Page 1 MEMORANDUM To: From: Date:
The Director of Housing and Community Development Culin Thompson December 7, 2016
Re:
Analysis of the Dallas, Texas Housing Market
This memorandum serves as a response to information on the makeup and typology of the housing market in Dallas, Texas. This information is drawn from the American Community Survey for 2010 and 2014 data and describes the demand, supply, and matching of the marketplace in regards to one another. General Market Characteristics The housing market in Dallas city, Texas has been fairly stable over the course of the past four years. The population of the City featured a small period of growth from 2010 to 2014, growing at a rate of 1.1 percent annually over this four-year period of time. Aligned with this 1.1 percentage point growth in the population, the number of housing units in Dallas is continuing to grow 1.0 percentage points annually over the same four-year period of 2010 to 2014. This growth of units, however, is not evenly distributed among renters and owner occupied units – as the renter market of Dallas has grown in comparison to the shrinking ownership markets. The rates of vacancy in both the ownership and rental markets are above the normal determined standards of 2 percent and 5 percent respectively, producing a soft market. Policy Recommendations These policy recommendations are made for Dallas and cover multiple census tracts within the city of Dallas. They should be reviewed on an individual tract basis for a more accurate policy recommendation, however, the following recommendations offer guidance for the city’s next steps. The rental housing market features a growing population at 2.9 percentage points and growing income levels higher than inflation. The rental market, however, struggles with housing affordability with 48% of renters being cost burdened and a high vacancy rate at 11.3 percent. There is not, however, an issue of quality housing but rather an issue of units available at the levels needed. As discussed within the match of supply and demand for renters, there exists an extreme need for units in income levels below $20,000 and an extreme surplus in income levels between $25,000 and $50,000. These units produce most the high vacancy rate for rental units in Dallas. Due to the rental market being more flexible than ownership markets, affordable housing policies such as the Section 8 Voucher Program can allow renters in the $125 to $499 range access to excess units in the $500 to $1249 range. The integration of the Section 8 Housing Choice
Page 2 Voucher Program is a more direct approach and time-efficient manner to put households in need into units immediately in a more cost-effective method. These vouchers would allow residents in the lower income levels to occupy vacant units in the higher levels of housing where a surplus already exists. The vouchers require residents to pay 30 percent of their income towards the housing unit, reducing the 48 percent of renters who are considered cost burdened. The choice vouchers further allow households the ability to relocate to any location of voucher acceptance, providing renters with benefits for their children in increased educational opportunities, stable neighborhoods, and decreased crime. A rental production program such as the Low-Income Housing Tax Credit Program (LITHC) provides units rented at the middle-income levels where an excess of units already exists. While the theory of filtering would portray the excess of units to trickle down into the low-income units, the process does not traditionally act elastically and would assist middle-income households within the $25,000 to $50,000 income range where an extreme surplus of units already exists. Due to the decrease of structures built within the previous year from 0.7 percentage points to 0.3 percentage points, we can assume there to be an increase in renovations of old buildings into housing occurring. If such a demand exists, the potential for a rehabilitation-style production program may also be able to provide residents additional units. Owner occupied housing holds a fairly consistent relationship between households and units across differing income categories, as shown in Figure 2. A surplus of around 1.2 million units exists across incomes between $25,000 and $75,000 – leaving only incomes between $10,000 and $19,999 and incomes above $75,000 with a shortage of units relative to the households. This excess of owner occupied household units, however, only holds a 2.8 percentage point vacancy rate compared to the national average of around 5 percent. This low supply elasticity encourages the limited production of additional owner occupied units – further helping to alleviate the 4.4 percent of owners who are considered overcrowded in their existing units. Production of ownership units through program funding from HOME and community block grants distributed through CDC corporations would allow low-income and medium-income families opportunities to purchase homes, raise vacancy rates to a stable 5 percent, and allow the 4.4 percent of overcrowded households to form new households. Housing assistance programs such as mortgage revenue bonds and mortgage credit certificates can aid in housing down payments and lowered federal tax levels for homeowners. The Homeownership Voucher program can provide additional assistance for households within the rental market looking to transition into homeownership.
Page 3 Demand Characteristics Table 1 lists the characteristics of the demand side of the Dallas city, Texas housing market. Size of the Population The population of Dallas has experienced consistent growth of its population size from 1990 to 2014. During the period of 1990 to 2000, Dallas experienced a large boom of 1.7 percent annual growth. The period of 2000 to 2010 featured a halt in growth to a mere 0.1 percent, but rebounded in between 2010 and 2014 to a growth of 0.9 percent annually over the four-year span – an increase of nearly 43,000 people. The growth of households in the population boom of 1990 to 2000 is reflective of the influx of the population which occurred during this period. The halt of new household formation and loss in the number of households is consistent and an accurate reflection of the economic status of the United States due to the crash of the stock markets in 2008 – where the formation of households is a representation of how the economy and housing market is behaving.
Race and Ethnicity Over the course of 1990 to 2014 the percent of the Hispanic population in Dallas has boomed from 21 percent to 41 percent, causing the percent white non-Hispanic and percent minority nonHispanic to decrease in each measurement with the exception of white non-Hispanic from 2010 to 2014. The increasing Hispanic population left the city with 29 percent of the population as white non-Hispanic in 2014 and 41 percent Hispanic.
Page 4 Tenure The share of home ownership across Dallas is significantly lower than the national average – hovering between 43 to 46 percent over the span of 1990 to 2014. This differential from the national average of 64 percent displays the strong rental market prevalent within downtown Dallas. Following the burst of the housing bubble, a slight drop of 3 percentage points in home ownership mirrors a drop nationally in ownership rates coincided with a growth in rental from 54 to 57 percent.
Age of the Population The growth of population in Dallas is reflected in a growth of both the total non-elderly and total elderly populations – growing 0.7 and 2.3 percent respectively. The most significant growth of the elderly population occurred within the age group of 65 to 74 within the renter community,
Page 5 while the population within this age group collectively grew 3.6 percent annually over the fouryear span between 2010 and 2014. This increase of new elderly residents coincides with the baby boomers beginning to reach retirement age and reflects a need for accessible housing options within the Dallas community. The further growth of non-elderly by 0.7 percent also reflects a need for additional rental units (growth of 2.1 percent) but a decline in the household demand for non-elderly owners (decrease of 1.3 percent) potentially as a result of the slow market recovery from the housing bubble. Family Composition Similar to the population increase of Dallas, the family households within the city of Dallas also increased by 0.7 percent annually over the four year period of 2010 and 2014. The market saw no real change of married couple family households, but accounted for the growth of 5,000 femaleheaded families and 2,000 other compositions of family households besides married couples. This relationship of only a 1 percent household formation increase compared to 0.7 percent family compositional increase and increase in the ‘other’ category may show the formation of new households consolidating into larger household unit sizes and a higher density. Household Size The concept from family compositional data that households may be forming as non-traditional to decrease density is supported through the household size statistics – showing a decrease in ownership markets of 0.3 percent while increasing in rental units by 2.9 percent. The growth in annual percent change of the period of 2010 to 2014 of 1.5 percent suggests this increased density and demand for larger units of housing service. Length of Residency The low number of residents of Dallas who have moved within the previous year of .2 percent portrays a low turnover percentage of units. The number of residents who moved into their unit of housing stock 20 years ago or more decreased as a percentage of the total residents from 30 to 15 percent – significantly lower than the national average of 21 percent.
Page 6
Household Income and Poverty The median household income for Dallas grew 1.0 percent annually, where the consumer price index grew at 1.7 percent – showing that income is rising slower than the rate of inflation. One such result of this income growth is the continued growth in the level of poverty with respect to housing and the reduced amount that low-income residents are able to afford. Poverty remains to be a problem within Dallas, with nearly one-third of all renter households falling under the poverty line and increasing nearly 1.9 percent elastic with the population growth of the city. The owner households also increased by 1.7 percent annually over the course of 2010 to 2014, showing that the households below the poverty level is not only an issue within rental households but also within the ownership market of Dallas. The growth of household income and increasing percentage of all households below poverty as a percentage of the population (18 percent to 20 percent) validates that the effect of inflation rising faster than the growth of income (1.7 percent compared to 1.0 percent) has devastating effects on housing markets and the quality of housing affordable to markets.
Page 7 Table 4.
Spending on Housing Year 2010
2014
Annual Percent Change 2010 to 2014
Households with high housing cost burden Paying more than 30% of income on housing Renters Percent of renter households
112,935 46%
122,067 48%
2.0%
Owners Percent of owner households
66,635 32%
59,585 30%
-2.8%
179,570 40%
181,652 40%
0.3%
Total Percent of all households
Source data from the American Community Survey 2010-2014
Spending on Housing 20 percent of all households within the city limits fall below the poverty line and nearly 40 percent of all households are classified as having a housing cost burden. This burden, however, does not fall equally between the rental and ownership household markets. While the rental market burden has increased by 2 percentage points, the owner market saw a decrease in housing cost burden from 32 to 30 percent. It is important to also note that this does not necessarily mean that ownership is becoming more affordable, but rather that the ownership market population decreased during this respective time and that an assumption can be made that households left home ownership in favor of rental units. Supply Characteristics Table 5 lists the characteristics of the supply side of the Dallas city, Texas housing market. Size of the Housing Stock The stock of occupied housing in Dallas is growing slightly at about 1.0 percent per year and by nearly 17,000 units between 2010 and 2014. The total ownership and rental stock of housing is growing at a slightly lower rate of 0.4 percent per year, around 7,000 units over the 4-year span between 2010 and 2014.
Page 8 Table 5
Housing Stock in Dallas, Texas by Tenure and Occupancy
Year 2010
Annual Percent Change 2010 to 2014
2014
Total Housing Units Owner occupied Renter occupied Total occupied units
205,715 243,882 449,597
200,859 266,642 467,501
-0.6% 2.3% 1.0%
Vacant for sale Vacant for rent Total vacant
8,697 41,421 50,118
5,709 33,992 39,701
-10.0% -4.8% -5.7%
Other vacant
14,032
16,707
214,412 285,303 499,715
206,568 300,634 507,202
4.1% 14.5% 10.0%
2.8% 11.3% 7.8%
46% 54%
43% 57%
Total owner stock Total renter stock Total owner and renter stock Vacancy rate owners Vacancy rate renters Vacancy rate all housing Percent of units owner tenure Percent of units rental tenure
-0.9% 1.3% 0.4%
Source data from the American Community Survey 2010-2014
Vacancy The growth in the number of occupied units by approximately 17,000 units and the decrease in the number of vacant units by nearly 10,000 units from 2010 to 2014 represents a stabilizing of the Dallas market. The transformation of vacant units to occupied units of housing stock has improved the vacancy rate of both owners and rentals from 4.1 to 2.8 and 14.5 to 11.3 percent respectively. Nationally, the overall vacancy rate of all housing is around 5 percent, showing that Dallas still has a higher rate of vacancy than the national average decreasing to 7.8 percent in 2014. It is important to note, however, that Dallas is under the national average for vacancy rate of owners at 2.8 percent (national average of 3 percent) yet significantly higher for rental vacancy at 11.3 percent compared to the national average of 8.6 percent. This means that Dallas has an extremely soft rental market.
Page 9
Condition of the Housing Stock It is important to note that the best way to determine the quality and condition of the housing stock in the United States is to look at census data inclusive of qualities such as age, incomplete units, and overcrowding. These statistics help to produce an image and estimate of the condition of the house stock within a specific region or place. In a healthy market, new units are added annually to replace old units or units which do not have complete facilities. The concept of filtering provides that these newer units filter down in value to lower socio-economic submarkets and replace units which are condemned or deemed inhabitable. In the Dallas market, the number of units built prior to 1940 increased between 2010 and 2014. This may be reflective of additional development of older business districts into housing units within the central downtown.
Page 10
Prices of Housing Gross rent within the census is defined as the price of rent alongside utilities as the total cost of housing. These rents rose 1.9 percentage points annually, 0.2 points faster than inflation for the Dallas-Fort Worth region. This increase in rent costs faster than inflation predicts the rise of another housing bubble and is an unsustainable method of housing growth. While this is unsustainable in terms of housing affordability, this also drives new investment and developers into the housing stock market of Dallas. The value of home ownership is also increasing, but at a significantly lower value below inflation at 0.2 percent annually of owner occupied value. This increasing in the value of owner occupied units further increased the cost of home ownership by 1.0 percent annually from 2010 to 2014. Matching the Supply and Demand for Low- and Moderate-Income Housing Figures 1 and 2 provide some indication of the match between the supply of housing supply and the demand for housing in 2014. Spending on Housing According to the U.S. Department of Housing and Urban Development, renters should spend no more than 30 percent of their annual income on housing or are considered to have a housing cost burden. Within a typical mortgage, it is also standard to limit homeowners borrowing at 90 percent of their annual income with no more than 28 percent towards mortgage repayment. Due to the significant constraints on housing cost by income level the following analysis of supply and demand housing has been broken into income categories for analysis.
Page 11
Match of Supply and Demand for Renters The distribution of rental units to households is positively skewed, with a surplus of housing units in the middle-income levels of renters ($625 to $1249) – peaking in excess units with rents from $875 to $1249. There exists an extreme lack of units for the household demand in rents ranging from $125 to $499 – the demographic under the $20,000 poverty line. This indicates a severe shortage of low-income housing compared to the excess in moderate-income housing units. Due to the rental market being more flexible than ownership markets, affordable housing policies such as the Section 8 Housing Choice Voucher program can allow renters in the $125 to $499 range access to excess units in the $500 to $1249 range. As discussed within the policy recommendations section in General Market Characteristics, the integration of the Housing Choice Vouchers is a more direct and time-efficient manner to deal with the placing households in need into units immediately. This approach is typically a more cost-efficient model of housing assistance, as vouchers are able to place households within units in 60 days whereas production programs require construction time and costs. Figure 1. Matchup of Supply and Demand in Rental Housing Submarkets of Dallas, Texas
12,000,000
UnitsandHouseholds
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000 Households
-
Units Less than $5,000 $0 to $124
$5,000 to $9,999 $125 to $249
$10,000 to $14,999 $250 to $374
$15,000 to $19,999 $375 to $499
$20,000 to $24,999 $500 to $624
$25,000 to $34,999 $625 to $874
$35,000 to $49,999 $875 to $1249
$50,000 to $74,999 $1250 to $1874
Household Income andGrossRent Catetgory
Source: American Community Survey 2014
$75,000 to $99,999 $100,000 to $149,999 $1875 to $2500 $2500 to $3,750
$150,000 or more $3,750 or more
Page 12 Match of Supply and Demand for Owners In contrast to the rental market, the ownership market in Dallas holds a surplus of units to households within the poorest-of-the-poor range (income levels of less than $10,000). The number of units peaks at slightly above mid-income level range at $150,000 to $224,999. Neither the units nor households in the market are normally distributed, as they are negatively skewed off the peak of the distributions. The distribution reflects the soft market within the mid-income levels, but presents issues of housing affordability within ownership markets are low-income distributions.
Figure 2. Matchup of Supply and Demand in Owner Housing Submarkets of Dallas, Texas 16,000,000
14,000,000
Units and Households
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
Households Units
0
Less than $5,000 $0 to $14,999
$5,000 to $9,999 $10,000 to $14,999 $15,000 to $19,999 $20,000 to $24,999 $25,000 to $34,999 $35,000 to $49,999 $50,000 to $74,999 $75,000 to $99,999 $100,000 to $150,000 or more $15,000 to $29,999 $30,000 to $44,999 $45,000 to $59,999 $60,000 to $74,999 $75,000 to $105,000 $105,000 to $150,000 to $225,000 to $149,999 $300,000 $450,000 or more $149,999 $224,999 $299,999 to $449,999
Household income and Home Value Category
Source: American Community Survey 2014