Tierra Grande - October 2013 by Texas Real Estate Research Center

iii

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OCTOBER 2013

VOLUME 20, NUMBER 4 ™

TIERRA GRANDE JOURNAL OF THE REAL ESTATE CENTER AT TEXAS A&M UNIVERSITY

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 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.

18 Where the Jobs Are

Thanks to the growing metropolitanization of the Texas economy, the majority of the state’s jobs are in the four huge metro areas. But any region’s share of the state’s total employment waxes and wanes according to how well its industries are doing.

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

BY ALI ANARI

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, 22, 23, 24, 25, 26; Robert Beals II, pp. 2–3, 4–5, 6, 7, 10, 16; Real Estate Center files, pp. 8–9, 11, 12, 18; Courtesy of Hines, p. 28. © 2013, Real Estate Center. All rights reserved.

14 Water Woes 2 Building Blocks

Construction Costs and the Housing Recovery Prices for some home construction materials and supplies are higher now, primarily because production slowed during the Great Recession. But as the housing market continues to recover, building materials should be in greater supply, driving prices down. BY LUIS B. TORRES

Texans’ Thirst for Solutions The severe drought of the past couple of years is enough to make even optimistic people worry that Texas might run out of water eventually. To ensure that doesn’t happen, 16 regional water planning groups are in place, charged with the weighty task of managing current water resources and meeting projected needs 50 years in the future. BY CHARLES E. GILLILAND

22 Not Your Grandfather’s

Trailer House

8 The Amazing Rate, Part 2 ON THE COVER Fall cottonwoods at the base of the Davis Mountains.

PHOTOGRAPHER Laurence Parent

Between now and mid-century, Texas’ population will grow at a dizzying rate. New residents will hail from elsewhere in the United States and from around the globe. Distributions of ethnic groups and age categories will shift significantly, resulting in a more diverse and older population. BY JAMES P. GAINES

Manufactured housing has evolved into something sturdier and considerably more appealing than its forebears. While affordability remains its biggest draw, today’s buyers also can choose from an array of energy efficiency upgrades without breaking the budget. BY HAROLD D. HUNT

26 Commercial Green Gains Ground

Some commercial developers, particularly those in Houston’s office and retail sectors, are choosing to build “green” to recruit and retain younger employees who are loyal to the “reduce, reuse, recycle” concept. BY HAROLD D. HUNT

OCTOBER 2013

Housing Markets

Building Blocks Construction Costs and the Housing Recovery By Luis B. Torres

CO VE

Single-Family Building Permits Index

IO SS

PPI Softwood Lumber Index

ew home sales began rebounding in 2011 as U.S. and moderate Texas residential construction emerged from the growth rate. Price increases deepest downturn in recent history. But new residenin 2012 and 2013 are likely a temporary effect caused tial construction did not begin immediately. Home builders by tighter supplies during the Great Recession, when a subwho had cut production sharply during the Great Recession stantial number of mills closed. Labor compensation — wages needed time to adjust to renewed demand. and benefits — paid to construction employees are still below Increased demand for home their pre-crisis levels and are not Figure 1. Single-Family Building Permits construction inputs, such as putting pressure on costs or home 1 and PPI for Softwood Lumber softwood lumber and drywall, builders’ profit margins. United States and Texas has put pressure on supply chains Construction Cost (Index 1995 = 100; s.a.) for building materials and skilled 140 Breakdown workers, causing prices to increase 270 and squeezing the margins for The National Association of Home 120 home builders (Figure 1). This is 220 Builders (NAHB) conducts a “conespecially true if construction struction cost survey” of builders costs rise at a faster rate than 170 on the components that make up 100 house prices. A steep rise in conthe price of a typical single-family struction costs could hinder the 120 home. The survey is sent to a housing recovery. representative sample of home 80 U.S. Permits 70 Not all construction inputs builders and is stratified by builder Texas Permits have gone up in price, so while size and region of the country. In PPI Softwood Lumber 20 60 overall construction costs are 2009, the survey methodology 1995 1998 2001 2004 2007 2010 2013 increasing, they are not doing so changed to provide a more repre1Estimated by Real Estate Center at Texas A&M University, s.a./ at an exponential rate. When outsentative sample of single-family seasonally adjusted and exponential smoothing PPI (producer put and supply are restored, espehome builders across the country, price index) for softwood lumber (1982 = 100). cially for wood and lumber, prices thus affecting the comparison with Sources: Real Estate Center at Texas A&M University and the Bureau of Labor Statistics are expected to register a more previous years. TIERRA GRANDE

Table 1. Single-Family Price and Cost Breakdowns, NAHB 2011 National Survey Results Average Lot Size: 20,614 sq ft Average Finished Area: 2,311 sq ft

Sale Price Breakdown

Average ($)

Percent of Price

a. Finished lot cost b. Total construction cost c. Financing cost d. Overhead and general expenses e. Marketing cost f. Sales commission g. Profit Total Sales Price

67,551 184,125 6,669 16,306 4,645 10,174 21,148 310,619

21.7 59.3 2.1 5.2 1.5 3.3 6.8 100.0

Construction Cost Breakdown

Average ($)

Percent of Cost

Building permit fees Impact fee Water and sewer inspection Excavation, foundation and backfill Steel Framing and trusses Sheathing Windows Exterior doors Interior doors and hardware Stairs Roof shingles Siding Gutters and downspouts Plumbing Electrical wiring Lighting fixtures HVAC Insulation Drywall Painting Cabinets and countertops Appliances Tiles and carpet Trim material Landscaping and sodding Wood deck or patio Asphalt driveway Other Total Cost

3,107 2,850 2,952 17,034 1,012 24,904 2,142 6,148 2,150 2,883 1,052 5,256 8,739 870 10,990 8,034 2,193 8,760 3,399 8,125 6,005 10,395 3,619 8,363 3,736 6,491 1,918 2,729 19,487 184,125

1.7 1.5 1.6 9.3 0.5 13.5 1.2 3.3 1.2 1.6 0.6 2.9 4.7 0.5 6.0 4.4 1.2 4.8 1.8 4.4 3.3 5.6 2.0 4.5 2.0 3.5 1.0 1.5 10.6 100.0

In the 2011 survey, construction costs represented almost 60 percent of the final sales price of an average home (Table 1). This was a slight increase from the 2009 survey (Table 2). Total production cost fell from $222,511 in 2009 to $184,125 in 2011, mainly because of the smaller finished Source: NAHB 2011 construction cost survey area — 2,311 square feet compared with 2,716 Table 2. Single-Family Sales Price Breakdown, 1995 to 2011 square feet. Sale Price Breakdown 1995 1998 2002 2004 2007 2009 2011 The average estimated a. Finished lot cost 24.4 23.6 23.5 26.0 24.5 20.3 21.7 construction cost of the b. Total construction cost 53.3 54.8 50.8 51.7 48.1 58.9 59.3 finished area of a singlec. Financing cost 2.0 1.9 2.1 1.8 2.4 1.7 2.1 family house fell to $80 d. Overhead and general expenses 5.8 5.7 5.5 5.8 7.0 5.4 5.2 per square foot in 2011 e. Marketing cost 2.2 1.4 2.4 1.9 2.5 1.4 1.5 from $82 per square f. Sales commission 3.3 3.4 3.7 3.0 4.3 3.4 3.3 foot in 2009. As with g. Profit 9.1 9.2 12.0 9.8 11.2 8.9 6.8 any other manufactured Total Sales Price $183,585 $226,680 $298,412 $373,349 $454,906 $377,624 $310,619 goods, production costs Source: NAHB 2011 construction cost survey are key in determining and air conditioning (HVAC), siding, tiles and carpet, electriprofit levels. Higher construction costs translate to lower profcal wiring and drywall each account for 4 to 5 percent of total its for the home builder. construction costs. A construction cost breakdown for the 2011 survey (Table The second largest share of construction expenses are “other 3) shows that framing and trusses account for the largest share costs” (10.6 percent), which include construction clean up of construction costs (13.5 percent), followed by excavation, (such as dumpster and trash disposal), house cleaning, mirrors, foundation and backfill (9.3 percent), plumbing (6 percent) and glass and shower doors, fireplaces and bathroom accessories, cabinets and countertops (5.6 percent). Heating, ventilation OCTOBER 2013

Table 3. Single-Family Construction Cost Breakdowns, 1998 to 2011 1998

2002

2004

2007

2009

2011

0.9 1.0 1.0 9.6 1.1 20.2 NA 3.8 1.1 1.9 0.4 2.6 4.3 0.6 5.9 3.8 1.0 4.1 1.4 5.5 3.8 5.0 1.3 4.8 3.1 1.8 0.7 1.5 7.7 $124,276

1.3 1.6 1.4 6.9 0.8 18.4 0.9 3.3 0.8 1.6 0.6 2.6 4.0 0.5 5.4 3.3 0.8 4.2 1.6 5.3 3.6 4.3 1.2 4.3 4.1 2.5 0.7 1.6 12.2 $151,671

0.8 1.1 1.2 9.9 0.3 21.3 1.4 3.2 0.9 2.4 0.6 2.2 3.6 0.2 5.3 3.4 0.9 3.7 1.4 4.9 3.6 6.6 1.3 4.2 2.5 2.6 1.0 1.3 8.2 $192,846

1.7 1.4 1.6 7.0 0.8 15.8 1.6 2.9 0.9 1.5 0.8 3.2 5.7 0.4 5.4 3.9 1.0 3.9 1.6 5.1 3.4 5.7 1.7 5.0 3.1 2.8 0.7 1.4 9.7 $219,015

1.9 1.4 1.7 7.1 0.7 15.6 1.7 2.8 0.9 1.5 0.8 3.8 5.8 0.4 5.3 3.7 1.1 4.0 1.5 5.1 3.4 5.6 1.6 5.1 3.3 3.2 0.9 1.4 8.6 $222,511

1.7 1.5 1.6 9.3 0.5 13.5 1.2 3.3 1.2 1.6 0.6 2.9 4.7 0.5 6.0 4.4 1.2 4.8 1.8 4.4 3.3 5.6 2.0 4.5 2.0 3.5 1.0 1.5 10.6 $184,125

130 110 90

N IO SS

CO VE RY

150

Random Lengths Framing Lumber Composite Random Lengths Dallas PPI Softwood Lumber

Figure 2. Wood and Lumber Prices for Framing and Trusses1 (Index 1995 = 100; s.a.)

and insurance and utilities. Fees paid by home builders to local governSource: NAHB 2011 construction cost survey ments, such as building permits, impact studies, and water and sewer inspections, total some 5 percent of construction costs. The average price per square foot of framing and trusses for an average finished area in a new single-family home was $11 in 2011 ($24,094/2,311 square feet) compared with $13 in 2009 ($34,805/2,716 square feet). If costs for all wood and lumber-related products (framing and trusses, interior and exterior doors, cabinets and countertops) were combined, they would account for approximately 22 percent of the construction cost. ome building construction costs are highly influenced by the price of wood and lumber. If construction costs are increasing more than home prices, the home builder must absorb the cost through lower profit margins rather than increasing the selling price of the home. This scenario may lead to fewer new homes being built. The survey showed an increase in the share of plumbing and electric wiring as a percentage of total construction costs from 9 percent in 2009 to 10.4 percent in 2011 (Table 3), primarily attributable to an increase in the price of copper. Historically, the share of both has fluctuated with the price of copper and copper products. In the case of electrical wiring, stricter electrical codes as local jurisdictions adopt new building codes is another cost factor. Increases in HVACâ&#x20AC;&#x2122;s and insulationâ&#x20AC;&#x2122;s percentage of total cost from 5.5 percent in 2009 to 6.6 percent

Index

Building Permit Fees Impact Fee Water and Sewer Inspection Excavation, Foundation, and Backfill Steel Framing and Trusses Sheathing Windows Exterior Doors Interior Doors and Hardware Stairs Roof Shingles Siding Gutters and Downspouts Plumbing Electrical Wiring Lighting Fixtures HVAC Insulation Drywall Painting Cabinets and Countertops Appliances Tiles and Carpet Trim Material Landscaping and Sodding Wood Deck or Patio Asphalt Driveway Other Total Cost

50 1995

1998

2001

2004

2007

2010

2013

1Estimated by Real Estate Center at Texas A&M University, s.a./seasonally adjusted. Random Lengths Framing Lumber Composite, KD Southers Pine (Westside) #2 2x4 random. Prices net delivered Dallas and PPI (producer price index) for softwood lumber (1982 = 100). Sources: Random Lengths Framing Composite Price and Bureau of Labor Statistics TIERRA GRANDE

Figure 3. Oriented Strandboard Prices1 (Index 1995 = 100; s.a.) 300

PPI Oriented Strandboard Random Lengths Southwest Oriented Strandboard

250

CO VE

Index

200

150

softwood lumber, 2.5 percent for the random lengths composite price, and 2.9 percent for the random lengths Dallas price. Price increases for oriented strandboard (OSB) or “particle 50 board” are even more dramatic. PPI and random lengths South1995 1998 2001 2004 2007 2010 2013 west OSB prices, which include Texas data, registered average 1Estimated by Real Estate Center at Texas A&M University, annual increases (April 2012 to April 2013) of 51.7 percent and s.a./seasonally adjusted. Random Lengths OSB Sheathing 70.5 percent, respectively (Figure 3). From January 1996 to May (Southwest) 15/32” Prices net f.o.b mill and PPI for waferboard and oriented strandboard (Dec. 1982 = 100). 2012, these values were 8.6 percent and 9.3 percent, respectively. Sources: Random Lengths Framing Composite Price and Bureau rices for drywall increased substantially from the beginof Labor Statistics ning of 2012 through 2013 (Figure 4). The PPI for drywall in 2011 (Table 3) is possibly the result of more energy efficient increased on average 18.2 percent annually for that homes and significantly stricter building codes. period, compared with a historical annual growth rate of 3.5 From the construction cost breakdown, it is clear these costs percent from January 1996 to May 2013. These price increases are related to a series of commodity and mineral prices from are still below the housing boom peak. wood (framing and cabinets) to copper (plumbing and electriPrices of other home-building inputs registered a more modcal wiring) to drywall and even petroleum (asphalt for paving erate annual average growth rate from January 2012 to May and roofing). Construction costs are 2013 (Table 4). also influenced by price fluctuations Labor is another key input in home Figure 4. Drywall Building Material Prices1 in global commodity and mineral building. Compensation is a signifi(Index 1995 = 100; s.a.) markets. In 2012, China’s increased cant part of the total cost of housing 180 demand for building supplies includproduction. An increase in the coming wood and lumber put upward pensation rate leads to an accelerated 160 pressure on these inputs. increase in construction costs unless it is offset by greater productivity 140 Recent Price Trends growth. Given that housing prices for Construction Inputs are increasing steadily, home build120 ers cannot add those construction nce the housing recovery cost increases into the price of a new gained momentum, prices 100 single-family home without putting of framing lumber increased a squeeze on their profits. steeply, starting in April 2012 and 80 Hourly earnings (wages and continuing through May 2013 (Figure 1995 1998 2001 2004 2007 2010 2013 benefits) for construction employ2). Price increases slowed as wood 1Estimated by Real Estate Center at Texas A&M University, ees at the national level actually and lumber producers added back s.a./seasonally adjusted. PPI for drywall building materials declined 0.5 percent in real terms idled capacity. The producer price (Dec. 1993 = 100). on average from January 2012 to index (PPI) for softwood lumber and Source: Bureau of Labor Statistics April 2013 (Figure 5). For employthe random lengths framing lumber ees of new single-family general contractors at the national composite price from January 1995 to May 2013 show a strong level, hourly earnings rose 1.8 percent in real terms. In correlation. A sharp increase from April 2012 to April 2013 Texas, hourly earnings of construction employees rose 5.8 brought prices back to their 2004 housing boom highs. percent in real terms during the same period after falling During this period, the average annual growth rates regisduring the Great Recession. Hourly earnings for employees tered for the PPI and random lengths framing lumber comof new single-family general contractors and Texas conposite price were 15.7 percent and 31.9 percent, respectively. Texas builders experienced similar price increases, with lumber struction contractors in general have not regained their pre-crisis levels. In April 2013, the two groups’ earnings prices in Dallas up 35.7 percent. These average annual growth represent 89.6 percent and 87.3 percent, respectively, of rates are high compared with the average historical growth what they earned in January 2007 in real terms. trend from January 1996 to May 2013 of 1.1 percent PPI for 100

OCTOBER 2013

OV E

RE C

Index

Table 4. Home Building Input Price Increase1 Construction Inputs Producer Price Index (PPI) Softwood lumber Waferboard and oriented strandboard Drywall building materials Ready-mix concrete Copper and copper-base alloy pipe and tube Asphalt paving and roofing materials Mineral wool for thermal and acoustical envelope insulation Clay ﬂoor and wall tile, glazed and unglazed Brick and structural clay tile Carpet and rug mills Plastics plumbing fixture Paints and coating: architectural coatings Wood kitchen cabinet and countertop

Annual Percent Average Jan. 1996–May 2013 Jan. 2012–May 2013 1.1 8.6 3.5 3.2 6.5 6.1 3.1 –1.0 2.1 2.2 1.8 4.3 1.9

12.8 43.8 18.2 2.5 –9.5 3.0 8.3 0.5 –2.0 1.3 1.1 8.6 2.4

2.5 3.1 2.7 2.2

1.8 1.7 2.3 4.7

Jan. 2007–May 2013

Jan. 2012–May 2013

0.2 –1.8 –1.1

–0.5 1.8 5.8

Aggregate PPIs Finished goods Inputs to construction industries Residential construction material and supply inputs2 Estimated PPI for inputs used in home building

Average Hourly Earnings of All Employees3 Construction (United States) New single-family general contractors (United States) Construction (Texas) 1

Estimated by Real Estate Center at Texas A&M University. Residential construction material and supply inputs to construction industries includes single-unit and multiunit residential. Derived from industrybased, primary product PPIs and the weights based on 2002 benchmark input/output relationship from the Bureau of Economic Analysis. 3 Average hourly earnings of all employees converted to real terms using the Consumer Price Index (1982–84 = 100). Source: Bureau of Labor Statistics 2

units. This index is derived from the industry primary product PPI and the weights are based on the 2002 benchmark input/ ood and lumber and drywall together represent output relationship data from the Bureau of Economic Analyalmost 18 percent of the construction cost of a sis. This index replaced a single-unit residential construction new single-family home. If there was a 10 percent PPI that was discontinued in the summer of 2010, making it increase in both wood and lumber, a close substitute to measure price and in drywall, and prices of other changes in the inputs used to build Figure 5. Hourly Earnings for inputs did not change, the overall single-family residential homes. Construction Industry Employees1 cost of the home would increase by The information presented in the (Index 1997 = 100; s.a.) 1.8 percent. NAHB construction cost survey is Texas Construction A PPI for building a new singleused to estimate a PPI for the inputs U.S. Construction U.S. New Residential Contractors family house would be a better used to build an average single-family 110 indicator because a complete cost of home. The expenditure breakdown building index would incorporate the from the most recent construction 105 overall impact of the inputs. It would cost survey (2011) was used as the reflect the spending patterns for each base year. This index was estimated 100 different type of home builder and from January 1995 to May 2013 using would be based on the expenditures the Laspeyres methodology with 95 of almost all home builders in urban fixed weights. 90 or metropolitan areas. In the survey, the average size of Unfortunately, no estimated index a home built was 2,311 square feet, Y R 85 VE of this kind exists. The closest PPI so the spending structure is based O C RE index available is the one for materion that size. Increases in the PPI for 80 als and supply of inputs to residential finished goods will be applied to the 2007 2008 2009 2010 2011 2012 2013 construction. It measures changes 1Estimated by Real Estate Center at Texas A&M University, various fees paid by home builders to in price movements of materials and s.a./seasonally adjusted. Average hourly earnings of all local governments, even though fees employees in the construction industry and new single-family supplies typically sold to the conare normally increased on a yearly general contractors in dollars. Converted to real terms using the struction sector and used in building basis. The PPI for inputs to residenConsumer Price Index (1982–84 = 100). Source: Bureau of Labor Statistics new single and multiple residential tial construction were applied to the

Estimating Producer Price Index for Home Inputs

Index

TIERRA GRANDE

CO VE

Percent Change

rest of the cost categories, with the that the price hike has been relaFigure 6. Estimated PPI for Inputs Used exception of framing and trusses, and tively higher than the one observed 1 in Building Residential Homes drywall. For those two categories, the in the rest of the economy and in the (Annual Percent Change) PPI for softwood lumber and drywall construction industry (1.7 percent). PPI Finished goods for building materials were used, While they do affect profit margins PPI Residential construction respectively. for home builders, overall these Estimated PPI 15 This was done to capture the price increases are within the limits effects of the increases for wood and of price stability, especially because lumber and drywall on total conthey are temporary. 10 struction costs, while the prices of Price increases for these inputs the other inputs follow the overall have not increased at an exponen5 price trends in the economy and the tial rate. When output and supply residential construction industry. are restored, especially for wood and 0 The estimated PPI is a measure of lumber, prices should return to a the average change over time in the more moderate growth rate and to â&#x20AC;&#x201C;5 prices paid by home builders for a their long-run price trends but still market basket of inputs used to build will be affected by world demand â&#x20AC;&#x201C;10 single-family homes. and supply. 1997 2001 2005 2009 2013 From January 2012 to May 2013, 1Estimated by Real Estate Center at Texas A&M University, s.a./ Dr. Torres (ltorres@mays.tamu.edu) is an the estimated PPI registers an annual seasonally adjusted. PPI for finished goods (Index June 1986 = associate research economist with the Real average growth rate of 4.7 percent, 100). NAHB construction cost survey. Estate Center at Texas A&M University. Sources: NAHB and Bureau of Labor Statistics a greater price increase than the PPI for finished goods (1.8 percent) and inputs to residential construction (2.3 percent) (Figure 6). The THE TAKEAWAY higher price growth reflects increases in prices of framing and trusses, and drywall. It is greater than the historical annual During the Great Recession, home builders cut productrend observed from January 1996 to May 2013 (2.2 percent), tion sharply, as did the firms that produce the materials and lower than both the PPI for finished goods (2.5 percent) used to construct homes. Now that the housing market and inputs to residential construction (2.7 percent) during is recovering, tight supplies are driving prices up. This that period. upward trend should be temporary, lasting only as long as This shows that the housing recovery has been accompanied it takes for suppliers to get back up to speed. by an increase in the cost of single-family housing inputs and OCTOBER 2013

Population Growth

TIERRA GRANDE

This analysis is based on the Texas State Demographer’s Office’s 2000–10 1.0 Scenario net migration assumption. This scenario assumes trends in age, sex and race/ethnicity, and net migration rates from 2000–10 will continue at the same pace in the future.

Table 1. The Changing Texas Population, 1950–2012 Percent Change Due to Numerical Change

Percent Change

Natural Increase

Net Migration

Year*

Population

1950

7,711,194

–

1960 1970 1980 1990 2000 2010

9,579,677 11,196,730 14,229,191 16,986,510 20,851,820 25,145,561

1,868,483 1,617,053 3,032,461 2,757,319 3,865,310 4,293,741

24.2 16.9 27.1 19.9 22.8 20.6

93.91 86.74 41.58 65.85 49.65 54.94

6.09 13.26 58.42 34.15 50.35 45.06

et migration to Texas reflects the state’s appeal relative to other states and coun2012 26,059,203 427,425 1.7 50.31 49.27 tries. During the 1950s and 1960s, Texas’ * All values for the decennial dates are for April 1 of the indicated census year. Values for 2012 are for population grew almost exclusively from natural July 1 as estimated by the U.S. Census Bureau. increase (births minus deaths). After 1970, domestic Note: Residual values have been averaged across natural increase and net migration. and foreign migration played an increasingly imporSource: Derived from U.S. Census Bureau. Estimates for dates indicated by the Texas State Data Center, University of Texas at San Antonio. tant role in the state’s population growth (except during the severe recession of the 1980s). Figure 1. Top and Bottom Ten States Between 2000 and 2010, net migration by Domestic Migration, 2000–12 accounted for more than 45 percent of the total increase in population (Table 1). For Florida the past two years, net migration from other Texas Arizona countries and states is estimated to account North Carolina for almost half the total population growth. Georgia Texas ranked second in the country in Nevada South Carolina domestic net in-migration (people relocating Tennessee here versus going to another state) between Washington 2000 and 2012 (Figure 1). Texas’ new jobs, Colorado faster economic recovery during the midKansas 2000s, and relatively lower cost of living were Maryland major attractions. Connecticut The economic recession of 2007 and housMassachusetts ing market collapse in other states, such as Louisiana Ohio California, Florida, New York, Illinois and New Jersey Michigan, caused many people to migrate to Michigan Texas. More than one million more people Illinois California moved into Texas than left for another state New York between 2000 and 2012. –2,000,000 –1,500,000 –1,000,000 –500,000 0 500,000 1,000,000 1,500,000 According to mobility data provided by Source: U.S. Census Bureau, U.S. Census Population Estimates Program the Internal Revenue Service, the majority OCTOBER 2013

of people coming to Texas between 2004 and 2010 were from five states: California, Oklahoma, Illinois, Louisiana and Florida (Figure 2). Migration to and from California and Oklahoma generally reflects the movement of energy industry personnel. In- and out-migration to Louisiana was spurred by Hurricane Katrina. The major metros of Texas had similar infusions of population from net migration (Table 2). Like Texas, Dallas–Fort Worth and Houston derive their growth

roughly equally from natural increase and net in-migration. The majority of Austin’s and San Antonio’s growth comes from those moving there from out of state and out of country. Since 2010, domestic in-migration has increased substantially not only statewide but also in the major MSAs compared with the previous ten years. Domestic and international immigration to the state have contributed to racial/ethnic compositional changes (Figure 3). An estimated 52 percent of international

Table 2. Population Change in Major Texas Metros Texas

Dallas–Fort Worth

Houston

Austin

San Antonio

3,865,485 1,922,044 (50%) 1,166,570 (30%) 776,871 (20%)

1,172,250 505,595 (43%) 472,931 (40%) 193,724 (17%)

948,174 500,630 (53%) 210,530 (22%) 237,014 (25%)

403,536 112,314 (28%) 260,833 (65%) 30,389 (8%)

303,958 150,894 (50%) 111,518 (37%) 41,546 (14%)

4,356,901 2,351,527 (54%) 983,555 (23%) 1,021,819 (23%)

1,210,229 659,311 (54%) 317,062 (26%) 335,202 (28%)

1,231,393 607,889 (49%) 279,569 (23%) 343,925 (28%)

466,526 172,258 (37%) 234,239 (50%) 68,321 (15%)

430,805 172,777 (40%) 217,297 (50%) 40,731 (10%)

913,642 475,523 (52%) 290,354 (32%) 142,419 (16%)

274,781 131,536 (48%) 97,668 (36%) 42,758 (16%)

256,579 131,317 (51%) 70,655 (28%) 54,391 (21%)

118,017 38,124 (32%) 66,384 (56%) 11,697 (10%)

91,495 36,614 (40%) 46,161 (51%) 8,021 (9%)

1990–2000 Numerical Change Natural Increase Domestic Migration International Migration 2000–10 Numerical Change Natural Increase Domestic Migration International Migration 2010–12 Numerical Change Natural Increase Domestic Migration International Migration Source: U.S. Census Bureau

TIERRA GRANDE

Table 3. Texas Population by Age, Race/Ethnicity, 2010–50 Year

Age Group

State

Anglo

2010 2010 2010 2010 2010 2010 2020 2020 2020 2020 2020 2020 2030 2030 2030 2030 2030 2030 2040 2040 2040 2040 2040 2040 2050 2050 2050 2050 2050 2050

All <18 18–24 25–44 45–64 65+ All <18 18–24 25–44 45–64 65+ All <18 18–24 25–44 45–64 65+ All <18 18–24 25–44 45–64 65+ All <18 18–24 25–44 45–64 65+

25,145,561 6,865,824 2,572,969 7,071,855 6,033,027 2,601,886 30,622,577 7,890,112 3,134,703 8,407,304 7,179,430 4,011,028 37,349,108 9,221,428 3,629,875 10,330,032 8,256,982 5,910,791 45,380,640 10,965,291 4,251,287 12,575,023 10,057,765 7,531,274 55,205,312 13,002,467 5,192,931 14,971,492 12,697,488 9,340,934

11,397,345 2,322,661 994,473 2,934,239 3,385,907 1,760,065 11,931,829 2,368,786 933,176 2,905,733 3,269,832 2,454,302 12,211,645 2,356,792 920,123 2,800,162 2,967,330 3,167,238 12,194,136 2,233,581 955,347 2,738,044 2,953,242 3,313,922 12,024,894 2,183,869 889,641 2,764,790 2,857,336 3,329,258

Black 2,886,825 810,543 323,437 841,640 692,831 218,374 3,477,947 876,491 367,932 975,540 875,634 382,350 4,080,463 952,904 392,886 1,110,121 989,100 635,452 4,653,708 1,015,003 434,203 1,219,035 1,155,170 830,297 5,195,861 1,073,484 464,050 1,326,184 1,327,406 1,004,737

Hispanic

Asian/Other

9,460,921 3,317,777 1,112,368 2,844,435 1,653,420 532,921 13,039,858 4,073,390 1,603,477 3,847,900 2,539,240 975,851 17,764,282 5,204,692 1,933,751 5,378,588 3,506,559 1,740,692 23,579,647 6,643,041 2,444,263 6,974,259 4,760,980 2,757,104 30,719,069 8,188,303 3,216,679 8,657,296 6,682,495 3,974,296

1,400,470 414,843 142,691 451,541 300,869 90,526 2,172,943 541,445 230,118 678,131 494.724 198,525 3,292,718 707,040 383,115 1,041,161 793,993 367,409 4,953,149 1,073,666 417,474 1,643,685 1,188,373 629,951 7,265,488 1,556,811 622,561 2,223,222 1,830,251 1,032,643

Sources: Texas State Demographer’s Office 2012 Projections (2000–10 1.0 Scenario) and Real Estate Center at Texas A&M University

Shifts in Age Distribution

exas has long been a “young” state compared with the rest of the country. In 2010, Texas’ median age was 33.6 compared with the U.S. median of 37.2 (Figure 4). Over the years, Texas’ median age has consistently been younger than the U.S. median. As people live longer and birth rates have stabilized, the median age for the country and for Texas has steadily climbed. The state’s current and projected population distribution by race/ethnicity and by major age groups reveals several significant potential impacts. The projected population between 2010 and 2050 of the major age groups within the four major racial/ ethnic groups indicates a substantial shift toward OCTOBER 2013

Figure 3. Percent of Migrants to Texas by Race, Ethnicity, 2000–09 100

12%

18%

80 Percent

immigrants to Texas from 2000–09 were Hispanic; 24 percent were Anglo/White; and about 18 percent were Asian and Other. By comparison, about 44 percent of domestic immigrants to Texas between 2000 and 2009 were Anglo/White; 28 percent were Hispanic; and 23 percent were Black. Roughly twothirds of all Texas immigrants were non-Anglo.

23%

Other Black Hispanic White

28%

15%

50%

67% of all migrants were non-white

40%

40 20

44%

52% of all migrants were international

24%

33%

0 Net domestic Migration (848,702 migrants)

International Migration (933,083 migrants)

Total

Sources: Texas State Demographer’s Office; Percentages of domestic and international migrants by race and ethnicity derived from the 2006–2008 American Community Survey. Total numbers of domestic and international migrants between 2000–2009 are from Table 4. Cumulative Estimates of the Components of Resident Population Change for the United States, Regions, States, and Puerto Rico: April 1, 2000, to July 1, 2009, U.S. Census Bureau

Table 4. Population Percentage Distribution by Age Group, Race/Ethnicity, 2010–50 Percent of Total Population

Percent of Total Age Group

Year

Age

State

Anglo

Black

Hispanic

2010 2010 2010 2010 2010 2010 2020 2020 2020 2020 2020 2020 2030 2030 2030 2030 2030 2030 2040 2040 2040 2040 2040 2040 2050 2050 2050 2050 2050 2050

All <18 18–24 25–44 45–64 65+ All <18 18–24 25–44 45–64 65+ All <18 18–24 25–44 45–64 65+ All <18 18–24 25–44 45–64 65+ All <18 18–24 25–44 45–64 65+

100.0 27.3 10.2 28.1 24.0 10.3 100.0 25.8 10.2 27.5 23.4 13.1 100.0 24.7 9.7 27.7 22.1 15.8 100.0 24.2 9.4 27.7 22.2 16.6 100.0 23.6 9.4 27.1 23.0 16.9

45.3 9.2 4.0 11.7 13.5 7.0 39.0 7.7 3.0 9.5 10.7 8.0 32.7 6.3 2.5 7.5 7.9 8.5 26.9 4.9 2.1 6.0 6.5 7.3 21.8 4.0 1.6 5.0 5.2 6.0

11.5 3.2 1.3 3.3 2.8 0.9 11.4 2.9 1.2 3.2 2.9 1.2 10.9 2.6 1.1 3.0 2.6 1.7 10.3 2.2 1.0 2.7 2.5 1.8 9.4 1.9 0.8 2.4 2.4 1.8

37.6 13.2 4.4 11.3 6.6 2.1 42.6 13.3 5.2 12.6 8.3 3.2 47.6 13.9 5.2 14.4 9.4 4.7 52.0 14.6 5.4 15.4 10.5 6.1 55.6 14.8 5.8 15.7 12.1 7.2

Asian/ Other 5.6 1.6 0.6 1.8 1.2 0.4 7.1 1.9 0.8 2.2 1.6 0.6 8.8 1.9 1.0 2.8 2.1 1.0 10.9 2.4 0.9 3.6 2.6 1.4 13.2 2.8 1.1 4.0 3.3 1.9

} } } } }

State

Anglo

Black

Hispanic

Asian/ Other

100.0 100.0 15,677,851 100.0

45.3 33.8 7,314,619 46.7

11.5 11.8 1,857,908 11.9

37.6 48.3 5,610,223 35.8

5.6 6.0 895,101 5.7

100.0 100.0 100.0 18,721,437 100.0

67.6 39.0 30.0 7,108,741 38.0

8.4 11.4 11.1 2,219,106 11.9

20.5 42.6 51.6 7,990,617 42.7

3.5 7.1 7.2 1,402,973 7.5

100.0 100.0 100.0 22,216,889 100.0

61.2 32.7 25.6 6,687,615 30.1

9.5 10.9 10.3 2,492,107 11.2

24.3 47.6 56.4 10,818,898 48.7

4.9 8.8 7.7 2,218,269 10.0

100.0 100.0 100.0 26,884,075 100.0

53.6 26.9 20.4 6,646,633 24.7

10.8 10.3 9.3 2,808,408 10.4

29.4 52.0 60.6 14.179,502 52.7

6.2 10.9 9.8 3,249,532 12.1

100.0 100.0 100.0 32,861,911 100.0

44.0 21.8 16.8 6,511,767 19.8

11.0 9.4 8.3 3,117,640 9.5

36.6 55.6 63.0 18,556,470 56.5

8.4 13.2 12.0 4,676,037 14.2

100.0

35.6

10.8

42.5

11.1

Sources: Texas State Demographer’s Office 2012 Projections (2000–10 1.0 Scenario) and Real Estate Center at Texas A&M University.

Hispanic and the Asian/Other categories for each age level (Table 3). etween 2010 and 2050, Texas’ total population will increase an estimated 119.5 percent (Figure 5). The older-than-65 group will expand the most, and those younger than 18 will grow the least, although still almost doubling. The number of people younger than 18, which represents the total potential school-aged population, is projected to increase from around 6.9 million in 2010 to slightly more than 13 million in 2050. The sheer numerical increase will put additional pressure on the overall education process and education-related resources statewide. As a percentage of the total population, the school-age group declines slightly from 27 percent to 24 percent because of the significant increase in the 65-plus group (Table 4). The Anglo school-aged population is expected to decline from around 34 percent in 2010 to about 17 percent by 2050. Meanwhile, school-aged Hispanics will increase from 48 percent to 63 percent, and the Asian/ Other category will grow from 6 percent to 12 percent. The largest population age group is 18 to 64, which encompasses the total potential Texas labor force for the next 40 years. Summing the separate age groups in that range for each decade reveals that the potential labor

TIERRA GRANDE

Figure 4. Median Age, United States and Texas, 1900–2010

Age

the same period. The retired/elderly population segment of the total population will expand from 40 about 2.6 million or 10 percent of the total populaUnited States Texas tion in 2010 to 9.3 million or 17 percent of the total by 2050. 30 The implications of this group’s expansion on healthcare, housing, consumption and local taxes, as well as social and political attitudes and public 20 service demands will be manifested in multiple ways. As with the other age groups, the composition of this group in 2050 will be much different 10 than in 2010. urrently, Anglos make up 68 percent of the population 65 and older, and Hispanics 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 account for 20.5 percent. By 2050, however, Source: U.S. Census Bureau Anglos will decrease to 36 percent of the age group while Hispanics will increase to 43 percent. The force is expected to increase from approximately 15.7 Asian/Other segment will increase from 3.5 percent to 11 million, or 62 percent of the total 2010 population, to percent of the age group. 32.9 million, or 59.5 percent of the total 2050 populaThe rush of new tion. Despite more than residents will bring doubling during the period, Figure 5. Change by Age Groups wholesale changes to the groups’ total percentTexas, 2010 to 2050 the social, political age decline results from 300 and economic fabric the huge change in the 65 of the state. Many and older age group. 250 current problems In 2010, Anglos 18 to 64 and issues that seem years old numbered about 200 Anglo –11%, Black 68% pressing will be 7.3 million or 47 percent Hispanic 231%, Asian/Other 422% exacerbated by more of the total category; 150 109.6% people — education, Hispanics numbered 100 transportation, water 5.6 million or about 36 119.5% 89.4% 101.8% 111.7% 110.5% 259.0% resources and taxes, percent. By 2050, Anglos 50 just to name a few. aged 18 to 64 are projected The one thing that to number 6.5 million or 0 seems abundantly just 20 percent of the labor ALL <18 18–24 25–44 45–64 65+ clear is that the faces pool. By 2050, Hispanics Sources: Texas State Demographer’s Office 2012 Projections (2000–10 1.0 Scenario) of Texans in the and Real Estate Center at Texas A&M University are projected to increase to future will be very 18.6 million or 57 percent different from the Texans of the past. of the total, while the Asian/Other segment will reach 4.7 million, 14 percent of the total. Dr. Gaines (jpgaines@tamu.edu) is a research economist with the Real his age segment of the state’s population will not Estate Center at Texas A&M University. only supply the labor pool but also the economic energy for consumer spending, home buying, auto THE TAKEAWAY purchases, tax payments and the overall socioeconomic activity and health of Texas. Moreover, it will have a Between 2010 and 2050, Texas’ population will grow large say in the social and political future of the state, by 120 percent. Roughly 50 percent of that increase exerting its will through absolute number and through will be from people moving here from other states the ballot box. or countries. The state’s labor pool, those from 18 to Between 2010 and 2050, the fastest-growing population 64, will more than double. The fastest-growing age segment will be the 65-plus age group. This group is group, those 65 and older, is expected to increase by expected to increase a whopping 259 percent, far outpac259 percent. ing the 120 percent increase in the total population over Percent

OCTOBER 2013

Water Policy

TIERRA GRANDE

By Charles E. Gilliland

uring the remarkably severe drought of 2011, Llano, Texas, became the subject of news reports in The New York Times and on National Public Radio. The Llano River nearly went dry. Officials feared that the town would run out of water. That soberingly dry year provoked calls for action as Texans in all corners of the state began to worry that Texas would run out of water, halting further growth and development. Everyone focused on water use and plans to provide future supplies. Historically, Texans have planned for future water supplies in fits and starts. When wells go dry and spring flows cease, citizens demand action. Sometimes extreme measures rule the day as officials scramble to avert disaster. Then, when rains return, the public loses interest until the next disaster looms.

Fred Hartman Bridge, La Porte

OCTOBER 2013

After the prolonged drought of the 1950s, Texas legislators sought to remedy this slapdash approach by establishing the Texas Water Development Board (TWDB) to plan for future water needs. The board dutifully prepared a top-down plan in 1968 followed by a series of updated plans through 1992.

Regional Water Planning Groups

ollowing another period of limited rainfall in 1996, the legislature switched gears, opting to change from a top-down plan to localized efforts centered on regional planning groups. Passage of Senate Bill 1 in 1997 created 16 regional water planning groups (RWPGs) charged to:

N 16

each region in each decade. Matching supplies with demand from various users indicates the adequacy of water resources given the economic activity in the region. TWDB collects the individual reports from the 16 regions and compiles them into the statewide water plan.

Statewide Water Plan In the latest version of the plan, 2012 Water for Texas, the regional planning groups first identify needs and then devise strategies to overcome the projected shortfalls. Strategies encompass a wide range of activities including building

Figure 2. Projected Texas Statewide Water Needs and Added Supplies Water Needs

Added Supplies

10 Acre Feet (Millions)

Provide for the orderly development, management, and conservation of water resources and preparation for and response to drought conditions in order that sufficient water will be available at a reasonable cost to ensure public health, safety, and welfare; further economic development; and protect the agricultural and natural resources of that particular region. To do this, RWPGs set themselves the following tasks: • describe the regional water planning area; • quantify current and projected population and water demand over a 50-year planning horizon; • evaluate and quantify current water supplies; • identify surpluses and needs; • evaluate water management strategies and prepare plans to meet the needs; • evaluate impacts of water management strategies on water quality; • describe how the plan is consistent with long-term protection of the state’s water, agricultural and natural resources; • recommend regulatory, administrative and legislative changes; • describe how sponsors of water management strategies will finance projects; and • adopt the plan, including the required level of public participation. The RWPGs discharge their duties in public meetings with a roster of voting members. Members were originally appointed by the TWDB to include stakeholders from interest groups affected by the water plans. Those stakeholders include the public, agriculture representatives and government entities. Any entity likely to be impacted by the plan has a seat at the table. As vacancies occur, RWPGs replace departing members with representatives from the departing member’s group. ow when the flow from the spigot falters, concerned individuals have an entity to contact with questions and concerns. RWPGs and their latest plans can be viewed at the Regional Water Planning site at the TWDB (http://tinyurl.com/n492lgl). These plans were devised to evaluate specific water needs that would emerge should another long and severe drought similar to that of the 1950s beset Texas in the future. The process involves consulting with experts in demography and hydrology to project population growth and supplies of surface water, groundwater and reusable water anticipated in

7.50

2 0

9.01

6.73 6.52 5.83 5.83

6 4

7.91

8.33

4.92

4.48

3.62 2.05

2010

2020

2030

2040

2050

2060

Source: Texas Water Development Board TIERRA GRANDE

Acre Feet (Thousands)

reservoirs, increasing conservation, building pipelines, buydemand increase by 2060. Region E faces the same challenges ing water and desalinization, to name a few. They will require as El Paso’s population expands and irrigation continues to use a capital investment of $53 billion, with about $46 billion sizable quantities of water. targeting municipal needs. However, the plans do not identify In contrast, Region C with Dallas-Fort Worth populations sources of funds required to build the projects envisioned in growing substantially foresees a large boost in supplies that the plan. will outstrip population growth. To provide funding for However, a recent court ruling Figure 3. 2010, 2060 Water Needs some of these projects, halting plans to secure supplies for Texas Regions the 83rd Texas Legislafrom Oklahoma may eliminate this 2,400 ture passed Senate Joint rosy scenario and send planners 2010 2060 Resolution 1 and House back to the drawing board. Region 2,000 Bill 4 to create the State H, encompassing Houston and Water Investment Fund Galveston, also projects a comfortfor Texas and the State able cushion. 1,600 The detailed statewide plan conWater Implementation tains reports of subregional issues. Revenue Fund of Texas In many of these regions there are to provide $2 billion to 1,200 counties where unmet needs exist TWDB for construction in 2060 even when region-wide of approved projects. totals exceed projected total needs. Texas voters will 800 The regional data offer a clear decide the fate of these picture of the situation in any city funds during an elecor county and are available at the tion to amend the Texas 400 regional planning section of the Constitution in NovemTWDB website. ber. If approved, the 0 funds will be transferred Dr. Gilliland (c-gilliland@tamu.edu) is a A B C D E F G H I J K L M N O P from the rainy day fund research economist with the Real Estate Region to TWDB and targeted Source: Texas Water Development Board Center at Texas A&M University. to development of a prioritized list of water management strategies. Figure 4. 2060 Supply, lanning regions are shown in Figure 1. The remaining figDemand by Region ures estimate water supplies before and after the strategies 2,400 envisioned in the plan have augmented existing water sup-

Regional Supply, Demand A comparison of regional needs in 2010 and 2060 is shown in Figure 3. In 2060, most regions anticipate adequate supplies relative to needs except for Far West Texas (E) and the Llano Estacado (O) regions (Figure 4). Unresolved shortfalls would still exist in those regions. The O region anticipates a substantial shortfall as pumping depletes the Ogallala Aquifer. Much of that need is for irrigation. Figure 4 shows 2060 needs versus new supplies by region. Presumably nearly all agricultural irrigation would halt in that region during a prolonged, historic drought. Regions C, H, M and to some extent G will see population-driven municipal OCTOBER 2013

Needs

New Supplies

2,000 Acre Feet (Thousands)

plies. A summary of the statewide situation is shown in Figure 2. The chart shows the water needs or shortfall predicted during a record drought in millions of acre feet of water per year. An acre foot is enough water to cover one acre at a depth of one foot (about 325,853 gallons). The chart indicates that in 2010, Texas would have been 3.623 million acre feet short of projected usage if a drought of 1950s proportions had occurred. The chart also shows the volume of added supplies Texas could generate by implementing the strategies set forth in the plan. In 2010, that would have generated 2.049 million additional acre feet, far short of projected needs. Needs grow with the state’s expanding population, but additional supplies also increase over time as projects are completed. By 2030, added supplies meet projected statewide needs. By 2060, supplies comfortably exceed needs. However, the devil is in the details at the local level.

1,600 1,200 800 400 0

A B C D E F G H I J K Region

L M N O P

Source: Texas Water Development Board

THE TAKEAWAY The future of Texas’ water supply is in the hands of 16 regional water planning groups, each of which is responsible for evaluating the needs of the region, monitoring supplies, planning strategies to conserve water and finding new sources of water. A statewide water plan is compiled from the regional reports.

Texas Economy

By Ali Anari

exas’ economy is all about jobs. To better understand how the state’s metropolitan and nonmetropolitan areas contribute to total jobs in Texas, the Real Estate Center researched the relative contributions of various regions on the aggregate economic activities of Texas. Employment, income and gross domestic product were analyzed. There were four key findings: • Jobs are highly concentrated in the state’s metropolitan areas because of the high degree of metropolitanization of the Texas economy. • Four major Texas metros (Dallas-Fort Worth-Arlington, Houston-Sugar Land-Baytown, San Antonio-New Braunfels, and Austin-Round Rock-San Marcos) account for more than two-thirds of Texas jobs. • Two giant metros, Dallas-Fort Worth-Arlington and Houston-Sugar Land-Baytown, are home to more than half of Texas jobs. • Changes in the relative shares of jobs in the state’s metros are attributable to changes in the relative growth rates of metro industries, particularly since 2000, because of higher oil prices.

Regional Shares of Texas Jobs More jobs in a region necessarily generate business for real estate professionals. New workers mean more homes to be bought and sold, and more businesses needing commercial, office and industrial real estate. The Texas economy comprises 25 metropolitan areas in addition to nonmetropolitan and micropolitan areas (see table). The high degree of metropolitanization of the state’s labor market is reflected in the high proportion of metropolitan jobs — 89.5 percent of the total — in 2012. The share of nonfarm jobs in nonmetropolitan and micropolitan areas was 10.5 percent. The high degree of metropolitan concentration of jobs is also reflected in the concentration of most jobs in four major metros. anking metros by percentage share of employment in 2012, Dallas-Fort Worth-Arlington ranked first with 27.7 percent of Texas nonfarm employment, followed by Houston-Sugar Land-Baytown (24.7 percent), San Antonio-New Braunfels (8.1 percent) and Austin-Round Rock-San Marcos (7.6 percent). These four major metros accounted for 68.1 percent of total Texas nonfarm jobs. The remaining 31.9 percent of jobs were distributed among 21 smaller metros in the same year.

TIERRA GRANDE

Contributions of Texas Metropolitan and Nonmetropolitan Areas to Texas Employment Employment (in thousands) 2012 Texas Metropolitan Texas Micropolitan and Nonmetropolitan Texas Metropolitan Areas: Dallas-Fort Worth-Arlington Houston-Sugar Land-Baytown San Antonio-New Braunfels Austin-Round Rock-San Marcos El Paso McAllen-Edinburg-Mission Corpus Christi Beaumont-Port Arthur Brownsville-Harlingen Lubbock Killeen Amarillo Waco Longview College Station-Bryan Tyler Laredo Midland Odessa Abilene Wichita Falls Texarkana Victoria San Angelo Sherman-Denison

2011

Percent of Jobs in 2012

2011–12 Growth Rate

2011–12 Contributions Rate

Percent of Rate

10,879.8 9,734.4 1,145.4

10,575.5 9,460.6 1,114.9

100.0000 89.4722 10.5278

2.8774 2.8941 2.7357

2.8774 2.5894 0.2880

100.0000 89.9915 10.0092

3,016.0 2,691.4 877.9 823.2 283.0 228.8 184.6 160.7 131.4 129.3 129.2 112.4 106.6 101.0 96.5 94.1 93.4 81.0 71.5 66.3 58.5 56.8 51.8 46.1 42.9

2,932.2 2,592.1 858.4 795.0 279.3 224.8 177.7 160.3 128.8 128.1 127.9 112.0 105.3 98.0 96.5 93.5 91.0 74.5 66.0 65.5 58.4 57.0 50.6 45.1 42.6

27.7211 24.7376 8.0691 7.5663 2.6012 2.1030 1.6967 1.4770 1.2077 1.1884 1.1875 1.0331 0.9798 0.9283 0.8870 0.8649 0.8585 0.7445 0.6572 0.6094 0.5377 0.5221 0.4761 0.4237 0.3943

2.8579 3.8309 2.2717 3.5472 1.3247 1.7794 3.8829 0.2495 2.0186 0.9368 1.0164 0.3571 1.2346 3.0612 0.0000 0.6417 2.6374 8.7248 8.3333 1.2214 0.1712 –0.3509 2.3715 2.2173 0.7042

0.7922 0.9477 0.1833 0.2684 0.0345 0.0374 0.0659 0.0037 0.0244 0.0111 0.0121 0.0037 0.0121 0.0284 0.0000 0.0056 0.0226 0.0650 0.0548 0.0074 0.0009 –0.0018 0.0113 0.0094 0.0028

27.5334 32.9347 6.3704 9.3275 1.1976 1.3005 2.2897 0.1281 0.8473 0.3869 0.4195 0.1282 0.4204 0.9876 0.0000 0.1929 0.7869 2.2575 1.9033 0.2587 0.0320 –0.0637 0.3924 0.3265 0.0965

Sources: Texas Workforce Commission and Real Estate Center at Texas A&M University

Texas’ nonfarm employment growth rate of 2.8774 percent, the largest conAn area’s share of employment in any period is the number The Texas employment tribution among metros, of employed persons in the region divided by total number growth rate in any period followed by Dallas-Fort of employed persons in Texas. The first two columns of the is the weighted average of Worth-Arlington (0.7922 employment growth rates of percent), Austin-Round table show total nonfarm employment for Texas metropoliits local economies. Nonfarm Rock-San Marcos (0.2684 tan areas and the nonmetropolitan portion of the state’s employment growth rates percent) and San Antoniolabor market in 2012 and 2011. Dividing the number of from 2011 to 2012 for Texas New Braunfels (0.1833 employed persons in 2012 in each area by the total number as a whole and for its metros percent). of employed persons in Texas in the same year and multiplyand nonmetro areas are in Despite their more than ing by 100 gives the percentage shares of employed persons column 4 of the table. 8 percent employment for each area of the state’s total employed persons in 2012, The total nonfarm employgrowth rates, the contribushown in the third column of the table. ment growth rate for Texas tions of petroplexes Odessa in 2012 was 2.87 percent, a (0.0548 percent) and Midweighted average of employland (0.0650 percent) were ment growth rates of all metros and nonmetros. They ranged small because of their small shares of total Texas jobs, 0.66 from a high of more than 8 percent for Odessa and Midland to percent for Odessa and 0.74 percent for Midland. zero percent for College Station-Bryan to minus 0.35 percent Dividing employment contributions for each metro in for Texarkana. Thanks to higher oil prices, Odessa and Mid2012 by Texas’ 2.8774 percent employment growth rate gives land posted the highest employment growth rates among the contribution percentages for each area (last column). Houston25 Texas metros in 2012. These two metropolitan areas, with Sugar Land-Baytown accounted for 32.9347 percent of the their large shares of the oil extraction industry, are also referred state’s employment growth rate in 2012, followed by Dallasto as “petroplexes.” Fort Worth-Arlington (27.5334 percent), Austin-Round RockMultiplying the employment growth rate for each metro by San Marcos (9.3275 percent) and San Antonio-New Braunfels the area’s employment share in 2012 gives each area’s contri(6.3704 percent). Note that the employment contributions bution to Texas’ total employment growth rate (column 5). are reported with four decimal places to accurately reflect the Houston-Sugar Land-Baytown contributed 0.9477 percent to contributions of smaller metro areas.

Regional Contributions to Employment Growth

OCTOBER 2013

Methodology

Changing Market Shares

exas regions’ shares of employment change over time (Figure 1). The graphs show that the state’s metropolitan areas fall into three groups: • those with shares of Texas jobs trending upward since 1990: Austin-Round Rock-San Marcos (Figure 1.3), College Station-Bryan (Figure 1.7), Killeen-Temple-Fort Hood (Figure 1.11), Laredo (Figure 1.12), McAllen-EdinburgMission (Figure 1.15), and San Antonio-New Braunfels (Figure 1.20); • those with shares of Texas total employment trending downward: Abilene (Figure 1.1), Amarillo (Figure 1.2), Beaumont-Port Arthur (Figure 1.4), Corpus Christi (Figure 1.6), El Paso (Figure 1.9), Lubbock (Figure 1.14), ShermanDenison (Figure 1.18), San Angelo (Figure 1.19), Texarkana (Figure 1.21), Tyler (Figure 1.22) , Victoria (Figure 1.23), Waco (Figure 1.24), and Wichita Falls (Figure 1.25); and • those with employment shares that changed direction since 2000: Dallas-Fort Worth-Arlington’s employment share was increasing until 2000 but then trended downward (Figure 1.8); Houston-Sugar Land-Baytown (Figure 1.10), Longview (Figure 1.13), Midland (Figure 1.16) and

Odessa (Figure 1.17) shares were trending downward until 2000, and then trended upward. These changes were caused by differences in the employment growth rates of Texas industries since 1990 (Figure 2). Regions with growing (declining) industries increased (decreased) their shares of total employment. The state’s industries fall into four groups according to trends in their job shares: • those with shares of jobs trending downward since 1990: manufacturing (Figure 2.3), trade (Figure 2.4), transportation, utilities and warehousing (Figure 2.5), and other services (Figure 2.11); • those with shares of employment trending upward since 1990: professional and business services (Figure 2.8), education and health services (Figure 2.9), leisure and hospitality (Figure 2.10); • those with job shares that changed direction in 2000. The state’s mining industry employment share trended downward from 1990 until 2000 but since has posted an upward trend (Figure 2.1). By contrast, the employment share of the information industry trended upward until 2000, but after the dot.com bubble burst it has been decreasing (Figure 2.7); and

Figure 1. Percentage Shares of Total Employment in Texas Accounted for by the State’s Metropolitan Areas from 1990 to 2012 Figure 1.1. Abilene

Figure 1.2. Amarillo 1.20

1.15 1.10

1.05 .6 1990 1995 2000 2005 2010 Figure 1.6. Corpus Christi 2.0 1.8

Percent

1.6 1990 1995 2000 2005 2010 Figure 1.11. Killeen-Temple-Fort Hood 1.24 1.20 1.16 1.12 1.08 1990 1995 2000 2005 2010

1.00 1990 1995 2000 2005 2010 Figure 1.7. College Station-Bryan .95

.7 .6 .5 1990 1995 2000 2005 2010

.6 .5 1990 1995 2000 2005 2010

2.0

1.2

1.6

1.1

5 1990 1995 2000 2005 2010

1.2 1990 1995 2000 2005 2010

1.0 1990 1995 2000 2005 2010

Figure 1.8. Dallas-Fort Worth-Arlington 30 3.2 29

.85

.80 1990 1995 2000 2005 2010

27 1990 1995 2000 2005 2010

Figure 1.12. Laredo

Figure 1.9. El Paso

Figure 1.10. Houston-Sugar Land-Baytown 25.5

3.0

25.0

2.8

24.5

2.6

24.0

2.4 1990 1995 2000 2005 2010

23.5 1990 1995 2000 2005 2010

.96

1.4

Figure 1.15. McAllen-Edinburg-Mission 2.4

.92

1.3

2.0

.88

1.2

1.6

.6 1990 1995 2000 2005 2010

.84 1990 1995 2000 2005 2010

1.1 1990 1995 2000 2005 2010

1.2 1990 1995 2000 2005 2010

Figure 1.13. Longview

Figure 1.17. Odessa

Figure 1.14. Lubbock

Figure 1.18. Sherman-Denison

.68

.55

.64

.50

.60

.45

.56

.40

.52 1990 1995 2000 2005 2010

.35 1990 1995 2000 2005 2010

Figure 1.21. Texarkana .7

.90

Figure 1.16. Midland .8

Figure 1.3. Austin-Round Rock-San Marcos Figure 1.4. Beaumont-Port Arthur Figure 1.5. Brownsville-Harlingen 8 2.4 1.3

Figure 1.22. Tyler

.55

Figure 1.19. San Angelo

Figure 1.20. San Antonio-New Braunfels 8.2

.50

8.0

.45

7.8

.40 1990 1995 2000 2005 2010

7.6 1990 1995 2000 2005 2010

Figure 1.23. Victoria

Figure 1.25. Wichita Falls

Figure 1.24. Waco

.96

.60

1.2

.92

.55

1.1

.88

.50

1.0

.84 1990 1995 2000 2005 2010

.45 1990 1995 2000 2005 2010

0.9 1990 1995 2000 2005 2010

.5 1990 1995 2000 2005 2010

Sources: Texas Workforce Commission and Real Estate Center at Texas A&M University

TIERRA GRANDE

Figure 2. Percentage Shares of Total Texas Employment by Texas Industries Figure 2.1. Mining and Logging

Figure 2.2. Construction

Figure 2.3. Manufacturing

2.50

6.5

2.25

6.0

2.00

5.5

1.75

5.0

1.50 1990

4.5 1990

1995

2000

2005

2010

Figure 2.4. Trade

Percent

16 1995

2000

2005

2010

6 1990

Figure 2.5. Transportation, Utilities, Warehousing

15 1990

1995

2005

2010

4.4

4.3

4.2

4.1

4.1 1995

Figure 2.7. Information

2000

2005

2010

4.0 1990

Figure 2.8. Professional and Business Services

3.2 2.8

2000

2005

2010

Figure 2.6. Financial Activities

4.4

4.0 1990

1995

2000

2005

2010

Figure 2.9. Education and Health Services

2.4 2.0 1.6 1990

1995

2000

2005

2010

8 1990

1995

Figure 2.10. Leisure and Hospitality 10.0 9.5 9.0 8.5 1995

2000

2005

2010

8 1990

Figure 2.11. Other Services

10.5

8.0 1990

2000

2010

3.8

3.6

1995

2000

2005

2000

2005

2010

Figure 2.12. Government Sector

4.0

3.4 1990

1995

2010

16 1990

1995

2000

2005

2010

Sources: Texas Workforce Commission and Real Estate Center at Texas A&M University

• the employment shares of the state’s financial activities industry (Figure 2.6) and government sector (Figure 2.12) have been wavering around their long-term shares. The price of oil was the main reason behind the fall and rise of the state’s mining industry employment share (Figure 3). Until 2000, prices of West Texas intermediate crude oil were Figure 3. Prices of West Texas Intermediate Crude Oil, 1990 to 2012

Dollars Per Barrel

120

fluctuating around $20 per barrel. Adjusting pre-2000 oil prices for inflation, oil prices were decreasing in real terms before 2000. Since 2000, an upward trend in oil prices resulted in the rise of the mining industry’s share of Texas jobs (Figures 3 and 2.1). This in turn caused an upswing in the employment shares of Texas metropolitan areas with larger shares of the oil extraction and oil refining industries, notably Odessa, Midland, Houston-Sugar Land-Baytown and Longview. Since 2000, as the employment share of Houston-Sugar Land-Baytown has expanded, Dallas-Fort Worth-Arlington’s share has fallen. Dr. Anari ((m-anari@tamu.edu) is a research economist with the Real Estate Center at Texas A&M University.

THE TAKEAWAY 40

0 1990

1994

1998

2002

Source: Energy Information Administration OCTOBER 2013

2006

2010 2012

In 2012, 68.1 percent of Texas jobs were concentrated in the four large metros (Dallas-Fort Worth-Arlington, Houston-Sugar Land-Baytown, San Antonio-New Braunfels, and Austin-Round Rock-San Marcos). Higher oil prices gave the petroplexes of Odessa and Midland the highest employment growth rates in the state last year.

Green Building

Not Your Grandfatherâ&#x20AC;&#x2122;s Trailer House BY HAROLD D. HUNT

Few would argue that significant strides have been made in the quality of construction, wind resistance and aesthetic appeal of a modern manufactured home. What may be surprising to real estate licensees is the level of energy efficiency available to todayâ&#x20AC;&#x2122;s manufactured housing buyer. 22

TIERRA GRANDE

efore 1976, each state created its own regulations for the construction of mobile homes. As a result, while crossstate sales were allowed, the construction codes from state to state were inconsistent. In these early years, affordability was a high priority and little consideration was given to energy efficiency. In 1976, the U.S. Department of Housing and Urban Development (HUD) created the Federal Manufactured Home Construction and Safety Standards, commonly known as the “HUD code.” When the legislation went into effect on June 15, 1976, mobile homes were officially defined as “manufactured homes” in federal law. These federal standards regulate the design, construction strength, durability, transportability, fire resistance and energy efficiency of manufactured housing. The HUD code has been periodically updated based on recommendations made by the Manufactured Housing Consensus Committee, a group of users, producers, general interest and public officials charged with making recommendations to improve the code. Manufactured housing should not be confused with “modular housing.” While all manufactured homes are regulated by the HUD code, modular homes are subject to local building codes in the jurisdiction where the home is located. In Texas, all residential modular homes are built to the International Residential Code, 2006 Edition; the National Electrical Code, 2011 Edition; and International Energy Conservation Code, 2009 edition, the same building codes site-built homes adhere to. In coastal counties, they must also meet the Texas Windstorm construction requirements. Modular housing is still a relatively new housing option. “Texas builds about 12 times more manufactured homes than modular,” says Ronnie Richards, vice president of marketing for American Homestar Corporation, builder of Oak Creek and Platinum brand manufactured homes.

Manufactured Housing Sales in Texas Numbers published by the Texas Manufactured Housing Association (TMHA) show that single-section homes are still the most popular product, although double and triple-section units are gaining in popularity (see table).

From January through June 2013, a total of 5,105 new manufactured homes were sold in the state. New single-sections represented 55 percent of that number at 2,801 units sold. “Texas is by far the leading state in sales Texas Manufactured of new manufactured Home Sales homes with about 20 January–June 2013 percent of all units sold Total sales: 7,151 units in the country,” accordNew sales: 5,105 units ing to DJ Pendleton, Used sales: 2,046 units executive director of the Total singles: 4,137 units TMHA.

Buyer Preferences Don’t Always Include Energy Efficiency

New singles: Used singles:

2,801 units 1,336 units

Total multis: New multis: Used multis:

3,014 units 2,304 units 710 units

Source: TMHA

It should come as no surprise that manufactured home buyers are often more concerned with housing affordability or interior décor options than energy efficiency. The industry is attempting to educate their buyers on the advantages of more energy efficient homes even though upgrades involve an increase in upfront cost. “It’s pretty difficult for buyers to visualize future electricity bill savings. And many times they would rather spend any extra funds on upgrading their cabinets or countertops,” says Richards. “Lifestyle and local electricity rates will vary as well, so it’s hard for buyers to calculate the exact amount of utility savings they would receive.” All-electric manufactured homes are by far the most popular choice with Texas buyers. Some companies are vertically integrated, manufacturing, selling and financing their manufactured homes. These companies have an added incentive to see homeowners keep utility costs low, since lower utility bills can improve affordability and reduce the chances of a loan default. “Most manufacturers encourage potential buyers to tour the factory so they can see the product being built today,” says Charley Boyer, chief operating officer/vice president of the Manufacturing Division for Oak Creek Homes. “Unfortunately, I think the really old manufactured housing that’s still out there hurts a buyer’s perception of our industry more than old single-family homes do in the site-built sector.”

Energy Efficiency Upgrades Coming in Many Forms Initiated in 1992, the Energy Star label has become a well known symbol of improved energy efficiency. The Energy Star program is now a joint effort between the Environmental Protection Agency (EPA) and the U.S. Department of Energy.

MANUFACTURED HOME INTERIORS now offer the same styles and amenities as site-built homes at affordable prices (facing page). Insulation is easily blown into the attic before the roof is attached (left). OCTOBER 2013

An Energy Star certified manufactured home is approximately 30 percent more energy efficient in its heating, cooling and water heating than a comparable unit built to the HUD code. To receive an Energy Star certification and label for a manufactured home, a third-party representative must fill out a form certifying all program criteria has been met after the home has been manufactured, delivered and installed. Most builders of manufactured housing offer Energy Star certified homes as an option. “Although we haven’t decided to yet, my company has pondered whether we should build only Energy Star homes,” says Boyer. ome manufacturers will offer their own branded energy efficiency packages. For example, Cavco Industries markets their EnerGmiser option under their Palm Harbor label and the PowerSaver option under their Masterpiece line of manufactured housing. The packages offer buyers a specific set of energy efficient upgrades that, subject to specified assumptions, have been calculated to save Texas homeowners anywhere from $10,000 to $25,000 in heating and cooling costs over the life of a 30-year mortgage. This translates to about $28 to $70 per month in savings. Components of these packages include: • higher insulated and sealed airtight ducts, • graduated air delivery systems to balance air flow from room to room, • high performance air return systems to minimize outside airflow into the home, • section seals to minimize the intrusion of outside air and water vapor, • a whole-house insulation rating of R-54 and • optimally sized HVAC systems for superior cooling and humidity performance. “The EnerGmiser package is actually standard on the majority of our home models. However, it is still an option on a few. For example, on an approximately 1,400-square-foot home it would add about $400 to the cost,” says Charlie Hill, vice president of sales and marketing for Palm Harbor Homes. “On a monthly basis, that would be a nominal payment increase. But the upside is a lower utility expense and more comfortable living environment.”

upgrades to 2x6 studs for more insulation in the exterior walls, and 4) low-e dual-pane windows,” says Hill. “Our buyers have a lot of flexibility in choosing energy efficient options as well,” says Boyer. “For example, in my Fort Worth plant we use R-11 insulation in the floor, R-13 in walls and R-30 in the ceiling. A buyer can go as high as R-22 in the floor, R-19 in walls and R-38 in the ceiling. But the extra cost for that level of insulation upgrade would be over $2,000.” “Substituting double-pane windows for single-panes would probably cost an additional $150 per window,” notes Boyer. “And our homes will average anywhere from 12 to 15 windows.” Keith Alexander, division president and general manager of Palm Harbor’s Austin manufacturing plant, is a big proponent of adding radiant barriers to manufactured housing. “We use several products such as Kool-Ply or TechShield for our radiant barriers,” says Alexander. “It’s not scientific, but I ran my own attic temperature test on two completed homes here in our yard one summer day. The

Tested Energy Star certified manufactured homes add about $8 per month on average to the typical mortgage while saving an average of $30 per month on heating and cooling bills. A final option is to allow the buyer to choose any combination of individual efficiency upgrades to stay within their affordability limits. Hill has noted a fairly consistent hierarchy in the energy efficient features being chosen today. “If I were to rank the popularity of our energy efficiency options with buyers, the order would probably be: 1) radiant barrier in the roof, 2) increased insulation in the ceiling, 3)

TIERRA GRANDE

THE PROCESS BEGINS with floor assembly (top left), then proceeds to framing (top right). The plant’s controlled environment and repetitive building techniques reduce variance in construction quality. The completed home rolls off the assembly line ready for delivery (bottom).

in energy efficiency research. SBRA is a research arm of the factory-built housing industry and the EPA’s national quality assurance oversight agent for manufactured and modular home Energy Star programs. The SBRA has recently begun to look into the viability of ductless heat pump systems. The system, which is already being used in some site-built homes, runs only refrigerant lines from the main compressor through the walls to remote fan units throughout the home. “The challenge has been to set the efficiency bar high but still reach buyers that normally can’t afford the added cost. They generally derive the greatest benefit from energy savings,” said Emanuel Levy, SBRA executive director.

models were exactly alike except for the presence of a radiant barrier in one of them. We recorded a 15 degree lower attic temperature in the home with the radiant barrier.” Alexander says the cost to add radiant barrier decking to a By $800, Luis B.which Torres Economic Incentives Sparse 2,300-square-foot double-section home is about exas currently offers no state incentives for the purwould add just over $2 a month to a 30-year mortgage paychase of energy efficient manufactured housing. A limment. Assuming financing as short as seven years, monthly ited number of states and local utilities offer economic loan payments would still only increase little more than incentives for manufactured homes that are Energy Star certi$10 per month. fied. Homeowners in North Carolina can receive utility rate Energy Efficiency Research Limited discounts, South Carolina and New Mexico offer state income tax credits to homeowners, and California offers tax rebates to Several research groups have looked into the energy effimanufactured housing retailers. ciency of manufactured housing during the last couple of The Tennessee Valley Authority (TVA), Clayton Homes and decades, including the Florida Solar Energy Center and the SBRA are working together to increase the TVA’s level of North Carolina A&T University. energy efficient manufactured housing. Supported by a cash “I wish the manufactured housing industry had more incentive of $1,450 per home from TVA to the home manufacR&D money,” says Richards. “We try to team up with product suppliers as much as we can to improve the energy turers, Clayton Homes has announced that all manufactured homes it builds in the six-state TVA region will qualify for the efficiency of components going into manufactured housEnergy Star label. ing.” The TVA reports that electric bills are lowered by $70 per “The black mold scare back in the 1990s drove a lot of month on average, providing thousands of dollars in savings research related to ductwork and HVAC systems,” says Bert over the life of the home. Kessler, vice president of engineering for Palm Harbor homes. Although buyers have been less than enthusiastic thus far, “We discovered that duct leakage and oversizing of HVAC the manufactured housing industry continues to press on with systems were big factors in mold growth.” ptimizing HVAC systems and advanced ductwork seal- improvements to the energy efficiency of their homes. More information about regulations and research relating to manuing techniques resulted in some of the most dramatic factured housing can be found at: improvements in both indoor air quality and overall www.texasmha.com, energy efficiency. Simulations showed an 18 to 20 percent www.tdhca.state.tx.us/mh/index.htm, annual energy savings could be attained through these two www.research-alliance.org/pages/home.htm and changes alone. www.license.state.tx.us/ihb/ihb.htm#url. Leakage where multiwide sections join was another serious problem that was solved with the development of one conDr. Hunt (hhunt@tamu.edu) is a research economist with the Real Estate tinuous insulated gasket along the “marriage line” joining the Center at Texas A&M University. sections together for a tight seal. The Oregon Office of Energy conducted research on the THE TAKEAWAY energy efficiency of Energy Star homes. The certified designation added about $8 per month on average to the typical It’s a well-kept secret that today’s manufactured housing mortgage while saving an average of $30 per month on heating is energy efficient. Buyers, most of whom are focused on and cooling bills. affordability, have the option to pick and choose among a Another group, the Systems Building Research Alliance wide array of efficiency options. (SBRA) located in New York City, is also heavily involved

OCTOBER 2013

Green Building

ecessions come and go, but the green revolution in commercial real estate marches on. Or does it? Tim Murray, sustainable design leader at Houston-based WHR Architects, offered his perspective in this interview. Murray has led the green certification process for several dozen projects involving the LEED new construction, commercial interiors, healthcare, and core

and shell rating systems. He is also a LEED-accredited professional with specialty (building design and construction), a certified sustainable development professional and a certified Green Professional Building Skills Training Program (GPRO) instructor. Murray is currently chair of the Greater Houston Partnershipâ&#x20AC;&#x2122;s green building subcommittee and previously served as chair of the United States Green Building Councilâ&#x20AC;&#x2122;s (USGBC) Texas Gulf Coast chapter.

Is demand for green commercial space still growing? Absolutely. There are several reasons for the increase, but the most common one here in Houston involves TIERRA GRANDE

employee recruitment and retention. This is especially true with our energy companies. Today’s college grads have been raised on a mantra of reduce, reuse, recycle. They expect to work in a healthy environment. The competition for talent in the energy sector has been so strong that companies are looking for any advantage to acquire or hold on to their people. The driver is not so much energy efficiency as it is creating a healthy work environment. It all goes back to quality of life, especially with the younger generation. Even if they were born and raised here, young people don’t feel like they have to stay here. They can relocate anywhere. So a desirable quality of life plays into their decision to stay or go.

Is the increase in demand market-driven or a result of green energy mandates?

The retail sector has also begun to see the financial advantages of implementing green building practices. The remaining commercial sectors are still lagging because they haven’t yet seen the economic advantage. The multifamily sector can’t really be blamed for its slow acceptance. For quite a while, LEED offered no rating system for multifamily properties. The USGBC tried a hybrid that was a combination of their commercial and residential certifications. LEED for homes is quite different than the commercial certifications. They just didn’t have the guidelines available to them as early as the other commercial sectors. Multifamily developers also seem to look at costs harder.

When did we make the transition from the perception that green building was too expensive to the realization that it would pay for itself in lower operating costs?

I recently compared the growth trend of LEED-certified projThe return on investment has always been there, but it was ects in the cities of Washington, D.C., Chicago and Houston hard for some developers to buy into the initial cost increase. since 2004 (see graph). Although Houston began at a slower The last time I looked, the construction cost premium to pace, the growth of LEED-certified projects has increased drabuild a LEED-certified building in Houston averaged about 1.5 matically since 2008. percent. The payback period for total return of the extra investChicago’s early demand for green buildings has been driven ment in green features is about three to five years. by local government incentives. Washington, D.C., mandates A big factor in Houston was when Hines, a major developer, LEED for commercial buildings over decided to go green with its projects. a certain size, and the federal governOnce Hines made the move, more Cumulative Number of LEEDment requires LEED-certified builddevelopers started to follow. So there Certified Buildings 250 ings. Houston’s growth has been was a bandwagon effect where develalmost exclusively market-driven. opers said, “It’s okay if it costs more Chicago Increasing population growth and for me as long as it costs more for 200 Washington, D.C. job opportunities in Houston created everybody else.” They were okay with Houston the environment for the commercial going green as long as they felt like the 150 building sector to shift the market playing field was level. toward greener practices. An increas- 100 Has the LEED certification ing number of private and public tenlost a bit of its luster even if ants are now requiring LEED-certified 50 environmental responsibility hasn’t? buildings if they are available. LEED is definitely the standard today The bottom line is higher occupan0 and by far the biggest rating system. cies and lease rates for Houston’s 2004 2005 2006 2007 2008 2009 2010 2011 However, a couple of others are startgreen buildings. That has resulted in ing to make headway. One is Green virtually the same growth trend in Globes, which is slightly green building as cities Top Texas Cities for LEED-Certified Projects as of July 15, 2013 easier to obtain than employing mandates or Includes Confidential Projects a LEED certification offering incentives. So, because it has fewer prethe market works. Number National Square Feet National requisites and less strinCity of Projects Ranking in Millions Ranking LEED-certified gent minimums such Houston 275 5 82.68 3 buildings in the City Dallas 136 13 30.02 12 as building size. Many of Houston total more Austin 105 16 13.25 22 unique projects that than 82 million square San Antonio 83 21 16.14 19 won’t qualify for LEED feet in 275 buildings Fort Worth 42 37 7.17 30 certification are looking (see table). That puts El Paso 13 52 2.47 44 at Green Globes. Houston third nationArlington 9 N/A 0.8 N/A A rating system wide after New York Source: Green Building Information Gateway specifically designed for and Chicago. Statewise, schools, Collaborative for High Performance Schools (CHPS), Texas is second behind California with 213 million square is also available. CHPS offers the option of no third-party feet in 925 buildings. reviews. As a result, the cost to certify a project is lower. A What sector of commercial real estate has experienced number of school districts are opting to go that route. the greatest acceptance of green building? A real cutting-edge certification is the Living Building ChalBy far, the office sector, where green buildings have become a lenge. Unlike LEED, every credit is mandatory. Developers significant market driver. Office building owners now feel concan’t choose from a menu of credits like they can when pursufident that they can command higher rents and resale values by ing a LEED certification. Living Building Challenge requires incorporating green features and obtaining green certifications. net-zero energy and net-zero water use, so it’s difficult to attain. OCTOBER 2013

Is net-zero the new buzzword in commercial green building? The future of green construction is in net-zero buildings (see “Net-Zero Building in San Diego”). The American Institute of Architects (AIA) has established a program called AIA 2030. The goal is to attain incremental carbon emission reductions over time so that by the year 2030, we will be building net-zero buildings by standard. Net zero doesn’t mean that the building uses no energy. The buildings generally combine energy consumption reductions with renewable energy sources, such as wind turbines, solar panels or fuel cells. They are producing their own energy along with using less energy. There are a few dozen net-zero buildings in the United States, including the Lady Bird Johnson Middle School in Irving. The larger architecture firms that have signed on to AIA 2030 report their buildings’ energy metrics directly to the AIA on an ongoing basis. In that way, their intermediate reductions in energy usage can be tracked year by year.

How are we doing in the push to recycle building materials in structures that are demolished? First of all, a big discussion occurring today involves levels of embodied energy, the total amount of energy it took to produce the materials in an existing building. When you tear down an existing structure and construct a new building in its place, it can take 50 to 70 years to break even in terms of the embodied energy you had tied up in the old structure. So it’s important to reuse materials from

existing buildings if they can be saved. It really reduces the carbon footprint of a project. Developers continue to get better at recycling unused construction materials. One of the LEED criteria is construction waste management, which involves diverting construction site debris and waste away from landfills. It is measured as a percentage. I have worked on projects where we diverted 90 percent of materials away from landfills, either through recycling or reuse in the project itself. I’ve actually heard of rates as high as 95 percent. The recycling of building materials has become mainstream with general contractors today.

Any final thoughts? I’m really excited about how commonplace green building has become in Houston commercial development. The vast majority of new commercial buildings going up right now are pursuing LEED certification. Dr. Hunt (hhunt@tamu.edu) is a research economist with the Real Estate Center at Texas A&M University.

THE TAKEAWAY Commercial real estate, particularly the office and retail sectors, continues to embrace green building. Despite higher construction costs, owners and tenants are reaping rewards in the form of higher occupancies and lease rates, higher resale values and employee recruitment and retention.

Net-Zero Building in San Diego

n December, Hines, a privately owned international real estate firm, together with equity partner J.P. Morgan Asset Management, announced that the 13-story, 415,000-square-foot building under construction at La Jolla Commons in San Diego will be the largest “net-zero” energy office building developed for lease in the United States. No universally agreed upon definition of a net-zero energy building is recognized. However, the consensus is that a net-zero building should produce at least as much power as it consumes on an annual basis. The building will be fully occupied by LPL Financial LLC, a wholly owned subsidiary of LPL Financial Holdings Inc. Construction should be completed by mid-2014. Net-zero energy usage will be achieved through a combination of highperformance building design and on-site fuel cells that will generate more electricity than the building uses each year. The surplus electricity will be fed back into the electrical grid and credited against the building’s traditional energy charges.

The fuel cells will generate enough electricity to power 1,000 San Diego homes, using methane (natural gas) in a noncombustion process. The methane will be purchased from carbon-neutral

sources, such as landfills and wastewater plants, and then transported with the natural gas supplied from conventional sources through commercial pipeline networks. Hines estimates the fuel cells will pay for themselves in five to six years. Generating

power with fuel cells will make the building eligible for financial incentives offered by the California Public Utility Commission. Federal investment tax credits will also provide significant tax benefits to the project’s bottom line. The building will incorporate a number of energy-efficient design features, such as under-ﬂoor air distribution, efficient chilled water usage and state-of-the-art building control systems. In the past, net-zero buildings have been attempted by first designing a net-zero building and then determining whether it could actually be constructed, financed and leased. Hines has turned this model on its head, taking a Class-A, financially viable project and exploring whether it could also be transformed into a net-zero building. Hines is committed to applying what is being learned about constructing a new netzero building to existing buildings. In this way, a much larger impact can be made on the energy efficiency of the U.S. commercial building stock. TIERRA GRANDE

COMMUNICATION MATTERS You Need More Than Words To Win Hearts & Influence Minds In the Real Estate Center始s new free video series, John Krajicek, Mays Business School executive professor, reveals how important clear communication is in our business and personal lives. It始s all about succeeding. And speaking is just the beginning. In four 20-minute videos, you will learn to cultivate your listening skills, develop a powerful presence, lead by example, and make body language convey the same message your words do. www.recenter.tamu.edu/video

Communication Matters Power of Presence Communicating as a Leader Open Up and Own the Room

OCTOBER 2013