HOUSING & THE ECONOMY - Affordable Housing for All - Texas Needs More Housing to Meet Its Potential

HOUSING & THE ECONOMY

AFFORDABLE HOUSING FOR ALL

TEXAS NEEDS MORE HOUSING TO MEET ITS POTENTIAL

By Victoria Wilson, TAAHP Policy & Regulatory Manager

In Texas and nationwide we are on our way to economic recovery, but will it be robust? There is plenty of good news: COVID infections are declining, employment rates are increasing, and businesses and people continue to migrate from around the country. But along the path to recovery, we are encountering unexpected obstacles, including stagnating job growth in some sectors, limited housing and building materials, and soaring costs. Housing is essential to the Texas economy and, as such, the health of this industry will be necessary to ensure a robust economic recovery. However, heavy constraints on the industry coupled with a large segment of residents who are unable to keep up with housing costs and basic needs threatens Texas’ ability to flourish.

WHERE ARE WE NOW?

A jump in the inoculation rate over the past few months has allowed many states to open their economies, spurring hopes of a swift return to normalcy. While we have seen many jobs return, the unemployment rate in Texas is still 6.7 percent (as of April) – this is a vast improvement from the last year’s high of nearly 15 percent, but still almost double the pre-pandemic rate of 3.5 percent.

A closer look at state data shows most industries are recovering, including oil and gas and manufacturing.

But the service sector, which includes hospitality, is still lagging significantly. The service sector’s performance matters because it represents 70 percent of Texas’ private sector output.

The imbalance should not be surprising: recoveries tend to be unequal both in terms of speed and magnitude. These discrepancies, in turn, tend to disproportionately affect low-income renters, putting them at risk of falling further behind. In the past year, the pandemic affected low-income residents the most, with some surveys suggesting that early on, up to 40 percent of renters lost at least half of their income. Available evidence suggests income loss has persisted for many renters in 2021.

THE DOWNSIDE TO THE TEXAS HOUSING MARKET BOOM

It is well understood by industry professionals that the economic pressure many households are facing has a direct impact on their ability to afford housing. Before the pandemic, an estimated 47 percent of households earning between 50 percent and 80 percent of Area Median Income (AMI), 81 percent of extremely low income to 50 percent AMI, and 89 percent of extremely low-income households were considered cost-burdened because they were spending more than 30 percent of their income on housing costs.

Over a year after the start of the pandemic these conditions have been aggravated by soaring home prices and inflationary pressures. The Wall Street Journal reported in June that the inflation rate is up to 5 percent — the highest it’s been since 2008. Texas median home values have reached record highs, with lower priced houses having seen the greatest increase, further complicating many households’ chances for homeownership.

The limited supply of housing, combined with high demand means would-be homebuyers cannot cross the threshold into ownership. Further, some families may not be able to access credit due to accumulated rent debt or having an eviction record after the pandemic. Unaffordable housing, lack of inventory, and pandemic-related financial constraints put additional pressure on the rental market. According to ApartmentGuide.com, overall rental rates in Texas rose 3.13 percent year-over-year in May 2021.

This growing demand is in addition to the existing need of 699,747 rental units for those earning up to 50 percent of Average Median Income (AMI). We expect that demand to be higher in coming years.

Supply constraints are a threat to affordability

The housing market is soaring, but not just because of increased demand – it is also due to anemic supply. Inventory has been low for years, but recent increases in the prices of materials are further constraining supply as construction is delayed. According to the National Association of Home Builders (NAHB), the price increase of lumber has added nearly $36,000 to the price of the average new home. Construction cost increases also translate to home price increases and rental price increases.

We need more affordable housing, but rising prices raise feasibility questions for Housing Tax Credit developments – it is possible that some planned developments could not be completed because of the sky-rocketing cost of materials, labor and rising interest rates are also contributing to development costs.

Where are we headed?

Job and population growth are on the horizon, but there are important housing implications that we cannot ignore.

Texas shows promising signs of recovery, including an uptick in the number of companies relocating to the state. Adriana Cruz, the executive director of economic development and tourism for the Governor’s office, said the office has 196 active relocation projects – many from tech, but from a variety of other industries as well. This influx of new businesses will certainly encourage the recovery, but with it come additional challenges.

For starters, a company relocating to Texas will bring both high wage jobs and low wage jobs. According to economist Enrico Moretti, “every new high-paying innovation job in the ‘innovation sector’ [..]creates five new jobs in other industries, many of which are for lowskilled workers.”

What is great news for the economy is not necessarily great news for the housing market or businesses. The dearth of affordable housing will only become more pronounced as demand increases. Lack of affordable housing could also mean companies may struggle to retain employees who live far from the workplace because they cannot afford to rent near job centers, thereby limiting future economic growth.

Cost-burdened households also have less disposable income to spend on consumer goods and services, essentially hampering the economy by limiting its growth. Additional consumption can stimulate economic and employment growth, possibly creating a multiplier effect.

Texas’ population continues to grow

Between 2010 and 2020, the population of Texas grew 15.9 percent, double the population growth of the United States as a whole. Between July 2018 and July 2019, the state added 367,215 residents—1,006 a day. Of these, 523 were from net migration (178 international and 345 domestic migrants per day).

TEXANS LIVING BELOW THE POVERTY LINE

13.6%