Page 77 - ABHR MUD BOOK 2022

ON THE RECORD

A Conversation with James Gaines times assembling multiple parcels),
platting and permitting a subdivision,
Texas Home Prices to engineering the land and building
roads, utility lines and other necessary
Keep Rising Despite improvements before marketing the
finished lots to homebuilders or owners.
Energy Slowdown This basic process covers anything from
a few dozen acres of land to master-
planned communities comprising
James Gaines, chief economist of the Real thousands of acres.
Estate Center at Texas A&M University, is a The next step is building and mar-
keting individual housing units—the
leading authority on housing and development role of homebuilders. In some cases, the
issues in Texas. He discusses the supply and role of land developer and homebuilder
demand conditions that have led to rapidly might involve the same entity, but until
recently, quite often it did not.
rising house prices, as well as the unique role Regulators play an integral role—
municipal utility districts (MUDs) play in single- from the state to the county and mu-
family housing construction in Texas. nicipal layers of government—applying
standards for zoning, minimum lot size,
roads and utilities, and building, fire,
Q. Texas never had much house Q. Is the price appreciation you plumbing and electrical codes.
price appreciation because there speak of due to supply- or demand- During periods of rapid population
was so much building. What’s hap- side factors? growth that fuel the need for fast devel-
pening now? The answer is no doubt both. Be- opment of housing, counties and cities
Texas has not had the extreme tween 2010 and 2015, Texas added more are often unable to keep pace to provide
home price volatility that other areas than 1.45 million jobs, about 290,000 per such services as roads and water/sewer
of the country experienced mainly year on average. During the same period, capacity for new subdivisions. Some-
because homebuilders could produce the state gained nearly 2.55 million times a local government may try to
a substantial number of homes at people, or an average of nearly 510,000 control growth by limiting new subdivi-
comparatively modest cost to keep the people per year. sion permits, charging local impact fees
market well-supplied. On the supply side, the number of for road and water/sewer services or
Even during past booms—such new homes built could not keep pace. changing density and affordable-housing
as the 1970s and early 1980s—Texas Single-family permits in 2011 were the requirements or other aspects of the
markets lacked substantial price in- lowest since 1992 and only regained development process.
creases. This was in marked contrast to their long-term average level by 2014. All of these activities limit supply by
other states, especially California and Although new-home construction in adding to the time and cost of develop-
Florida. They and many of the other 2014 and 2015 exceeded the long-term ment, thereby raising the price of new
high-growth, high-population states average, the amount was nearly 35 per- housing. Restricting supply, especially
had much more restrictive housing and cent less than the peak years of 2005–06. in the face of rising demand, causes all
land-use policies limiting new home The balance of the increased demand housing to be more expensive.
production and leading to significantly for housing was filled by the substantial
higher home prices. addition of rental units. Construction Q. Developers’ ability to establish
The difference today is that Texas permits for multifamily units spiked in municipal utility districts (MUDs)
homebuilders have been unable to 2012 and continued to increase through was one reason Texas housing sup-
recover from the financial crisis and 2015. ply was so elastic for decades. What
Great Recession of 2008–09 to sup- are MUDs, how are they created and
ply the state and our major metro Q. To better understand supply-side how do they help expand the supply
areas with sufficient new housing. constraints, what’s the process of of new homes?
The phenomenal increase in jobs and developing a new community of A key part of the subdivision devel-
population in the major metro areas single-family homes? opment process is ensuring adequate
during the past six years, coupled with The business model for developing water and sewer services for houses be-
historically low mortgage interest rates, residential subdivisions in Texas typically ing built. If a local municipality is unable
created such housing demand that involves a land developer who acquires to provide utility services or, more often,
prices have risen at more than twice a tract of raw land and transforms it into if the development is located in an unin-
the long-term historical rate of around residential lots. The land development corporated area, a developer can create a
4 percent per year. process involves acquiring land (some- MUD to undertake the task.

8 Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2016