RockAbileneLubbockOdessaMidlandEXHIBIT 3San AngeloESTIMATED MEDIAN MONTHLY GROSS RENTS INTEXAS METRO AREAS, 2016Houston-The Woodlands-Sugar LandDallas-Fort Worth-Arlington 956Texas MedianMSA*Corpus ChristiAustin-Round Rock0%Midland4%8%12% 16% 20% 24% 28%Statistical Area as defined by the*Metropolitan Statistical Area as defined by*Metropolitanthe federal government.federal government. Source: U.S. Census BureauSource: U.S. Census BureauDallas-Fort Worth-ArlingtonHouston-The Woodlands-Sugar LandSan Antonio-New BraunfelsCorpus ChristiOdessaLubbockAbileneCollege Station-BryanKilleen-TempleVictoriaTylerSan AngeloBeaumont-Port ArthurAmarilloWacoLongviewLaredoEl PasoSherman-DenisonWichita Harlingen 0San Antonio-New Braunfels 200 400 600 800 1000 1200*MetropolitanStatistical Area as defined by the*Metropolitan Statistical Area as defined by thefederal government.federal government. Source: U.S. Census BureauSource: U.S. Census BureauThe latest Census estimates indicate 26.4 percentof Texas homeowners with mortgages are “costburdened,” spending 30 percent or more of theirhousehold incomes on house payments, still slightlybelow the comparable U.S. figure of 28.1 percent.In addition to mortgage payments, property taxesalso make it more difficult to afford homes. In a TaxFoundation analysis based on 2014 tax information,Texas had the nation’s sixth-highest “effective” propertytax rate (the average amount of residential propertytaxes paid expressed as a percentage of home value —in Texas’ case, 1.67 percent).In general, renters are even more likely to becost burdened — 43.9 percent of Texas renters and46.1 percent of renters in the U.S. spend 30 percent ormore of household income on rent and utilities.According to the Texas State Affordable HousingCorporation, a Texas household must earn 18.38 perhour or 38,234 annually to afford the state’s averagefair-market rent of 956 for a two-bedroom apartmentwithout being cost burdened. Unfortunately, theaverage renter in Texas earns only 17.89 per hour.Housing experts’ opinions vary on the extent ofTexas’ future housing challenges, but economic growthand population increases will put continuing upwardpressure on the state’s home prices and rents. If Texaswants to maintain its overall reputation for a low cost ofliving, state and local policymakers must consider thefactors driving price increases — and act on those theycan influence. FNFISCAL NOTES, MARCH 2018 5
Texas ManufacturingBy Bruce WrightTHE CHANGING WORLD OF “MADE IN TEXAS”Any modern economy consists of a huge variety ofactivities, from banking to lawn care to cloud computingservices. But to most of us, somewhere in the back of ourminds, an “economy” still means people in a big buildingsomewhere, making physical products.Now factory smokestacks are giving way tocomputer-assisted design and clean rooms,and the most important raw materials oftenare human intelligence and insight. But abig part of the Texas economy still dependson manufacturing, which drives bothinnovation and employment in aBETWEENhost of related industries.1997 AND 2016,MANUFACTURINGTexas Comptroller GlennREAL GSP INCREASEDHegarrecently wrapped upBY 94 PERCENT,Sources:COMPARED WITH ANaGoodfor Texas tour of sixU.S. Bureau of81 PERCENT GAINEconomic Analysis, ACROSS ALL TEXASmanufacturing facilities aroundTexas ComptrollerINDUSTRIES.the state, sharing the results ofof Public Accountsa new Comptroller study of thiseconomic sector, which contributes more than 218billion annually to the Texas gross state product (GSP).“Texas has a thriving manufacturing economy,”Hegar says. “Our state’s resources have made it a naturalleader in petrochemicals, but there’s a lot more goingon. Our research institutions are fostering high-techmanufacturing, and our business-friendly environmentand skilled labor force have helped create new jobsin automotive manufacturing and other cutting-edgeindustries.”THE EVOLUTION OF MANUFACTURINGIn the last half-century, technical advances haverevolutionized the nature of manufacturing. Advancedtechnologies and automation have boosted productivitywhile eliminating much of the need for the dirty,dangerous work once performed by unskilled labor.Today’s shop floors and refineries require increasinglysophisticated technical knowledge and skills.This evolution inevitably reduced manufacturingemployment. From 1997 through 2016, the U.S.manufacturing job count fell by 29 percent, and by19 percent in Texas. In 2016, about 845,000 Texans weredirectly employed in manufacturing (Exhibit 1).EXHIBIT 1ESTIMATED MANUFACTURING EMPLOYMENT IN TEXAS,2016FABRICATED METAL PRODUCTSG LE N N H E GA R, TEX AS COMPTROLLER OF PUBLIC ACCOUNTSFABRICATEDMANUFACTURING TOTAL845,164FOOD, BEVERAGE AND TOBACCO PRODUCTS105,439FOOD, BEVERCOMPUTERS AND ELECTRONIC MICAL PRODUCTS78,910CHEMICAL PAEROSPACE AND OTHER TRANSPORTATION EQUIPMENT51,825AEROSPACEMOTOR VEHICLES, BODIES, TRAILERS AND PARTS38,836MOTOR VEHNONMETALLIC MINERAL PRODUCTS37,820NONMETALLPLASTICS AND RUBBER PRODUCTS37,764PLASTICS ANMISCELLANEOUS MANUFACTURING30,490MISCELLANEPRINTING AND RELATED SUPPORT ACTIVITIES25,239PRINTING ANFURNITURE AND RELATED PRODUCTS23,142FURNITURE AWOOD PRODUCTS23,038WOOD PRODPETROLEUM AND COAL PRODUCTS22,967PETROLEUMPRIMARY METALS20,06518,74917,20717,119PRIMARY MEELECTRICAL EQUIPMENT, APPLIANCES AND COMPONENTSPAPER PRODUCTSTEXTILE PRODUCTS, APPAREL, LEATHER AND ALLIED PRODUCTSSource: Emsi6 TEXAS JOBS118,060ELECTRICALPAPER PRODTEXTILE PRO
93.9%100%TEXASFor consistency andsimplicity - the dataused in this chart isfrom a recently updatedsnapshot and can bemodified as desired.80%MANUFACTURINGTOTAL STATE GSP60%U.S.40%TOTAL 0
A REVIEW OF THE TEXAS ECONOMY FROM THE OFFICE OF GLENN HEGAR, TEXAS COMPTROLLER OF PUBLIC ACCOUNTS GLENN HEGARTEXAS COMPTROLLER OF PUBLIC ACCOUNTS TEXAS MANUFACTURING 6 STATE REVENUE WATCH 11 March 2018 For years, Texas has built a reputation as a place where families can live well for less, with several of its
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