It’s the downside of a hot job market and an improving national reputation for being a cool place to live.
Business and city leaders often tout the Houston region as one of the most affordable markets in the country. But first-time homebuyers like the Schaefers are finding that image increasingly outdated.
“We are in a hot market, and it does pose some challenges,” said Patrick Jankowski, executive vice president of research at the Greater Houston Partnership. “There’s a cliché in Houston that you just drive until you find something you can afford. People are finding that’s becoming a farther stretch.”
The housing market has seen sales soar, prices rise and inventory shrink. Many households now could spend up to half their paychecks on housing and commuting.
Jankowski said Houston’s job growth led to an influx of new people seeking housing options in the last few years. He said affordability could be a concern going forward, especially as longer commutes tack on more cost.
Real estate experts and economists say that, although Houston is still affordable compared to other large markets, double-digit price increases could chip away at that reputation. The pattern could alienate first-time homebuyers, leave the middle class with fewer options and drive low-income residents into rundown apartments.
“It can be a challenge to understand why home price increases can be a bad thing coming out of the recession,” said Janet Viveiros, with the Washington, D.C.-based National Housing Center, who authored a report about affordable housing this year. “House prices are surging, and rents are surging. It puts buyers in a situation where they have to make difficult decisions.”
In Houston, the fact that about 80 percent of housing activity is outside Beltway 8 contributes to its reputation as an inexpensive market.
Home sales and prices from 2013 show strong growth everywhere: Overall, home prices rose 9.4 percent, the Houston Association of Realtors reports in an analysis of sales, prices and inventory for the Houston Chronicle. Inside Loop 610, prices rose 12 percent, and they were up almost 20 percent from the Loop to Beltway 8 and 9 percent outside the Beltway.
“Is it losing some of its competitively priced housing? A little bit, but it’s not a major concern yet,” Jim Gaines, research economist at the Texas A&M Real Estate Center, said of the area. “The middle class, or working class, can still find affordable housing. It’s just not as abundant as it was.”
Still, he said, recent price increases threaten to hurt.
“If prices go up 12 percent, I guarantee incomes didn’t go up 12 percent,” he said. “If you continue double-digit price growth for several years and don’t get corresponding income, then you get out of whack.”
The median household income for Houston, The Woodlands and Sugar Land is $55,910, according to the 2012 U.S. Census American Community Survey.
The low housing stock is driving up values on all types of properties, according to Sheri Smith, an associate professor in the school of public affairs at Texas Southern University. Working Houstonians who can afford $125,000 to $150,000 houses are being priced out of the market or forced into rentals or housing in the suburban fringes.
“Middle-income individuals are not finding affordable housing,” Smith said.
A recent Rice University study found Houstonians typically pay 30 percent of their income on housing, including mortgages and rents. Compare that to those in New York City who spend 25 percent of their income on housing, 25 percent for Chicago and 31 percent in Los Angeles, based on 2011 data.
Once transportation costs are factored in, almost half of the typical Houstonian’s income – 46 percent – is gone.
I’ll bet those figures are a surprise to a lot of folks. New York especially has a reputation for being an expensive place to live, but if you’re earning enough money, it’s not a problem. Of course, you have to earn a heck of a lot of money in Manhattan or you’re screwed. So Houston still has that going for it.
As for what should be done about the problem, clearly more supply is needed. I’ve talked before about how we really have to do something with the many empty spaces in Houston. The reason so much construction occurs in the far out reaches of Harris County is because that’s where the empty land is. Empty and underutilized spaces exist in Houston, too. We need to figure out ways to encourage construction in these places. That’s going to require an investment in infrastructure in a lot of these places – fixing roads, adding drainage, etc – but the alternative is letting all the growth occur in the hinterlands and dealing with the effects of that.
Another solution is going to be more highrises. It’s the only way to increase the available housing on limited land. Houston does have some limits on where highrises can be built, but the bigger constraint these days is neighborhood resistance. Lots of places are not appropriate for highrises, and you can’t do much about aesthetic objections to them, but traffic concerns can and should be addressed. As I’ve said before, more density needs more transit. As with infrastructure, that’s going to cost some money, but it’s a vital investment. The alternative is to curse traffic for all eternity, as the folks down in Pearland are fixing to learn.
I guess what I’m saying is we can keep doing what we’ve always done and hope it works out for the best, or we can try to figure out some policies that might help alleviate the housing shortage and make the best use of the land we have available, then figure out a way to pay for it. The former is easy, of course, and it’s more or less worked fairly well for the greater Houston area, though arguably not so well for every part of it, and arguably not so well for the city as opposed to the metro area. Doing the latter is a lot harder and there’s no guarantee we can even pull it off, but it has the upside of maybe solving some of these vexing problems that the market tends not to care about. I really don’t expect anything but Door #1, but it can’t hurt to point out that we do in fact have a choice.