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TIERRA GRANDE
Visit us online at
recenter.tamu.edu
Director, GARY W. MALER Chief Economist, MARK G. DOTZOUR Senior Editor, DAVID S. JONES Managing Editor, NANCY MCQUISTION Associate Editor, BRYAN POPE Assistant Editor, KAMMY BAUMANN Art Director, ROBERT P. BEALS II
JULY 2013
VOLUME 20, NUMBER 3 ™
TIERRA GRANDE JOURNAL OF THE REAL ESTATE CENTER AT TEXAS A&M UNIVERSITY
14 Houston’s Chemical Reaction Shale Gas Powers Industrial Boom
The Eagle Ford Shale is pumping out raw material for the revived petrochemical industry in the form of natural gas and natural gas liquids. Plastic and other types of petrochemical plants lining the Houston Ship Channel are prospering mightily. BY HAROLD D. HUNT
Graphic Specialist/Photographer, JP BEATO III Circulation Manager, MARK BAUMANN Lithography, RR DONNELLEY, HOUSTON ADVISORY COMMITTEE: Mario A. Arriaga, Spring, chairman; Kimberly Shambley, Dallas, vice chairman; James Michael Boyd, Houston; Russell Cain, Port Lavaca; Jacquelyn K. Hawkins, Austin; Walter F. Nelson, Houston; Doug Roberts, Austin; Ronald C. Wakefield, San Antonio; C. Clark Welder, Beeville; and Avis Wukasch, Georgetown, ex-officio representing the Texas Real Estate Commission. TIERRA GRANDE™ (ISSN 1070-0234) is published quarterly by the Real Estate Center at Texas A&M University, College Station, Texas 77843-2115. Telephone: 979-845-2031. SUBSCRIPTIONS free to Texas real estate licensees. Other subscribers, $20 per year. Subscribe online at http://recenter.tamu.edu/store VIEWS EXPRESSED are those of the authors and do not imply endorsement by the Real Estate Center, Mays Business School or Texas A&M University. The Texas A&M University System serves people of all ages, regardless of socioeconomic level, race, color, sex, religion, disability or national origin. PHOTOGRAPHY/ILLUSTRATIONS: JP Beato III, pp. 1, 14–15, 18, 19; Robert Beals II, pp. 7, 8–9, 16–17, 20, 26–27, 28; Austin Goddard, pp. 8–9; Kevin Butts, Red Wing Aerial Photography, pp. 10–11; Real Estate Center files, p. 25. © 2013, Real Estate Center. All rights reserved.
2 When Commissions Raise
Questions
In an ideal world, every real estate transaction would close quickly, and commissions would be paid without fail. But on this planet, the process may have some hiccups. Here’s what Texas case law tells us about commission controversies. Just so you’ll know, there are no cookie-cutter answers. BY JUDON FAMBROUGH
7 M.A.P. Quest
State Tackles Appraisal Inconsistencies
ON THE COVER Kayakers enjoy a summer day at the Amistad National Recreation Area.
PHOTOGRAPHER Laurence Parent
What do Texas’ 253 appraisal districts have in common? Not enough, apparently. To encourage all districts to march to the beat of the same drummer, the state comptroller’s office is reviewing county appraisal standards, procedures and methodology every other year. BY CHARLES E. GILLILAND AND MICHAEL OBERRENDER
10 Land, Lots of Land
How Texas Dodged the Housing Bubble Forget all the references to a “home price” bubble in the mid-2000s. Center research reveals that it was a “land price” bubble that caused havoc in California, Nevada and other states. As for Texas, it flew above the crisis thanks to plentiful land and less restrictive development processes. BY ALI ANARI
20 The Amazing Rate
With its population projected to grow by 30 million between now and 2050, Texas is a shoo-in to win any growth rate competition. Think of it as a race from now to the future, during which the state is sure to encounter challenges. Not the least of these will be housing all those folks. BY JAMES P. GAINES
25 Economic Diversity
How Much Does Texas Rely on Energy? Texas’ history and economy is drenched in the oil and gas industry. Since the 1980s, though, the state has become more industrially diverse, which fosters more stability in the economy when oil prices are down. BY LUIS B. TORRES
JULY 2013
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Brokerage
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hether business is good or bad, questions abound concerning a real estate agent’s right to a commission. When times are bad, questions generally surface when a transaction fails to close. When times are good, questions arise when multiple buyers offer to purchase the property on the exact terms of the listing agreement or even at a higher price. Whose offer must the seller accept?
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TIERRA GRANDE
There are no simple answers. The rules depend on the facts and especially on the terms of the listing agreement. Ordinarily, an agent earns a commission by procuring from the purchaser a valid, enforceable contract on terms satisfactory to the seller. With the signing of the contract, the seller, for the most part, accepts the buyer’s readiness, willingness and ability to complete the sale according to the terms of the contract. However, if the seller rejects an offer containing the exact terms of the listing agreement, the agent’s commission depends on the procurement of a ready, willing and able buyer to perform under the terms specified in the listing agreement. Consequently, cases fall into two groups: one in which the seller signs the contract and the transaction fails to close, and the other when the contract is never signed. Of course, the devil is in the details in either situation. Many cases are fact specific and hard to generalize. The following attempts to summarize existing Texas case law.
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If a controversy arises, the courts examine the type of listing agreement, duties placed on the agent within that agreement, fulfillment of the legal requirements promulgated by the Texas Real Estate Commission (TREC), the Texas statutes and case law.
Generally speaking, there are three types of listing agreements: (1) nonexclusive (or open), (2) exclusive agency and (3) exclusive right to sale. With the first two, the licensee must be the procuring cause (or proximate cause) of a valid, enforceable contract between the buyer and seller based on the terms of the listing agreement or terms acceptable to the seller. Texas case law defines procuring cause as “the event (that) produces the (required) result (the offer, contract or closing)
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without which it would not have occurred.” Some cases simply say the commission is earned when the agent is instrumental in bringing the buyer and seller together. Either way, there must be some reasonable or proximate relationship between the efforts of the broker and the eventual offer, contract or closing. In the end, the procuring cause is a question of fact for a jury, not a question of law for the court. The nonexclusive (open) listing agreement obligates the seller to pay a commission to the agent who is the procuring cause of a valid, enforceable contract. The seller may retain more than one agent simultaneously. The seller is not obligated to pay a commission to any particular licensee when the seller or another real estate practitioner becomes the procuring cause. The exclusive-agency listing agreement, as the name implies, allows the seller to list the property with one agent only. The seller is not liable for a commission, though, if the seller is the procuring cause of the contract. Finally, exclusive right to sale entitles the listing agent a commission even though the seller or another agent is the procuring cause. Most, if not all, multiple listing services are of this type.
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f the agent’s commission is dependent upon the parties entering a valid, enforceable contract, what exactly does this entail? While the cases give no precise definition, they do contain several examples of unenforceable contracts. For instance, if the contract calls for acts prohibited by law (an illegal act), the contract is unenforceable. Likewise, an option contract is not enforceable until the buyer or seller exercises the option. Until then, the agent is not entitled to a commission unless the listing agreement states otherwise. If the contract contains one or more contingencies, such as the buyer’s ability to obtain third-party financing or the sale of the buyer’s home, the contract is not enforceable, and the agent is not entitled to a commission until the conditions are fulfilled or removed. Finally, oral contracts and modifications raise some interesting legal questions. Generally, oral contracts render the agreement unenforceable under the statute of frauds. Oral modifications can represent counteroffers. However, when the purchaser submits a contract to the seller on the exact terms of the listing agreement and the seller orally agrees to sell on those terms and conditions, the agent is entitled to a commission. The statute of frauds is a defense to specific performance sought by the buyer, but it is not a defense against the agent for a commission (Mason v. Abel, 215 S.W. 2d 377).
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To earn a real estate commission, the agent must satisfy four legal requirements. First, the person procuring the purchaser must hold an active real estate license obtained from TREC at the time the buyer is procured. The person need not have the license at closing. Second, the promise or agreement for the sale or purchase of the property must be placed in writing, signed by the party charged with the obligation that contains the following: • the name of the agent or broker to whom the commission is payable, • the amount of or basis for computing the commission, • the signature of the person charged with paying the commission and • a description of the real property to be conveyed. Third, when the sales contract is signed, the agent must notify the purchaser in writing that he or she should get an abstract opinion or title insurance for the property. Fourth, the agent’s performance for earning the commission must be rendered during the tenure of the listing agreement or possibly thereafter during a protection period if one is placed in the listing agreement. The protection-period provision preserves the agent’s right to a commission for a contract or sale that occurs after the listing agreement expires to a party contacted by the agent during the listing period. The length is negotiable and generally lasts 30 to 90 days. As a rule, the agents must provide the seller a list of the “contacts” shortly after the listing agreement terminates for this provision to apply. The four requirements listed previously do not apply to an agreement to share compensation among licensees or limit a cause of action among licensees with business relationships (Texas Occupations Code, Section 1101.806[a]).
As stated earlier, when the contract is signed by the seller, one of the problems faced by agents occurs when the sale fails to close. In such instances, are closings (consummations of the contract) a condition for earning the commission? For the most part, the answer is no. Listing agreements, among other things, generally specify when the commission is earned, such as upon entering a binding contract, and when it is payable (at closing, if not before). To earn a commission when the contract fails to close, the agent must prove the procurement of a ready, willing and able purchaser who could perform under the terms of the listing agreement and has offered to do so. Each of the terms expresses a distinct idea. Each of the three elements must exist for an agent to be entitled to a commission when an enforceable contract fails to close. Here is what each term entails according to case law. The phrase ready and willing means the purchaser is mentally determined to consummate the transaction on the terms offered by the seller. The status is not altered if: TIERRA GRANDE
• the purchaser refuses to close because the seller’s title is defective. (But, the agent must not be aware of the title defect at the time of the contract); • the purchaser refuses to close because the seller cannot give possession on the date as promised; • the sale did not close because the seller could not get the other co-owners to execute the deed; • the seller sought to impose, but the buyer refused to accept, new conditions beyond those quoted in the listing agreement or • the purchaser offered terms different from the listing agreement, but the seller later ratified them as satisfactory. The purchaser was not ready and willing when, before the transaction reaches a binding status, he or she withdraws or asks for more time to consider the details. Able means that the purchaser has both financial resources and legal capacity to consummate the transaction. As a general rule, once the binding contract is signed, the risk of the purchaser’s financial ability rests with the seller. Of course, when the contract is contingent on the buyer getting third-party financing, the property being appraised for a certain price or selling other property to raise funds, the rule is negated. Likewise, the agent is not entitled to a commission when he or she knows of the buyer’s financial inability prior to the contract. However, once the agent proves the procurement of a ready, willing and able buyer, it eliminates any question as to whether the contract is binding or whether a closing occurs.
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enerally, when the purchaser defaults, the sales contract gives the seller two options. The seller may take the earnest money as liquidated damages or sue for specific performance (see “In Earnest,” pub. 1952). If the contract limits the seller to liquidated damages only, the listing agent is not entitled to a commission upon default because the buyer never agreed to absolutely consummate the transaction. However, if the sales agreement gives the seller the option to pursue specific performance, the agent is entitled to a commission based on the procurement of the contract even though the liquidated damages are accepted by the seller (Steven v. Karr, 33 S.W. 2d 725). Sometimes the listing agreement specifies certain conditions for earning the commission other than closing or a binding contract. These special terms are controlling. For example, in Elmore v. Wiley (478 S.W. 2d 137), the commission was conditioned on: (1) introduction of the buyer and seller, (2) the buyer agreeing to pay the commission and (3) the consummation of the sale. Here, the agent was the procuring cause of a contract but was denied a commission because the sale never closed. By the same token, a commission may be earned even though the agent was not the procuring cause of a contract and did not find a ready, willing and able purchaser. In Kaye v. Coughlin, 443 S.W. 2d 612, the commission was earned by having called the purchaser’s attention to the property during the JULY 2013
listing agreement. This was an exclusive-right-to-sale listing agreement with the sale occurring during the protection period. Where the sellers agree to pay a commission out of the proceeds of sale, the commission was not recoverable until the purchase money was paid unless the nonpayment is attributable to the seller’s conduct (Stafford v. Smith, 458 S.W. 2d 217). Finally, in Campagna v. Lisotta, 730 S.W. 2d 382, the agent was entitled to a commission only if lessee purchased property through the exercise of its right of first refusal during the tenure of the lease. The owner sold property to the lessee but without first receiving a written bona fide offer from a third party. The court ruled the agent was not entitled to a commission because the right of first refusal was never exercised.
Most of the case law focuses on the listing agent’s right to a commission. Some case law addresses the buyer’s agent’s right to a commission. For example, in Nugent v. Scharff, 476 S.W. 2d 414, unless there is a buyer’s agent involved in the transaction, the buyer is not liable for a commission when he or she refuses to consummate the contract, but the seller is. If both the buyer and seller agree to share the commission, a refusal by one party to meet the terms of the contract gives the agent the right to collect the entire commission from the one who defaults (Roberts v. Flower, 297 SW 339). This case hints at dual representation.
When times are good, real estate agents face another dilemma. What should they do when multiple buyers submit offers conforming to the listing agreement or even offer more? Does the first conforming offer require the seller’s acceptance? Generally, listing agreements do not address this question. To understand the answer, the agent must recall that the listing agreement is not an offer from the seller to potential buyers in the traditional sense. Listing agreements are invitations to receive bids or offers. The seller is not bound legally to accept any offer from any potential buyer based on the listing agreement. Consequently, the “first-in-time, first-in-right rule” does not apply. While it appears logical, it has no legal merit. However, as discussed earlier, a conforming offer from a ready, willing and able purchaser may entitle the agent to a commission. Could the seller be liable for more than one commission if conforming offers are received from more than one ready, willing and able buyer? If ten conforming offers are submitted, is the seller liable for the other nine by accepting one?
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In the context of an open listing, the seller is not liable for more than one commission. Here is how the case of Briden v. Osborne (184 S.W. 2d 860) describes it. he owner has a right to authorize more than one broker, each independently of the other, to effect a sale of his property; and, so long as he (the owner) remains neutral, he (the owner) ought to be permitted without incurring liability for commissions to more than one of them, to consummate the sale of the property through the one (the agent or broker) who first produces a person ready to buy it, whether the agent producing the purchaser is the one who first brought him (the owner) and the buyer together or not. Where there are (is) more than one independent broker involved, and it is shown that one broker introduced a prospective buyer to the seller and that afterward the sale was concluded by the aid of another broker, there is no presumption that either broker was the procuring cause of the sale. In such case the broker, seeking to hold the seller liable for a commission, must, unaided by any presumption, plead and prove he (the broker) was the procuring cause of the sale. Open listings expose sellers to the possibility of paying more than one commission when the seller mistakenly tenders the commission to the wrong agent. As the court explains in First National Bank v. Smith (141 S.W. 2d 735), “Where an owner lists his land with several agents, he takes the risk of having to decide at his peril to whom he shall pay the commission.” The seller’s liability to the procuring broker is not discharged by paying the commission to another broker who was not the procuring cause. So far, no case law addresses liability for multiple commissions when the sale does not close. As a rule, there can be only one procuring cause.
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TREC, to some extent, provides guidance to agents when multiple offers are received. Title 22, Part 23, Subchapter N of the Texas Administrative Code (TAC), Rule 535.156(a) states, “A licensee shall convey to the principal all known information which would affect the principal’s decision on whether or not to make, accept or reject offers. . . .” What information might this be? The provisions of the Federal Fair Housing Act (42 USCA, Section 3604) entitled “Discrimination in Sale or Rental of Housing” is an example. The act provides that “. . . it shall be unlawful to refuse to sell or rent after the making of a bona fide offer, or to refuse to
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negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, or national origin.” The statute provides the same rules apply to handicapped buyers or renters. The act defines a handicapped person as having “a physical or mental impairment which substantially limits one or more of (a) person’s major life activities.” The federal mandate is restated somewhat in Rule 531.19 of the TAC entitled Discriminatory Practices. “No real estate licensee shall inquire about, respond to or facilitate inquiries about, or make a disclosure which indicates or is intended to indicate any preference, limitation, or discrimination based on the following: race, color, religion, sex, national origin, ancestry, familial status, or handicap. . . .” What does this mean to sellers and agents attempting to decide whose offer to accept? Basically, the two must be neutral concerning the potential buyers’ race, color, religion, sex, national origin, ancestry or handicap status. The decisionmaking process should be documented carefully to avoid the appearance of impropriety. Offers are seldom alike even though based on the same listing agreement. They may contain certain contingencies such as being able to acquire financing or the sale of the buyer’s present dwelling to raise funds. The proposed dates for closing and possession may vary. The amount of the down payment and the creditworthiness of potential buyers may differ. Some offers may exceed the asking price. All these factors should be taken into consideration. onsequently, the decision-making process should be based on selecting the buyer who is most likely to reach closing in the shortest stated time with the fewest difficulties. Rule 535.16 of the TAC requires a broker under a listing agreement to negotiate the best possible transaction for the principal. In the same manner, the agent or broker should avoid any appearance of impropriety when counseling the seller in the process. The TAC requires licensees to deal honestly and fairly with all parties.
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Fambrough (judon@tamu.edu) is a member of the State Bar of Texas and a lawyer with the Real Estate Center at Texas A&M University.
THE TAKEAWAY When a commission is earned and who receives it depends primarily on the type and terms of the listing agreement. Controversies may arise when a contract is signed but never closes and when a buyer is procured on the terms of the listing agreement and the seller refuses to sign the contract. TIERRA GRANDE
Appraisal
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State Tackles Appraisal Inconsistencies By Charles E. Gilliland and Michael Oberrender
Administration of Texas’ property tax system relies on 253 chief appraisers operating local central appraisal districts (CADs). Potter and Randall Counties share a single appraisal district; the remaining counties each have their own. These districts shoulder responsibility for appraising millions of properties for taxation. While chief appraisers have access to guidance from the Property Tax Assistance Division (PTAD) of the Texas Comptroller’s office, they have historically retained a substantial degree of authority to interpret and apply Texas property tax laws. Consequently, property owners may encounter differences in how local appraisal districts set values. JULY 2013
Some appraisal districts have been using inconsistent methods for determining market value. According to the Texas Taxpayers and Research Association, these offices have, for many years, operated with “inadequate oversight.” The inconsistencies resulted in appraisals that frequently differed from market value, the standard specified in Texas property tax law. To remedy this situation, the Texas Legislature in 2009 enacted a provision requiring the comptroller to review operations in each appraisal district every other year (Section 5.102 of the Texas Property Tax Code). Dubbed the Methods and Assistance Program (MAP), this initiative seeks to ensure that appraisal
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DALLAM SHERMAN HARTLEY
HANSFORD
MOORE
OCHILTREE
LIPSCOMB
HEMPHILL
OLDHAM POTTER
HUTCHINSON
ROBERTS ARMSTRONG
DEAF SMITH RANDALL PARMER
district operations conform to a reasonable level BAILEY of professional standards. Under MAP, the PTAD reviews CADs in four dimensions of operations: • governance, • taxpayer assistance provided, • operation and procedures and • appraisal standards, procedures and methodology. ppraisal district reviews began in 2010, with 128 counties reviewed that year. The remaining 125 counties were reviewed in 2011. The review process consisted of a two-part assessment. The first part focused on a set of five mandatory pass-fail questions followed by 196 yes-no questions (183 regular and 13 bonus). At completion of the initial analysis at the beginning of the year, PTAD reported their findings to each appraisal district along with recommendations for improvement. After receiving the recommendations, each appraisal district worked with PTAD to correct as many problems as possible before the final PTAD report was written at the end of the year. The second phase of the process started after the final report and allowed the CAD one year to correct the remaining issues. Failure to address the remaining issues prompted PTAD to refer CADs to the Texas Department of Licensing and Regulation (TDLR) for remedial action designed to ensure implementation of the remaining recommendations. The first part of the initial assessment contained five required tests to ensure that a CAD could efficiently establish taxable values. The goal was to examine the effectiveness and transparency of the CAD’s appraisal process. The questions concentrated on: • current appraisal maps (69 CADs failed initially and 24 at final review), • property inspections that matched appraisal district records (27 failed initially and 12 at final review), • written procedures for appraisals (79 failed initially and 23 at final review), • values that are reproducible using the CAD’s procedures and records (91 failed initially and 41 at final review) and • timely submission of all requested documents to the PTAD reviewer (five failed initially and six at final review). After the final review, any CAD that failed any categories was required to correct the problems within one year or face sanctions from TDLR. When this article was written, the only CADs facing sanctions are from the group assessed in 2010. CADs that took the assessment in 2011 and failed any categories will receive sanctions from TDLR this year.
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CARSON
GRAY
CASTRO LAMB COCHRAN
WHEELER
SWISHER HOCKLEY
YOAKUM EL PASO
DONLEY HALE TERRY
LUBBOCK
LYNN
GAINES ANDREWS HUDSPETH
At the end of the WINKLER first round of assessCULBERSON LOVING ments for all appraisal districts (2010 and 2011), the PTAD made 11,115 preliminary recommendations (5,336 for 2010 and JEFF DAVIS 5,779 for 2011). These recommendations were for the 196 yes-no questions that were asked. By year’s end, for all counties, 7,454 of the recommendations had been resolved (3,073 in PRESIDIO 2010 and 4,381 in 2011). Although substantial corrections were made, a total of 3,661 issues went unresolved (2,263 in 2010 and 1,398 in 2011). Final graded recommendations also were assigned in taxpayer assistance, governance, operating procedures, and appraisal standards and procedures. In the taxpayer assistance category 95 percent of the CADs either exceeded or met the requirements. In governance the percentage dropped to 89; operating procedures, 82 percent; and appraisal standards and procedures, 76 percent. Forty-one CADs were rated unsatisfactory, with scores ranging from 1 to 74. By the end of the assessment year, the number of unresolved recommendations ranged from 31 to 141. The first full results of the program were released in 2012. After receiving one full year to comply with recommendations, eight CADs failed (Armstrong, Borden, Collingsworth, Dallam, Live Oak, McMullen, Sterling and Trinity) and were reported to TDLR. Six of these failed to correct the mandatory passfail questions and six failed to correct a substantial number of comptroller recommendations as well. he CADs that failed share similar characteristics. All have a population fewer than 10,000. Much of their land is rural. All have limited taxable value (four have less than $500 million). Additionally, they have small budgets (six have a budget less than $200,000). They have a small number of employees (six CADs have a staff of fewer than four), limited appraisal expertise, and low pay (three CADs pay the chief appraiser a salary of $15,000 as of 2009).
Texas has 253 central appraisal districts. Potter and Randall Counties share a district, while the remaining counties have their own.
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ARBs worked an average of 1,772 hours, while 50 hours was average in smaller CADs. CHILHALL DRESS The second survey sought to determine if board of direcHARDEBRISCOE MAN tors members have a background in appraisal; MOTLEY COTTLE WILBARFOARD WICHITA GER how many taxing units were nominatFLOYD ing board members; the average CROSBY DICKENS KING KNOX BAYLOR ARCHER CLAY MONTA- COOKE GRAYSON FANNIN LAMAR RED RIVER GUE GARZA number of years each board memBOWIE DELTA ber serves; and how many board STONETHROCKWISE DENTON COLLIN HUNT HOPKINS TITUS JACK BORDEN WALL HASKELL MORTON YOUNG KENT CASS DAWSON members had served ten years or CAMP FISHER RAINS JONES more (MAP2010 Report Finding). WOOD UPSHUR MARION SHACKLE- STEPHENS PALO PARKER TARRANT DALLAS PINTO SCURRY FORD KAUFVAN Results indicate that in larger G HARRISON MAN ZANDT MARTIN EG GR HOWARD MITCHELL ERATH HOOD JOHNSON ELLIS CADs, 70 percent of board memCALLANOLAN TAYLOR EASTLAND HAN HENDERSON SMITH RUSK PANOLA bers were nominated by more GLASS- STERNAVARRO HILL MIDLAND COCK CHEROLING COMANBOSQUE than one taxing unit; in smaller ANDERCOKE KEE RUNNELS COLEMAN BROWN CHE SHELBY SON FREEWARD HAMILTON NACOGCADs, 50 percent were nomiSTONE DOCHES MCLENNAN MILLS CRANE nated by more than one unit. CORYELL UPTON REAGAN TOM HOUSTON IRION LEON GREEN CONCHO FALLS LAMP MCCULIn large CADs, 30 percent of ASAS LOCH SAN SABA TRINITY BELL ROBERTBOD members had a backMADISON SON SCHLEICHER MENARD BURNET MILAM PECOS POLK TYLER ground in appraisal, whereas WALKER MASON LLANO CROCKETT WILLIAMSON SAN for smaller CADs the figure KIMBLE SUTTON BURLEJACINTO SON HARDIN GILLESPIE MONTTRAVIS LEE was 22 percent. The average WASHINGGOMERY TERRELL ORANGE TON HAYS BASTROP term for BOD members for all VAL VERDE LIBERTY KERR EDWARDS KENDALL AUSTIN FAYETTE CALDW BREWSTER sizes of CADs was six years. HARRIS CHAMBERS ELL REAL COMAL BANDERA Among all CADs, 20 percent GUADACOLORADO FORT GONLUPE BEND ON ZALES BEXAR LAVACA of BOD members had served a EST UVALDE MEDINA V KINNEY L GA WHARTON WILSON term of ten years or longer. BRAZORIA DE WITT The final survey, hardware and software, ZAVALA FRIO KARNES MATAGORDA ATASCOSA was conducted to determine the resources GOLIAD CALHOUN available to each appraisal district and how much MCDIMMIT LA SALLE MULLEN BEE REFUGIO they devote to information technology. It was also SAN used to determine the average cost of a computer assisted PATRICIO Three surveys were mass appraisal (CAMA) system, whether geographic informaWEBB DUVAL NUECES conducted for all appraisal tion system (GIS) is being used, and if each CAD had a funcKLEBERG districts. Currently, however, tioning website. the only information that is BROOKS Results show that 80 percent of large appraisal districts have ZAPATA JIM KENEDY HOGG available is for the 128 CADs a GIS, compared with 53 percent for smaller CADs. Only 43 surveyed in 2010. The surveys percent of smaller CADS maintained a website. STARR WILLACY were: PTAD has begun the second round of MAP studies. This HIDALGO • Appraisal Review Board (ARB) effort promises to standardize CAD operations throughout CAMERON Information Survey, Texas. As the process identifies deficiencies, and recommenda• Appraisal District Board of Directors tions help CADs adopt more effective and transparent prac(BOD) Informational Survey and tices, the system will become a more level playing field for all • Appraisal District Hardware and Software Informational taxpayers. Survey. Dr. Gilliland (c-gilliland@tamu.edu) is a research economist and Oberrender The first survey was conducted to determine if ARBs have a research assistant with the Real Estate Center at Texas A&M University. acceptable procedures in place to determine the percentage of protests being filed by homeowners and the average value reduction for all properties; determine the total hours each THE TAKEAWAY ARB worked in 2009; and determine an itemization of values for the properties being protested. To address inconsistencies in methods of determining Results from the survey indicate that 96 percent of ARBs market value, the Texas Comptroller of Public Accounts have written procedures in place. Twenty-three percent do not now reviews operations in each of the state’s appraisal provide firmly enforced hearing times. Additionally, results districts every other year. After the first two-year cycle, showed that 34 percent of protests were filed by homeownmany identified problems were resolved. ers, and average values dropped by 11 percent. In larger CADs,
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Housing Markets
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ormer Federal Reserve Chairman Alan Greenspan argued in 2005 that the Fed saw “a lot of local bubbles” but not a nationwide housing bubble. Texas’ local housing markets were among those that did not record booming home prices followed by collapsing prices in the late 2000s. Real Estate Center research reveals why Texas dodged a home price bubble in that housing crisis. The research found that what is commonly known as a “home price” bubble was actually a “land price” bubble. With abundant supplies of land and an efficient statewide land acquisition and development process, Texas’ residential real estate market managed to avoid the home price bubble that affected many regions of the United States.
Home Cost Components The two main components of home prices are construction costs and land costs. Construction costs consist of material costs plus labor costs. From time to time these go up or down because of short-run supply-and-demand imbalances, but generally they revert to their long-term trends, which are influenced by technology and resource substitution possibilities.
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By contrast, land supply is constrained by natural endowment, acquisition and development regulations, and competition among those advocating for alternative land uses.
A Tale of Two States Texas’ major local housing markets had not recorded a home price bubble since 1990, in the aftermath of the real estate bubble of 1985–86. This crisis was mainly attributable to the worldwide oil price bubble of the early 1980s (Figure 1). From 1990 to 2007, Dallas, Houston, Fort Worth and San Antonio posted a gradual increase in home values measured by the average value of the average single-family detached owneroccupied housing unit. The upward trends in home values stalled during the Great Recession of 2008–11 but resumed in 2012 (Figure 1). For the period of this study’s datasets, the average annual growth rate of home values for Dallas, Houston, Fort Worth and San Antonio from 1985 to 2012 was 1.8 percent, 3.8 percent, 2.2 percent, and 3 percent, respectively. California, like Texas, experienced a gradual upward trend in home values until 1999. From 2000 to 2006, rapid increases in home values created a statewide home price bubble that burst TIERRA GRANDE
Figure 1. Texas Average Values of Average Single-Family Detached Home
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Dallas Houston Fort Worth San Antonio
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50 1984 1988 1992 1996 2000 2004 2008 2012 Sources: Lincoln Institute of Land Policy and Real Estate Center at Texas A&M University
JULY 2013
1,500 1,200
Dollars (Thousands)
Dollars (Thousands)
250
Figure 2. California Average Values of Average Single-Family Detached Home San Francisco San Jose Santa Ana Los Angeles
900 600 300 0 1984 1988 1992 1996 2000 2004 2008 2012 Sources: Lincoln Institute of Land Policy and Real Estate Center at Texas A&M University
11
A
Figure 3. Texas Structure Costs of Average Single-Family Detached Home
150
Dallas Houston Fort Worth San Antonio
200
San Francisco San Jose Santa Ana Los Angeles
150 100 50 0 1984 1988 1992 1996 2000 2004 2008 2012 Sources: Lincoln Institute of Land Policy and Real Estate Center at Texas A&M University
100
50
0 1984 1988 1992 1996 2000 2004 2008 2012 Sources: Lincoln Institute of Land Policy and Real Estate Center at Texas A&M University
37.5 percent, respectively, from their peaks in 2006 to their troughs in 2012. The average annual growth rate of home values from 1985 to 2012 was 7.2 percent, 8.2 percent, 6.8 percent, and 7 percent for San Francisco, San Jose, Santa Ana and Los Angeles, respectively. Construction costs of homes in Texas and California showed no rapid increases or decreases (Figures 3 and 4). Structure costs for Dallas, Houston, Fort Worth and San Antonio rose slowly from 1984 to 2004 (Figure 3). This slow upward trend became steeper from 2004 to 2008, and even continued during the Great Recession of 2008–11. Structure costs in San Francisco, San Jose, Santa Ana, and Los Angeles displayed similar trends, which is not surprising given the free movements of labor, capital and construction technologies among states. Economists Morris A. Davis and Michael G. Palumbo of the Lincoln Institute deducted construction costs from home values to determine land values for the average single-family detached home in 46 large U.S. metros. After the Texas oil price collapse and real estate market dive in Texas in 1984–85, values of the land component of home prices in Dallas, Houston, Fort Worth, and San Antonio dropped until reaching a trough in 1992 (Figure 5). Those values remained near the trough until 1996.
12
250
Beginning in 1997, land values took an upward trend that peaked in 2003. The following year, Dallas area land values started downward and, together with Houston, Fort Worth and San Antonio, reached their troughs during the Great Recession of 2008–11. The decrease in the land value component of Texas home prices occurred despite growing demand for housing units fueled by a growing population as well as more credit availability. From 2000 to 2010, the number of housing units in Texas rose 22.3 percent compared with 12 percent for California. The supply side of the Texas housing market succeeded in meeting the growing demand for homes while retaining affordable prices by developing and supplying more low-cost land for housing developments.
Figure 5. Texas Land Values of Average Single-Family Detached Home 100
Dollars (Thousands)
Dollars (Thousands)
200
Figure 4. California Structure Costs of Average Single-Family Detached Home
Dollars (Thousands)
after 2007 (Figure 2). From first quarter 2000 to first quarter 2006, home values in San Francisco, San Jose, Santa Ana and Los Angeles increased by 109.4 percent, 77.6 percent, 164.2 percent, and 164.9 percent, respectively. fter the home price collapse, the average value of San Francisco homes in 2012 returned to its 2002 level after falling by 38.2 percent from its peak in 2006. Average 2012 home values in San Jose fell to their 2003 level after decreasing by 28.9 percent from their 2006 peak. Home values in Santa Ana and Los Angeles fell by 36.9 percent and
800
Dallas Houston Fort Worth San Antonio
600 400 200 0 1984 1988 1992 1996 2000 2004 2008 2012 Sources: Lincoln Institute of Land Policy and Real Estate Center at Texas A&M University TIERRA GRANDE
This housing supply-side flexibility was absent in California. Increases and decreases in land values for San Francisco, San Jose, Santa Ana and Los Angeles mirrored home values in these metro areas during the study period (Figures 2 and 6). Land values in the four metro areas showed a slow upward trend from 1984 to 2000. Thereafter, rapid rises and falls generated land value bubbles. What was described as a home price bubble was instead a land value bubble (Figures 2 and 6).
estate markets. But cheap credit was as widely available in Texas as in California. This analysis shows that Texas avoided a home price bubble thanks to the flexibility of the supply side of the state’s housing market. Home price bubbles occurred in areas where the housing supply was not flexible enough to respond to growing demand for homes fueled by more credit availability.
Blame Land Supply Constraints
I
The availability of cheap credit has been blamed for the home price bubble of the late 2000s in U.S. regional residential real
Figure 6. California Land Values of Average Single-Family Detached Home 1,200
Dollars (Thousands)
1,000
San Francisco San Jose Santa Ana Los Angeles
800
Inflation-Adjusted Home Values nflation-adjusted home values in San Francisco and Los Angeles in 2012 were close to their respective 1989 values (Figure 7). Inflation-adjusted home values in Dallas and Houston in 2012 were close to their respective values in 1990. So nothing has changed in real terms in Texas or California. But homeowners can have peace of mind knowing that along with offering shelter, their homes are good hedges against inflation. Dr. Anari (m-anari@tamu.edu) is a research economist with the Real Estate Center at Texas A&M University.
600
THE TAKEAWAY
400
The “housing price bubble” in the past decade was in fact a “land price bubble” according to Center research. As the land component of housing prices soared elsewhere, Texas had plenty of relatively low-cost land combined with efficient statewide land acquisition and development processes. As a result, Texas avoided the devastating effects when the bubble burst.
200 0 1984 1988 1992 1996 2000 2004 2008 2012 Sources: Lincoln Institute of Land Policy and Real Estate Center at Texas A&M University
Data and Methodology
T
JULY 2013
Figure 7. Inflation-Adjusted Home Values San Francisco, Los Angeles, Dallas and Houston 600 500 Dollars (Thousands)
his research project used quarterly data from fourth quarter 1984 to third quarter 2012 on housing values, construction costs, and land values from the Lincoln Institute of Land Policy for four major metropolitan areas in Texas (Dallas, Houston, Fort Worth, San Antonio) and California (San Francisco, San Jose, Santa Ana, Los Angeles). The local housing markets for California were elected for comparison with Texas local housing markets because those major metro areas experienced the most dramatic home price bubbles. This analysis was conducted by analyzing home values, construction costs and land values in current dollars, not adjusted for inflation. Consumer price indexes (CPI) are compiled by the U.S. Bureau of Labor Statistics for Dallas, Houston, San Francisco and Los Angeles. Dividing home values for Dallas, Houston, San Francisco and Los Angeles by the CPIs for the areas produces the inflation-adjusted home values (Figure 7).
San Francisco Los Angeles Dallas Houston
400 300 200 100 0 1984 1988 1992 1996 2000 2004 2008 2012 Sources: Lincoln Institute of Land Policy and Real Estate Center at Texas A&M University
13
Industrial Markets
The petrochemical industry is back with a vengeance in Texas, the largest chemical-producing state, which boasts $145 billion in annual revenues. Nowhere is this more evident than in eastern Harris County. Surrounding the 25-mile Houston Ship Channel are 16 communities known as the Economic Alliance Houston Port Region (EAHPR). Located within its boundaries is one of the world’s most important trade ports and energy-related industrial corridors (see map).
14
TIERRA GRANDE
Fred Hartman Bridge, La Porte JULY 2013
15
Rapid economic growth is often accompanied by new challenges. This round of expansion will be no exception, but the resulting real estate opportunities in and around east Harris County may be some of the best in years.
Little York Rd
Early Drivers
E
arly economic drivers favoring petrochemical development near the ship channel included the ready availability of product (oil and gas) and easy access to a rail and waterborne delivery system. Installation of a vast pipeline network further diversified the area’s distribution capabilities. An interstate highway link completed the integrated transportation network. Much of the chemistry developed to produce other vital products from oil and gas was initiated during the war years of the 1940s. The Bayport Industrial District, created in 1970, is now among the largest private industrial complexes in the country, with more than 60 chemical plants. Roughly 160 companies have acquired facilities along the ship channel between the turning basin and Barbours Cut.
45 290
610
Economic Alliance Houston Port Region
10
Belgium Brazil
Current Boom The primary feedstocks for the petrochemical industry are natural gas, natural gas liquids (NGLs) such as butane, propane and ethane, and naptha derived from crude oil. For decades, petrochemical production had been steadily drifting away from the United States toward emerging markets such as India or Indonesia, where feedstock prices and international transportation costs were cheaper. The discovery of shale gas and the resulting drop in U.S. natural gas prices has totally changed the global dynamics of the petrochemical industry. The American Chemistry Council states that when the ratio of the price of oil per barrel to the price of natural gas per MCF (thousand cubic feet) is more than 7 to 1, the competitiveness of Gulf Coast petrochemical products is enhanced.
Canada China 69
16
Denmark France Germany
288
Italy Japan
610
Mexico Netherlands Norway S Post Oak
Rd
The discovery of shale gas and the resulting drop in U.S. natural gas prices has totally changed the global dynamics of the petrochemical industry. The U.S. oil to gas ratio increased from 5.5 to 1 in 2003 to more than 20 to 1 in 2013. The ratio has become extremely favorable for U.S. production of petrochemicals, plastics and other chemical products derived from natural gas and NGLs. A recent report by the Houston Branch of the Dallas Federal Reserve found that prices for the NGLs ethane and propane had tumbled 40 percent to their lowest levels in at least two decades by 2012. In the United States, over 85 percent of ethylene, the major building block of most plastics, is derived from NGLs. The rest of the world primarily uses much more expensive naptha. The Fed report also stated that U.S. ethylene capacity is poised to increase almost 33 percent by 2017, pending completion of all new plants, expansions, enhancements and restarts of shutdown facilities that have been announced. Texas accounts for 72 percent of U.S. ethylene capacity. The report contends that the increase in domestic ethylene production will outstrip projected domestic demand growth in the next several years. As a result, U.S. petrochemical exports, particularly from Texas, will expand significantly. This is more good news for the Port of Houston.
45
59
Russia Spain Switzerland
Bailey Rd
6
288
TIERRA GRANDE
CROSBY
59
MAGNOLIA GARDENS
Garrett Rd
69
MOUNT HOUSTON
BARRETT
Genan
SHELDON
8
B
1942
OMK Tube Inc. Laguna Tubular
y
Hw
NORTH SHORE
90
Crosby
Sheldon Rd
Mesa Dr
N Wayside Dr
ont
m eau
LyondellBasell
330 Brenntag AG
Dr ide
San
WSI OCTG
GALENA PARK
Jacin
to Blv
PRSI Inc.
Houston Ship Channel
Clinton Dr
LyondellBasell
d
Vopak ITC
DEER PARK
Shell Refinery
Rhodia, Inc.
Independence Pkwy S
NW ays
565
N Main St
10 Turning Basin JACINTO CITY
EAST END
Hill Rd
10
610
n Dr
Barbers
MCNAIR
90
Clinto
146
Ineos
BAYTOWN
2354
fR luf
dB
Re
W Fairmont Pkwy
d
Fairmont Pkwy
ch Ri S Monroe Rd
Hyduke Energy
La Porte Municipal Airport
Bay Area Blvd
PASADENA
SOUTH HOUSTON William P Hobby Airport
Underwood Rd
ey
St
Barbours Cut
Tri City Beach Rd
Sulzer
8
Total Petrochemical AzkoNobel Braskem Katoen Natie Linde Noltex
kwy
nd P
Gra
Solvay
225
225
146
MORGAN’S POINT
146
LA PORTE
Air Liquide SSI Chusei Azko Nobel Nissan Chemical Air Liquide Kuraray America Linde LyondellBasell Clariant Arkema Kaneka BASF Hoyer Global Reagens Nestle Dianal America Sanyo Chemical Haldor Topsoe JX Nippon Oxiteno USA
BEACH CITY
LyondellBasell
3
SHORE ACRES
Ellington Airport
8
Total Petrochemical
American Acryl
kh
ac
Bl
d rea
vd
dP
Bayport
Bl
lan y kw
Johnson Space Center
Blvd
Ba yA
Styrolution NA Industries
146
Blv
k
ar
aw
Pe
N Main St
PEARLAND
SOUTH BELT ELLINGTON
Odfjell
SEABROOK
Haldor Topsoe
Galveston Bay
D
ix i
e
Fa
rm
R
d
Marina Bay Dr
ood
dsw
rien
SF Dr
S Main St
ain
WM
St
wy
Pk
d Ol
Pkwy
n
sto
lve
Ga
e City
Leagu
ue
ag
Le
ty
Ci
Rd
45 3
6 Source: Real Estate Center at Texas A&M University
JULY 2013
17
Synergy Abounds
I
nterdependence plays a big part in understanding the appeal to companies, big and small, that have chosen to locate in the EAHPR. For example, steam generated in one facility may be used to generate electricity for another. Gases produced in refining or processing applications like hydrogen may be used in a nearby chemical plant as a feedstock for specialty chemicals. The connections between the firms are massive. Interest in the region from foreign companies has always been strong and should continue to improve with the increase in available domestic feedstocks (see map). Foreign direct investment in plants and facilities can be attributed to a number of factors. “The Japanese originally chose this area to locate facilities based on availability of raw materials, the workforce, the support industries, low energy costs and reasonable taxes,” says Steven Skarke, executive vice president of Kaneka North America, a Japanese specialty chemical company in Pasadena. “Port access is also critical since our products are sold around the world.” “It’s also important to have access to things like a common wastewater facility, steam, oxygen and multiple natural gas suppliers,” says Doug Mathera, plant manager at the Dutchbased LyondellBasell’s Choate Road chemical plant in Pasadena. “The great thing about Texas is it looks for enlightened solutions to problems. Recreational boats, shrimpers and plants all work and play together in this region. That just doesn’t happen on the East or West Coasts,” says Mathera. Regarding wastewater, common practice is for each entity to build and operate its own waste management facility. The Texas legislature took a different approach, creating the Gulf Coast Waste Disposal Authority in 1969, initially to clean up Galveston Bay. “About 80 industrial users send their wastewater to our treatment facility today,” says Scott Harris, facility manager at Gulf Coast Waste Disposal’s Bayport facility. “Another 11 companies or expansions are being considered as well, so we are continuing to grow.”
Heat treatment strengthens the pipe to handle harsh drilling conditions. Finishing involves threading the ends or attaching custom connectors for special applications. “The surge in horizontal drilling and hydraulic fracking has really increased the need for higher performance downhole pipe,” says Bill McWhorter, vice president of operations for OCTG Tubular Finishing. “When we drilled vertical holes, gravity worked fine to help us drop well casing in place. But with horizontal wells, a joint of casing may have to be pushed a mile or more. That’s introduced a whole new level of stress on today’s pipe.” “There is a global land rush to be right here if you’re in the downhole pipe business,” says OCTG Tubular’s owner David Siverling. “This is the spot on the planet on the cutting edge of downhole pipe technology.”
“In horizontal wells, a joint of casing may have to be pushed a mile or more. That’s introduced a whole new level of stress on today’s pipe.”
Pipe Technology
T
he EAHPR’s northern boundary along Highway 90 and Sheldon Road is ground zero for the latest in OCTG pipe, an old oilfield term that stands for “oil country tubular goods” used in producing or transporting oil and gas. Green, unfinished pipe is transported to this location from around the world or produced locally from rolled steel in new state-of-the-art pipe plants. Value-added processes, including heat treatment, finishing and final inspection, finalize the creation of a joint of downhole casing or production tubing.
18
Workforce Challenges
The upswing in economic activity has increased the demand for skilled workers in the area. Many companies are forced to lure talent away from each other or train new people in-house. “It will take us four to six months to train an operator,” says Meredith Zauflik of Oxiteno. “We want to retain our talent and avoid retraining as much as possible by offering a great work environment. What we don’t want to be is some other company’s training ground.” “Unfortunately, America has a missing generation in the skilled labor pool,” says McWhorter. “We’ve been forced to bring in older talent, some of them retired, to get by until younger folks can be trained to fill the void. I spend a lot of my time recruiting, and I can tell you that finding good labor is a real problem.” With its perception as a blue-collar area, the east side of Harris County has not traditionally been a place young people are drawn to. “These are not sexy jobs,” says Ohlmansiek. “But they pay quite well and, with the shortages, there is a lot of opportunity to move up the ladder quickly.” TIERRA GRANDE
THE HOUSTON SHIP CHANNEL services vessels from 154 countries — more than any other U.S. port (this page, top). OCTG Tubular owner David Siverling (right) and Vice President for Operations Bill McWhorter (left), at their plant (this page, bottom). Thanks to the shale gas boom, pipe manufacturers are going full throttle (facing page).
to an April 2013 report by the Congressional Research Service. Energy analysts believe it is highly unlikely that all 25 projects will be built. Cheniere Energy’s CEO, Charif Souki, has described the 25 export applications as “20 ideas and four or five true projects.” If all 25 projects were to be constructed, they would represent a total export capacity of 29.7 BCF per day according to the congressional report. roponents of natural gas as a transportation fuel argue that it makes no sense to export our clean domestic natural gas while continuing to import dirty crude oil. Most companies involved in U.S. petrochemical and manufacturing agree. Alternatively, exploration companies argue that exporting LNG could help bring the price back to a level sufficient to encourage drilling for natural gas again, thought to be somewhere around five dollars per MCF. Interest in drilling for natural gas declined significantly in the last year due to a steep drop in price. The U.S. natural gas rig count fell from more than 800 in 2012 to less than 400 today, a level not reported since 1999. The decision regarding how much U.S. LNG to export will ultimately be decided by politicians. However, IHS Global Insight reports that the U.S. petrochemical sector is ramping up to spend $95 billion for plant expansions and new projects. This would indicate that they believe the eventual natural gas price increase will be manageable over the next 15 to 20 years. These expansions also will immediately create construction jobs and increase full-time employment as well. Marie McDermott, vice president of business development for the EAHPR, agrees. “In 2012 we had six major specialty chemical or manufacturing companies commit to spend more than $1.5 billion in our area for new capital investment. That makes us pretty optimistic about the future of our industrial sector.”
P
The bulk of new-hires picked up by the major industrial employers will have two years in a trade school or the equivalent in on-the-job experience. San Jacinto College (SJC) offers a number of technical training programs. However, SJC reports that companies that overprojected labor needs in the last downturn remain hesitant to communicate their exact staffing needs.
Conflicts of Interest Over LNG A big unknown in the petrochemical and manufacturing sectors is how large the effect of exporting U.S. liquefied natural gas (LNG) to other countries would be on the domestic price of natural gas. The concern is that our advantage of cheap fuel and feedstocks for local industrial uses could disappear if the price of gas increased too much. Currently, only one LNG export facility, Cheniere Energy’s Sabine Pass location, has completed the Federal Energy Regulatory Commission’s (FERC) authorization process and obtained signed long-term contracts from global buyers. The facility’s first two stages, under construction since last August, will have an export capability of about 2.6 billion cubic feet (BCF) per day. Natural gas production in the lower 48 states averages about 65 BCF per day. Twenty-five applications for permission to construct LNG export facilities have been filed as of March 2013, according JULY 2013
Dr. Hunt (hhunt@tamu.edu) is a research economist with the Real Estate Center at Texas A&M University.
THE TAKEAWAY The U.S. petrochemical industry is benefiting from cheap and plentiful natural gas feedstock that allows it to compete with countries that derive their feedstock from crude oil. Indications are that the boom created by low-cost natural gas will not be a short-term phenomenon.
19
Population Growth
There are more Texans than ever before. There are more young people, more middle-aged people and many more older people. There are more Anglos and considerably more Hispanics. Although the population growth rate during the ďŹ rst decade of the 2000s was slightly less than that of the 1990s, the state still continues to far outpace the national experience and almost all other states.
20
TIERRA GRANDE
In the decades to come, several key demographic trends will be particularly significant for their potential effects on Texas’ future. They are: • the state’s overall rate of growth and urbanization; • the composition of Texas’ population, especially the growth in nonanglo population groups; • the principal sources of population growth; and • shifts in the population’s age distribution. This is the first of a two-part review of the long-term demographic projections for Texas.
net migration. The other two scenarios, the zero migration 0.0 Scenario and the 0.5 Scenario, generate substantially lower future population projections by assuming that net migration is either zero or half the 2000–10 rate. Consequently, the 1.0 Scenario produces the most aggressive future growth projections.
Table 1. Total Population and Percent Population Change Texas and the United States, 1850–2012 Year 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2011 2012
Population Projection Scenarios Recently, the Texas State Demographer’s Office revised its long-term population projections based on the results of the 2010 Decennial Census. This analysis of the state’s projected population is based on the 2000–10 net migration 1.0 Scenario assumption. This scenario assumes “that the trends in the age, sex and race/ ethnicity net migration rates of the post-2000 decade will characterize those occurring in the future of Texas.” All three population projection scenarios provided by the state demographer include the same set of mortality and fertility assumptions but differ regarding
Texas
United States
212,592 604,215 818,579 1,591,749 2,235,527 3,048,710 3,896,542 4,663,228 5,824,715 6,414,824 7,711,194 9,579,677 11,196,730 14,229,191 16,986,510 20,851,820 25,145,561 25,631,778 26,059,203
Texas Percent Growth*
23,191,876 31,443,321 39,818,449 50,155,783 62,947,714 75,994,575 91,972,266 105,710,620 122,775,046 131,669,275 150,697,361 179,323,175 203,302,031 226,545,805 248,709,873 281,421,906 308,745,538 311,587,816 313,914,040
184.2 35.5 94.5 40.4 36.4 27.8 19.7 24.9 10.1 20.2 24.2 16.9 27.1 19.4 22.8 20.6 1.5 1.7
U.S. Percent Growth 35.6 26.6 26.0 25.5 20.7 21.0 14.9 16.1 7.2 14.5 19.0 13.4 11.4 9.8 13.2 9.7 0.7 0.7
Source: U.S. Census Bureau; Decennial values as of April 1 of census year. 2011 and 2012 as of July 1.
Table 2. Total Population and Decennial Growth Rate, 1970–2050 Texas
Population 1970 1980 1990 2000 2010 2015 2020 2025 2030 2035 2040 2045 2050
11,196,730 14,229,191 16,986,510 20,851,820 25,145,561 27,735,444 30,622,577 33,827,950 37,349,108 41,181,159 45,380,640 50,023,913 55,205,312
DFW 10-Year Percent Growth 27.1 19.4 22.8 20.6 21.8 22.0 21.5 21.6
Population 2,424,131 3,017,230 3,989,294 5,161,544 6,371,773 7,075,466 7,894,214 8,858,611 10,001,371 11,338,930 12,890,587 14,685,292 16,768,007
Houston 10-Year Percent Growth 24.5 32.2 29.4 23.4 23.9 26.7 28.9 30.1
Population 2,201,849 3,147,640 3,767,218 4,715,407 5,920,416 6,635,281 7,437,124 8,334,616 9,323,814 10,408,879 11,607,433 12,932,722 14,405,099
Austin
10-Year Percent Growth 43.0 19.7 25.2 25.6 25.6 25.4 24.5 24.1
Population 398,938 585,051 846,227 1,249,763 1,716,289 1,998,629 2,322,988 2,680,481 3,077,805 3,528,046 4,046,649 4,646,275 5,333,411
San Antonio
10-Year Percent Growth 46.7 44.6 47.7 37.3 35.3 32.5 31.5 31.8
Population 951,876 1,154,819 1,407,745 1,711,703 2,142,508 2,384,493 2,645,041 2,920,952 3,204,283 3,486,276 3,767,306 4,047,853 4,236,334
10-Year Percent Growth 21.3 21.9 21.6 25.2 23.5 21.1 17.6 12.4
Sources: U.S. Census Bureau and Texas State Demographer’s Office, 2012 Projections (2000–2010 1.0 Scenario) JULY 2013
21
Projected Population Growth and Urbanization
Millions
The 2010 Census found that Texas led all states in adding population during the prior decade and was the fifth fastest growing state by rate of increase. Texas added nearly 4.3 million residents between 2000 and 2010, a 20.6 percent growth rate. It gained another 427,425 residents between 2010 and 2012. The state’s total population increased from 20.9 million in 2000 to 25.1 million in 2010 and Figure 1. Projected Racial/Ethnic Texas to an estimated 26 milPopulation Composition 2010–50 lion by 2012. The nearly 21 per35 cent growth rate from Anglo Black 30 2000–10 was actually Hispanic slightly lower than 25 Other Texas’ historical decennial average. Between 20 1870 and 2010, Texas 15 averaged 29.4 percent population growth per 10 decade, and nearly 22 5 percent per decade since 1940 (Table 1). 0 The major metro2010 2020 2030 2040 2050 politan areas of DallasSource: Texas State Demographer’s Office, 2012 Projections (2000–2010 1.0 Scenario) Fort Worth, Houston, Austin and San Antonio
expanded at even greater rates, while also capturing an increasing share of the total population. The state demographer’s projections to 2050 indicate that the major urban areas will continue to expand faster than the state as a whole to capture even larger shares of the state’s total population (Table 2). uring the 40-year period 1970–2010, Texas added approximately 14 million residents, an increase of almost 125 percent. In the next 40 years, 2010–50, the state is projected to add around 30 million residents, an increase of nearly 120 percent. This will severely impact the need for more housing. At the long-term average of 2.849 people per household, the growth in population translates to an additional 10.5 million new housing units needed. The Dallas-Fort Worth consolidated metropolitan statistical area, which includes Dallas, Plano, Irving, Fort Worth and Arlington (DFW), is projected to expand from a 2010 population of approximately 6.4 million to nearly 16.8 million residents by 2050, an increase of more than 163 percent. Similarly, the Houston-Sugar LandBaytown MSA (Houston) will swell to more than 14.4 million residents, a
D
Table 3. Total Population and Percent of State Total by Major MSA 1970–2050 Texas
1970 1980 1990 2000 2010 2015 2020 2025 2030 2035 2040 2045 2050 Increase 2010–50
DFW
Houston
Population
Population
Percent State Total
11,196,730 14,229,191 16,986,510 20,851,820 25,145,561 27,735,444 30,622,577 33,827,950 37,349,108 41,181,159 45,380,640 50,023,913 55,205,312 30,059,751
2,424,131 3,017,230 3,989,294 5,161,544 6,371,773 7,075,466 7,894,214 8,858,611 10,001,371 11,338,930 12,890,587 14,685,292 16,768,007 10,396,234
21.7 21.2 23.5 24.8 25.3 25.5 25.8 26.2 26.8 27.5 28.4 29.4 30.4 34.6
Austin
Population
Percent State Total
2,201,849 3,147,640 3,767,218 4,715,407 5,920,416 6,635,281 7,437,124 8,334,616 9,323,814 10,408,879 11,607,433 12,932,722 14,405,099 8,484,683
19.7 22.1 22.2 22.6 23.5 23.9 24.3 24.6 25.0 25.3 25.6 25.9 26.1 28.2
Population 398,938 585,051 846,227 1,249,763 1,716,289 1,998,629 2,322,988 2,680,481 3,077,805 3,528,046 4,046,649 4,646,275 5,333,411 3,617,122
San Antonio Percent State Total 3.6 4.1 5.0 6.0 6.8 7.2 7.6 7.9 8.2 8.6 8.9 9.3 9.7 12.0
Population 951,876 1,154,819 1,407,745 1,711,703 2,142,508 2,384,493 2,645,041 2,920,952 3,204,283 3,486,276 3,767,306 4,047,853 4,236,334 2,093,826
Percent State Total 8.5 8.1 8.3 8.2 8.5 8.6 8.6 8.6 8.6 8.5 8.3 8.1 7.7 7.0
Sources: U.S. Census Bureau and Texas State Demographer’s Office, 2012 Projections (2000–2010 1.0 Scenario)
22
TIERRA GRANDE
Table 4. Texas Population By Race/Ethnicity 2000, 2010, 2030 and 2050 Race/ Ethnicity
2000
Percent of Total
2010
Percent of Total
2030
Percent of Total
2050
Percent of Total
Anglo Hispanic Black Asian & Other Total
11,074,716 6,669,666 2,421,653 685,785 20,851,820
53.1 32.0 11.6 3.3 100.0
11,397,345 9,460,921 2,886,825 1,400,470 25,145,561
45.3 37.6 11.5 5.6 100.0
12,211,645 17,764,282 4,080,463 3,292,718 37,349,108
32.7 47.6 10.9 8.8 100.0
12,024,894 30,719,069 5,195,861 7,265,488 55,205,312
21.8 55.6 9.4 13.2 100.0
Sources: U.S. Census Bureau and Texas State Demographer’s Office, 2012 Projections (2000–2010 1.0 Scenario)
Composition of Texas’ Population
T
exas’ racial and ethnic population mix represents a microcosm of the national experience, reflecting the rapid growth in Hispanic, Asian and other non-anglo population groups. The Hispanic population in Texas is projected to more than triple from 9.5 million people in 2010 to 30.7 million by 2050. Correspondingly, the Hispanic proportion of total residents will go from 38 percent to 56 percent (Table 4). During the same time span, the anglo population is projected to increase by less than one million residents and to decline from 45 percent of the total population to just 22 percent. The “Asian and Other” demographic group is estimated to explode more than fivefold, surging from 1.4 million in 2010 to almost 7.3 million by 2050, an increase from 5.6 percent to 13.2 percent of the total population (Figure 1). JULY 2013
By 2017, Hispanics will outnumber Anglos in Texas. By 2035, Hispanics will exceed 50 percent of the total population and constitute the state’s majority population group. The Asian and Other populaFigure 2. Projected Racial/Ethnic Percent tion will become the state’s of Texas’ Total Population 2010–50 third most populous group in 2038, when it is projected 60 to surpass the black popula50 tion. The anglo proportion Anglo of Texas’ population will Black 40 decline from about 45 percent Hispanic to less than 22 percent of the Other 30 total by 2050 (Figure 2). The composition of the 20 resident population in the four major metro areas is pro10 jected to experience similar shifts. The Hispanic per0 2010 2020 2030 2040 2050 centage of each metro area’s Source: Texas State Demographer’s Office, 2012 population (except DFW) will Projections (2000–2010 1.0 Scenario) exceed half by 2050. DFW’s proportion of anglo and Hispanic populations is expected to virtually reverse between 2010 and 2050. In 2010, Hispanics represented about 27.5 percent of DFW’s total population, and Anglos made up 50.2 percent. By 2050, the anglo percentage will fall to 20.8 percent while the Hispanic proportion will increase to 49.2 percent (Table 5). Figure 3. Projected Percent of Net Change In each of the other major metro Attributable to Each Race/Ethnic areas, Hispanics will be the majorGroup 2010–50 ity population group (they already are in San Antonio). By 2050, HisAsian/Other panics will make up 55.3 percent 19.5% of Houston’s total population, 50.9 percent in Austin and 62.7 percent Hispanic in San Antonio. Anglo 2.1% 70.7% While the total number of black residents in each metro area durBlack 7.7% ing the next 40 years is projected to increase, the black percentage of total population is projected to Sources: Texas State Demographer’s Office, 2012 Projections fall. By 2050, blacks are expected (2000–2010 1.0 Scenario) and Real Estate Center to make up 12.1 percent of the at Texas A&M University total population in Houston, 13.1 Percent
growth rate of more than 143 percent. The Austin-Round Rock-San Marcos MSA (Austin) is expected to more than triple its 2010 population of 1.7 million to more than 5.3 million. The San Antonio-New Braunfels MSA’s (San Antonio) population is estimated to roughly double from 2.1 million in 2010 to 4.2 million by 2050. The long-term outlook calls for the ongoing urbanization of Texas. Population will continue to concentrate even more into the state’s principal metropolitan areas. In 2010, almost half (49 percent) of the state’s population resided in either the DFW or Houston MSA. More than 64 percent of the state’s population, almost two-thirds, lived in one of the four major metro areas. By 2050, the percentage of Texas residents located in one of the four major metro areas will approach nearly three-quarters of the total population, with 56.5 percent in either DFW or Houston (Table 3).
23
Table 5. Projected Population Composition in DFW, Houston, Austin and San Antonio 2010–50 Houston
2010 2015 2020 2025 2030 2035 2040 2045 2050
DFW
Population
Anglo Percent
Black Percent
Hispanic Percent
Asian & Other Percent
5,920,416 6,635,281 7,437,124 8,334,616 9,323,814 10,408,879 11,607,433 12,932,722 14,405,099
39.5 36.0 32.6 29.3 26.2 23.3 20.7 18.3 16.1
16.8 16.6 16.2 15.7 15.1 14.4 13.6 12.9 12.1
35.4 38.2 41.0 43.8 46.5 49.0 51.3 53.4 55.3
8.2 9.2 10.2 11.2 12.2 13.3 14.4 15.5 16.5
2010 2015 2020 2025 2030 2035 2040 2045 2050
Population
Anglo Percent
Black Percent
Hispanic Percent
Asian & Other Percent
6,371,773 7,075,466 7,894,214 8,858,611 10,001,371 11,338,930 12,890,587 14,685,292 16,768,007
50.2 46.2 42.0 38.0 34.0 30.4 26.9 23.7 20.8
14.8 15.1 15.2 15.2 15.1 14.7 14.3 13.7 13.1
27.5 30.3 33.2 36.2 39.2 41.9 44.5 46.9 49.2
7.5 8.5 9.6 10.6 11.8 13.0 14.3 15.7 16.9
San Antonio
2010 2015 2020 2025 2030 2035 2040 2045 2050
Austin
Population
Anglo Percent
Black Percent
Hispanic Percent
Asian & Other Percent
2,142,508 2,384,493 2,645,041 2,920,952 3,204,283 3,486,276 3,767,306 4,047,853 4,236,334
36.1 34.1 32.1 30.2 28.4 26.6 25.0 23.5 21.7
6.1 6.1 6.1 6.0 5.9 5.8 5.7 5.5 5.6
54.1 55.5 56.9 58.1 59.2 60.1 60.7 61.2 62.7
3.8 4.3 4.9 5.6 6.5 7.5 8.6 9.8 10.0
2010 2015 2020 2025 2030 2035 2040 2045 2050
Population
Anglo Percent
Black Percent
Hispanic Percent
Asian & Other Percent
1,716,289 1,998,629 2,322,988 2,680,481 3,077,805 3,528,046 4,046,649 4,646,275 5,333,411
54.7 52.2 49.7 46.9 43.7 40.4 37.2 34.3 31.6
7.0 6.8 6.5 6.2 6.0 5.8 5.5 5.2 4.9
31.4 33.4 35.5 38.0 40.7 43.4 46.1 48.6 50.9
6.9 7.6 8.3 8.9 9.6 10.4 11.2 11.9 12.6
Source: Texas State Demographer’s Office, 2012 Projections (2000–2010 1.0 Scenario)
percent in DFW, 4.9 percent in Austin and 5.6 percent in San Antonio. The phenomenal 21.25 million surge in the number of Hispanics will account for nearly 71 percent of the 30.1 million escalation in the state’s total population between 2010 and 2050. Growth of the Asian and Other group will account for another 19.5 percent of the total change in the state’s population. By contrast, the less than one million additional Anglos will account for only 2.1 percent of the state’s total population increase (Figure 3). uring the next 40 years, Texas’ demographics will change even more dramatically than during the past 40. The absolute number of people added to the state’s total population will be more than twice what was added in the past four decades, and the racial/ ethnic composition will shift decidedly to a Hispanic majority. Texas will continue to lead in population diversity and remain a true melting pot for the nation and the world.
D
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The second part of this discussion will describe the sources of resident growth and the aging of the state’s population. About half of the total population increase will be natural (births exceeding deaths), and the other half will come from foreign and domestic immigrants moving to Texas. These immigrants will bring their own social and political perceptions, cultural preferences and traits, and unique economic talents. Dr. Gaines (jpgaines@tamu.edu) is a research economist with the Real Estate Center at Texas A&M University.
THE TAKEAWAY Texas’ population has grown at an amazing rate over the past 40 years, and the Texas State Demographer projects an even higher growth rate between now and 2050. The state’s four major metros will double or even triple their populations. TIERRA GRANDE
Texas Economy
By Luis B. Torres
JULY 2013
the gains and weathered the hardships
1,000
resulting from expansions and contractions
900
7,500 7,000
in the energy industry. Currently, the state oil and natural gas from unconventional sources — primarily oil and gas shale
(Figure 1). This rapid expansion helped the Texas economy recover from the Great
Recession of 2008–09 faster than the U.S. economy. The state is the largest single
producer of both oil and gas in the country, with crude oil and natural gas production representing 30.5 percent and 28.6 percent of national output in 2012, respectively. JULY 2013
Barrels (Millions)
is benefiting from a production boom in
6,500 800 Natural Gas
700
6,000 5,500
Crude Oil
5,000
600
4,500
500
Cubic Feet (Billions)
T
Figure 1. Texas Oil and Natural Gas Production*
Through the years, Texans have enjoyed
4,000 400 300
3,500 1982
1988
1994
2000
2006
3,000 2012
*Estimated by the Real Estate Center at Texas A&M University. Texas field production of crude oil and Texas natural gas marketed production. Source: Energy Information Administration
25 25
A highly concentrated economy to check the reliability and consistency in which the vast majority of the of the results (see Center publication output, earnings and employment 2030, Texas Industrial Structure: How originate from a few key industries Much Does Texas Rely on Energy?). is susceptible to shocks to those Three different variables are used: 14 industries. In the same manner as an output, earnings and employment. The investment portfolio is diversified various diversity measures are estimated 12 to protect against risk, an economy for 19 private manufacturing industries with a broad mix of industries is profrom 1997 to 2011, with the exception of 10 tected from economic fluctuations. output for the manufacturing industry, Texas is an example of the ecowhich is only available disaggregated 8 nomic costs of concentration and the until 2010 (see publication 2030). benefits of economic diversification. The estimated values during this It went from being highly concen6 period are relatively similar, with some trated in the oil industry during the tendency toward concentration in the 1970s and 1980s to a more diversimajor private state industries and manu4 fied economy in manufacturing and facturing industries. The specialization services today. As energy prices trend has been accompanied by greater 2 increased during those decades, 0 Figure 3. Texas Oil Production and Employment* the Texas econ1997 2000 2003 2006 2009 Annual Percent Change omy expanded *Estimated by the Real Estate Center at Texas A&M 25 at a rapid pace, University. Source: Bureau of Economic Analysis accompanied by 20 strong income and employment growth. ot surprisingly, the technology15 In 1986, oil prices driven boom in the energy Crude Oil Production 10 collapsed, causing a industry has affected the strucWage and Salary Employment statewide recession ture and diversity of the Texas economy. 5 and a significant fall The share of oil and gas extraction and in employment. the petrochemical industry in the state’s 0 The increased gross product, excluding government, volatility in the Texas increased from 7.5 percent in 1997 to –5 economy during the 11.3 percent in 2010 (Figure 2); adding –10 1980s started the disthe chemical industry increases the cussion focusing on a share from 10.9 percent to 14.5 percent –15 change from a specialduring the same period. 1982 1987 1992 1997 2002 2007 2011 ized state economy to *Estimated by the Real Estate Center at Texas A&M University. Why is Diversity Important? a more diversified one. Texas field production of crude oil and Texas natural gas marketed production. The shrinking of the Since the 1980s, Texas’ economy has Source: Energy Information Administration energy sector and the diversified away from the energy indusgrowth of manufacturtry, reducing the economic instability ing and services allowed the economy to volatility, indicating that the major caused by the variability of oil prices achieve a greater level of diversity. industries are relatively more unstable, (Figure 3). Increased diversification with greater upswings and downturns, allows an economy to achieve greater How Diversified is the Texas as in the case of the oil and gas industry. levels of stability and performance Economy? This was true during the Great Recesbecause a broader industry base protects Measuring economic diversity is not an the economy from a downturn in its sion of 2008–09, during which output in easy task. A variety of measures are used major industry. the mining industry grew by 23.7 percent
N
26
Percent
Percent
Figure 2. Oil and Gas Extraction, Petroleum Manufacturing* Percent of Texas Gross State Product, Excluding Government
TIERRA GRANDE
in 2009 and decreased by 10.4 percent the following year. ased on output, nonfarm employment and nonfarm earnings, the Texas economy is concentrated in seven private industries. These are mining (includes oil and gas extraction), utilities, construction, manufacturing, wholesale trade, transportation and warehousing, and administrative and waste management services. The manufacturing industry is categorized into nonmetallic mineral products, machinery, computer and electronic products, petroleum and coal products, and chemicals. Some industries are specialized only in their output, employment or earnings. The manufacturing industry does not show a high level of concentration of jobs compared with the nation. In contrast, the retail sector shows a greater level of specialization in employment versus the nation. This is true for earnings generated by the real estate and rental and leasing industry, which show a greater level of concentration than the United States. Observing the manufacturing industry by employment and earnings concentration, other transportation equipment and leather and allied products stand out. In general, research shows that the structure of the Texas economy has not changed a great deal with the recent oil and gas boom. While structural changes in any economy happen over long periods, there is some initial evidence that the Texas economy has been affected by the energy sector’s recent expansion.
B
How Does the Texas Economy Compare? To compare the structure of Texas’ economy with that of other states, the disparity between the nation’s and the states’ industry distribution was estimated for the 50 states and the District of Columbia. This measure uses the JULY 2013
Table 1. Private Industry Diversity Rankings by Output and Nonfarm Employment Output
Nonfarm Employment
Ranking
State
Index
Ranking
State
Index
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51
Illinois Utah Pennsylvania Georgia California Arizona Missouri New Hampshire Minnesota New Jersey Michigan Ohio Virginia Alabama Maine Kansas Washington Tennessee Vermont Massachusetts Wisconsin Colorado Maryland Florida South Carolina Rhode Island North Carolina Kentucky Oregon Mississippi Connecticut Arkansas New York Indiana Idaho Iowa Montana Texas Nebraska Hawaii Oklahoma New Mexico West Virginia North Dakota South Dakota Louisiana Nevada Delaware District of Columbia Alaska Wyoming
8.8 10.9 11.8 12.6 12.9 15.3 16.5 16.5 16.9 19.7 22.1 22.2 23.2 24.2 25.4 27.3 28.9 29.4 30.2 30.8 31.1 32.8 33.8 34.3 34.9 36.1 37.9 41.1 42.3 44.0 46.6 54.8 57.9 71.0 78.2 83.4 87.4 100.0 109.5 125.6 137.3 140.0 174.9 184.8 213.1 230.4 241.2 315.2 390.6 1192.8 1512.7
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51
Illinois Missouri Georgia Utah Minnesota Washington California Pennsylvania Oregon Ohio Nebraska North Carolina Arizona New Jersey Michigan New Hampshire Kansas Tennessee Virginia Connecticut Kentucky Alabama Idaho Iowa Colorado South Dakota Maryland Rhode Island Florida South Carolina Texas New York Vermont Delaware Wisconsin Massachusetts Mississippi Indiana Arkansas Maine North Dakota Louisiana Montana New Mexico Hawaii Oklahoma West Virginia Nevada Alaska District of Columbia Wyoming
23.4 24.7 27.4 32.3 33.8 34.4 37.5 41.3 41.9 43.9 45.5 50.5 50.8 51.0 51.1 51.5 52.3 54.1 58.3 67.3 67.8 72.8 73.9 74.6 76.9 79.6 80.9 84.8 84.9 97.3 100.0 100.1 103.1 105.8 106.3 106.7 116.0 121.9 124.2 127.2 143.2 159.5 163.7 170.6 214.3 331.5 396.0 588.3 687.7 1115.1 1661.7
Estimated by the Real Estate Center at Texas A&M University. Average from 1997–2011. Source: Bureau of Economic Analysis
27
Table 2. Manufacturing Industry Diversity Rankings by Output and Nonfarm Employment Output
Nonfarm Employment
Ranking
State
Index
Ranking
State
Index
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51
Tennessee Pennsylvania Maryland Missouri Minnesota Illinois New York Texas Florida Colorado Ohio California Oklahoma Wisconsin Virginia Nebraska Iowa Indiana Arkansas Alabama North Carolina Massachusetts Vermont Utah Kentucky Delaware Mississippi New Jersey New Hampshire Connecticut South Carolina West Virginia Georgia South Dakota Rhode Island Kansas District of Columbia North Dakota Arizona Idaho Hawaii Michigan Nevada Maine Oregon Wyoming Louisiana Washington Montana New Mexico Alaska
58.6 68.1 73.0 75.6 77.3 77.5 90.2 100.0 102.9 104.5 108.8 125.9 132.2 145.0 161.3 161.5 161.7 164.6 176.4 177.6 178.5 179.6 181.0 181.4 181.4 182.6 191.2 197.1 205.9 221.2 306.4 336.0 337.8 350.1 360.8 382.0 404.6 409.8 442.9 476.9 583.3 600.9 601.0 605.8 642.8 733.2 822.2 902.6 903.9 916.7 1084.5
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51
Pennsylvania Missouri Texas Tennessee Virginia Illinois Florida Maryland New York Minnesota Wisconsin Utah Oklahoma Ohio Vermont Iowa California Alabama Colorado Kentucky South Dakota Massachusetts Connecticut Arkansas New Hampshire New Jersey Kansas Arizona New Mexico Indiana Delaware Mississippi North Dakota Washington Oregon Nevada Nebraska Rhode Island Idaho North Carolina Louisiana Georgia West Virginia South Carolina Wyoming Michigan Hawaii Maine Montana District of Columbia Alaska
66.9 93.1 100.0 115.1 122.1 136.4 137.2 158.2 159.0 175.5 203.8 206.2 211.4 241.7 242.0 245.9 246.9 253.4 263.9 266.5 272.0 283.7 295.5 350.2 368.6 369.8 378.5 387.8 401.8 406.4 414.9 428.2 435.0 483.2 483.4 484.4 515.9 556.8 609.5 653.0 675.3 676.7 718.4 855.8 981.2 988.3 1123.8 1149.5 1155.3 1727.2 2733.1
Estimated by the Real Estate Center at Texas A&M University. Average from 1997–2011. Source: Bureau of Economic Analysis
28
nation’s industrial structure as the point of reference for diversity. By private firm output, Texas ranks 38th; by nonfarm employment, 31st. This is an overall higher level of concentration than half of the states (Table 1). The same calculation for the manufacturing industry shows it at 8th by output and 3rd by employment, demonstrating an overall higher level of diversification than 42 states (Table 2). The composition of Texas’ manufacturing industry is now more varied and much closer to the national composition. In contrast, the private industry structure of the state’s economy is much more concentrated and less similar to the national composition compared with other states. Texas must continue to pursue industrial diversification while also taking advantage of its growing energy industry. For more information, see Center publication 2030, Texas Industrial Structure: How Much Does Texas Rely on Energy? at recenter.tamu.edu/pdf/2030.pdf. Dr. Torres (ltorres@mays.tamu.edu) is an associate research scientist with the Real Estate Center at Texas A&M University.
THE TAKEAWAY Texas has benefited in recent years from a rapid expansion in the production of oil and natural gas from unconventional sources, primarily oil and gas shale. This increase in the importance of the petroleum and natural gas industry in the state’s economy has had some initial effects on the structure and variability of the Texas economy, showing a tendency toward greater specialization and greater variance. TIERRA GRANDE
JULY 2013
29