The housing affordability crisis in Dallas is real! Home ownership affordability is the ability to pay all costs associated with owning a home (property insurance, taxes, mortgage interest, mortgage insurance (if required) and maintenance while having sufficient income remaining to pay other monthly expenses. If buyers are purchasing a home with financing, lenders will evaluate borrower’s debt to income ratio to determine their risk of default; that is the risk borrowers will not make payments.
Homeowners cost as a percentage of income is important for lenders because the higher the percentage of income consumed by owners expenses the greater the risk of default. Since the Great Recession, this percentage has become even more important. One may find the debt to income percentages varying slightly between lenders.
Here in Texas the cost of new construction homes has put many out of reach of owning a new home. About 12 years ago it cost less than $50,000 to develop a quarter-acre lot. Today, it is closer to $100,000 – a 50% increase. Lot scarcity in large metropolitan areas is a major contributor for the rise as well as strong employment growth adding $300 to $400 in wages per week for construction workers.
Hard and soft costs are also giving rise to increasing prices for new construction homes. Hard costs are typically thought of as the “bricks and sticks” while soft costs relate to professional services, and city and county fees, to name a few. Hard costs typically come to a consumer’s mind when a home is being built. But, truthfully some of the more significant cost are soft costs such as impact fees which municipalities have increased their reliance on to catch up or meet the infrastructure demands. Consumers should keep in mind these fees translate into higher lot prices. Additionally, other hidden soft costs include permit approvals, utility connection fees, local regulatory requirements, and delays for final plat.
Adding to the lack of affordability is the shift away from smaller homes, leaving swaths of buyers underserved. New construction homes tend to have larger square footages. Most homes built in 2008 and still today are between 2,000 and 2,500 square feet. However, the difference today is a smaller pipeline (not as many homes being built compared to the time prior to the Great Recession) that is now a higher proportion of total output built in this range. The average size of a new home peaked in 2016 at almost 2,900 square feet but has gradually dropped to around 2,700 in 2019 due to increasing lot prices. Neighborhoods with dramatic shortages are those where the median home sizes are between 1,500 to 2,000 square feet.
It’s a fact state and local officials need to make structural changes to create affordable housing and lessen the scourge of inequality seen in many of our communities. A few ideas would be to relax burdensome development regulations at all levels of government that increase cost, shorten the time-consuming permit-approval process from close to one year down to 3 months, something seen in cities with fewer regulations. Local municipalities need to reform zoning restrictions to allow for greater density and eliminate tax policies that discourage investment or reinvestment to name a few.
I realize the political fallout politicians would face over promoting affordable housing initiatives and acknowledge the misguided belief the risk is not worth the benefit. Nevertheless, I see many local and statewide benefits on why elected officials should champion this cause for their constituents – like lifting the tide for everyone. Just giving people an opportunity to own a home is enough alone but providing a ladder for social and economic mobility is priceless.