Texas' population grew by more than 1,000 people a day last year, according to U.S. Census data. That's great news for the state's economy, but it raises a question: Where are all these new people finding housing?
Our latest Texas Housing Insight report shows the state had a 3.4-month supply of new and existing single-family homes for sale in February, a 28-year record low for the state. This means it would take 3.4 months for homes listed for sale to sell at the market's current pace. The Center considers a six-to 6.5-months supply a balanced market.
I asked Center Research Economist Dr. Luis Torres about this. He coauthors the monthly housing report.
"Existing homes have been in short supply for a while," he said. “The big difference is that now the shortage of new homes is more pronounced."
Statewide, new-home permits were down 2.6 percent in February even though they maintained upward momentum from last year. Although Texas led the U.S. in permits issued and accounted for more than 17 percent of the national total, permits per capita remained more than 36 percent below the state's prerecession levels.
"Building permits peaked in 2007, and they've never come back," Torres said.
Meanwhile, housing starts were 39.5 percent below prerecession levels.
While demand for new homes is high, Torres said many builders are hampered by a number of supply constraints and new building regulations.
"The lack of land available for development has hurt new-home construction," he said. "There's a small supply of land for building new homes, and demand is high. That pushes up land prices and makes it more costly to build a new home."
In fact, Torres said land accounts for roughly 20 percent or more of the cost of new-home construction.
"If I'm a homebuilder and the land is expensive, for profit reasons I'm going to build a bigger, more expensive house," he said. "That's suppressing the lower end of the market."
Torres said high land costs are especially problematic for medium and smaller builders who might have less access to credit than the larger builders, making it harder to buy land.
Lumber and labor costs are also hindering new construction.
"The U.S. imposes tariffs on Canadian lumber, which adds to building costs," Torres said. "Also, there's a shortage of qualified, skilled laborers. When the housing bust happened about ten years ago, many laborers left the construction industry. It's difficult to replenish them. Builders and subcontractors are struggling to find skilled laborers even with wages increasing."
Torres said new building regulations are causing difficulties for builders.
"New regulations increase costs, and those will be passed on to the consumer," he said.
Houston's city council passed a regulation yesterday requiring new homes built in the flood plain to be elevated. Torres said regulations such as these will be important because of the impact they could have on the new-home market.
Torres talked more about this on yesterday's Real Estate Red Zone podcast. Click here to listen.