Page 22 - Builder Brief April 2021 Issue

MARKET ANALYSIS
SAN ANTONIO BUILDERS CRACK THE AFFORDABILITY CODE
The importance of housing affordability is in direct relation to the metro area's median income
By Jack Inselmann | Originally published at builderonline.com
One of the most significant aspects of the San Antonio area housing market is the importance of affordability. In one comparison of the country’s major metropolitan statistical areas, the San Antonio-New Braunfels MSA has always been one of the most affordable new-home markets in the United States. Due to its affordability, it has frequently ranked in the top 15 for annual new-home production dating back to the early 1980s.
The importance of an affordable product is in direct relation to the lower median income of the San Antonio area in comparison with other MSAs, particularly ones in Texas. In a recent report by Moody’s Analytics, the San Antonio median income lags behind the other major Texas MSAs by a growing margin: The median income of San Antonio is $59,712, whereas the median income of Austin is 35% higher at $80,760. Dallas-Fort Worth is 23.8% higher, and Houston is 17.7% higher. Furthermore, the increase in San Antonio’s median income has been much less than that of the other major Texas markets since 2015 (see table below). Thirty years ago, the difference in median income for San Antonio versus Austin (these two markets are always closely aligned and compared) was approximately $2,500.
Over the past four decades, San Antonio home builders have worked to build houses that connect with the area’s median income. In doing so, builders were able to facilitate a successful volume of business. In the 1980s, more than 75% of new-home production was priced below $100,000, and in the 1990s, 40% of the market was priced less than $100,000. From 2000 to 2006, 25% of new homes were still priced less than $100,000. Another way to look at it is this: In the 1980s, 90% of new-home production was priced below $200,000, and as of 2020, only 13% of all new-home production in the San Antonio area was priced below $200,000. However, housing starts under $200,000 have grown over the past couple of years as San Antonio is the only major market in the country with growth in that affordable category. As a result, when you compare the 2020 new-home median price for major Texas MSAs, the San Antonio area comes in far below the others.
Over the years, one way builders have accomplished the affordability factor is to buy land and develop lots for themselves. Cutting out the middleman and retail markup allows builders to produce new homes at a lower median price, which closely
meets the area’s median income flexibility range. Self-development has long been a big part of lot development in San Antonio. This concept was initially dominated by Ray Ellison/Rayco, widely considered one of the leaders in self- development, in the 1970s, ’80s, and ’90s. In 2020, 67% of all lots developed in the San Antonio new-home market were builder self- developed. There have been years where self- development was more than 70%, and one year when it reached 80%.
Self-developing allows builders to produce lots priced 25% to 35% below retail price. The range of savings depends on location (geography), location (municipality), location (utilities), as well as market cycle time frame. In the current frenzy for land, the price advantage savings is typically more toward the lower percentages. The other benefit is that builders secure their current and future growth and are not at the mercy of retail lot development, which lessens their concern over competition. Self-development has been perhaps the most important part of any volume- success for builders over time, and this program will continue for the foreseeable future in the San Antonio-New Braunfels MSA.
22 APRIL 2021 | GREATER SAN ANTONIO BUILDERS ASSOCIATION