Single-Family Homebuilding Getting Stronger But High Prices Linger

Why are single-family homes in Dallas so expensive? In a word: Scarcity.

If you want to increase prices on anything desirable, make availability scarce. At a macro level, this makes sense. If Dallas wanted to increase the cost of housing, we’d build less than we need.

Conspiracy theories aside, this has been happening as part of a nationwide trend for the past 13 years since the Recession bit in 2007. I know it’s difficult to believe, but Dallas has not built enough housing to meet the needs of population growth. This has made prices rise in a way not seen in memory.

The chart above shows the age of Dallas housing stock. Nearly half of our homes were built in the three decades between 1970 and the millennium – a third in the 30 years before that. We’re now two-thirds into a 30-year measurement period and we’re at just over 15 percent. That 15 percent is important. It’s one-third of the 1970-1999 build rate but two-thirds into the 30-year cycle.

At the current rate, homes built from 2000-2029 will only be 23.25 percent of our housing stock – well behind the post-WWII boom years. Fifteen percent is also barely two-percent more than population growth and nowhere near filling the hole left by 13 years of underbuilding. Supply will remain a huge problem for years to come.

From their 2012 low-point of $189,000, the median list price for a home in Dallas County is now $375,000 – a 98 percent increase in eight years. A million new residents to the metroplex and slow home building will do that. Pair that increase with a skint 12.5 percent rise in Texas’ median income since 1982 (1982…!!). Even the small bump in 2014 gave way to a decline in 2018 (most recent year available). These two numbers explain the rush to rent – for many, stagnant wages and high home prices (paired with student debt) are the kisses of home-buying death.

Globally, one thing all higher-priced real estate markets have in common is a lack of building balanced against the number of people who want to live in a given location. If enough of the right mix of housing is built, price increases fall more in line with income growth.

That makes a solution to high-priced real estate easy; build more. Of course, it’s not that simple. Some locations don’t have regional or specific land. There’s also a shortage of tens of thousands of construction workers in the metroplex (another problem for another administration).

Another dimension of real estate scarcity is whether the city is encouraging developers to build what’s needed versus what’s most profitable. Until recently, this hasn’t been a problem. When the suburbs were king, developers just built further out to minimize land costs and buyers just drove until they could afford a home. Even in closer-in neighborhoods, a better balance of housing was built.

But like the proverbial rubber band, you can only stretch it so far.

Capping development?

Then, I was reading the Fort Worth Star-Telegram about growth (paywall, though free on app).  It seems Fort Worth was realizing that building tons of new homes on two-lane Farm to Market roads was problematic. They’d killed plans for development north of Loop 820. That’s fine, but more broadly it really wasn’t.

The story said neighbors (who moved to a location with “just enough” infrastructure) want the city to halt new development until better roads and shops are built. While this might make sense on paper, tied in with 20,000 new Fort Worth residents annually, it doesn’t. It just raises prices.

The story quoted Fort Worth councilwoman Gyna Bivens, “I think the city has been rather cavalier in its attitude toward development,” she said. “We need to keep people, not developers, at the heart of it.

A political soundbite to be sure, but which people? Current residents who reap property appreciation from lack of competition or those 20,000 people trying to move to her city? Are we to believe Fort Worth is any better than Dallas at preemptively building new roads and shops in preparation for development?  (We are not.)

Cities like Dallas and Fort Worth are in the grip of rapidly increasing populations, low unemployment and higher interest in homeownership than construction keeps pace with. Is it time for a North Texas rezoning exercise? Is it time for municipalities to recurve the map to rebalance its housing stocks?

Apartments Versus Homeowners

Remember that the past 20 years of construction only accounted for 15.5 percent of our housing stock while our population rose 13.4 percent. How much of that was for sale versus for rent?  Until 2007, the majority of residential construction was single-family – some years double or triple apartment construction. In Dallas County, single-family home permits reached a high of 75.6 percent of residential permits in 2004 while hovering below 30 percent during the Recession before recovering.

In 2019, the metroplex issued 62,563 total residential building permits of which 56 percent were single-family and 43 percent were multifamily over five units.  That’s a ratio not bested since 2009 when only 20,370 permits were issued in Dallas/Fort Worth.

How many Dallas renters would be homeowners if housing prices went down (because more reasonably-priced for sale product was built)?

Combating a Lack of Affordability

We’re finally on track to build more for-sale single-family homes (but condos construction still remains almost non-existent). The problem going forward is affordability. Finding ways to create and maintain multi-income neighborhoods is critical for their survival (much to developers’ cookie-cutter chagrin). How municipalities combat this income-based green-lining of neighborhoods is complicated and likely costly. I don’t know that I’ve seen any city do it effectively.

At least we’re finally building more, now we have to figure out how to build what’s right (affordable to more buyers). As you’ll see next time, that includes condos.