Texas Needs to Build More Houses
Posted on September 25, 2013 by Mark Dotzour

I never thought I would be making this statement: “We need to build a lot more homes!” In 2005, my colleague Dr. Jack Harris and I were traveling across Texas talking about how we were building too many homes. Well, that was eight years ago. The pendulum has swung severely, and quality housing is in short supply.

Here are the facts from the Census Bureau to back up my humble opinion.

Fact one. The homeownership rate in Texas is now 64.3 percent.

That means that for every 1,000 new people that live in Texas, 643 will likely own a home.

Fact two. The average household size in Texas is now 2.75.

That means that the average household has a mom, a dad, and three-fourths of a kid. (If you have ever been the father to a teenager, you know exactly what it means to have a .75 kid!)

If the 643 new Texas residents typically have a family of 2.75, it means they will fit into 234 new homes.
So for every 1,000 increase in Texas population, we need to build another 234 single-family homes or condos.

Unfortunately, the homebuilding business is not smooth and even. New supply tends to come in globs over a period of years. Then comes the dearth. Then the cycle begins all over again. The chart shows the relationship between the new homes needed in Texas based on the actual population growth each year since 1980. The chart also shows how many single-family building permits were issued in each of those years.

You can see that there have been two periods of overbuilding in Texas in the past 33 years:

1983 to 1989
1998 to 2007

During this same timeframe, there have been three periods of underbuilding:

1980 to 1982
1990 to 1997
2008 to 2012

Households Sept 2013 copy

When you compare the number of permits issued to the number of homes needed during these cycles of underbuilding and overbuilding in those three decades, here is what it looks like:

Underbuilding cycle 1980 to 1982 deficit of 125,000 homes
Overbuilding cycle 1983 to 1989 surplus of 86,500 homes
Underbuilding cycle 1990 to 1997 deficit of 165,750 homes
Overbuilding cycle 1998 to 2007 surplus of 327,220 homes
Underbuilding cycle 2008 to 2012 deficit of 154,000 homes

When you add up all the surplus years and compare it with the deficit years, it looks like this:

Total overbuilding in surplus years 413,720
Total underbuilding in deficit years 444,750

My conclusion is that over a 33-year period from 1983 through 2012, Texas has not overbuilt the market at all. I remember home builders telling me in 2005 and 2006 that they were “just catching up” with demand. This data indicates that they were right.

For a different glimpse of the housing market, I took a look at the Census estimate of vacant houses in Texas in 2010 and 2000. In the 2000 census, 9.4 percent of Texas’ housing units were vacant. Ten years later in the 2010 census, the vacancy rate had increased to 10.6 percent. Clearly in the past decade, there were houses built in subdivisions that should have never been created. Houses in these areas likely have higher levels of vacancy. But houses in preferred locations are hard to come by. Inventories are low, and prices are rising quickly.