Dallas Builders Association/Meyers Research Housing Report - July 2017
Dallas-Fort Worth-Arlington MSA
Thanks to one of the nation’s strongest employment markets, the Dallas area has enjoyed unprecedented growth. Demand created by more than 100,000 new jobs region wide led to nearly 30,000 new homes in 2016. By the end of this year, another 32,000 homes will come online. Ominous clouds are on the horizon as the region begins to lose the affordability that serves as a key driving force for growth.
According to the Texas A&M Real Estate Center, the median home price in Dallas-Fort Worth metro area jumped from $149,900 in 2011 to $232,000 in 2016. The median price for a new home now exceeds $320,000.
Land and labor have and continue to be major factors behind DFW losing its affordability advantage. However, lumber and local regulation are now major parts of the equation.
On April 25, the Trump administration announced plans to impose duties of up to 24 percent on most Canadian lumber. The escalation of this decades-long trade dispute resulted in lumber cost increases of up to 30 percent for some Dallas area builders. The way lumber is harvested in the two countries is at the heart of the dispute. In Canada, companies pay a fee to harvest trees from public lands, whereas, in the United States, most of the logging is done on private land since most public land is off limits. American companies argue that this constitutes an unfair advantage for Canadian companies.
“Local regulation is probably the biggest factor at play now that we seemingly should have better control over,” said Dallas area builder Alan Hoffmann. “Many cities have this mindset that homes need to cost nearly a half million dollars in order to pay their own way. Many of these practices are illegal, but fighting them takes years and hundreds of thousands dollars. Something many property owners don’t have.”
Property owners prevailed in the Texas Supreme Court last year against illegal fees in Lakewood Village v. Bizios. In that case, the municipality was charging fees for new construction outside its city limits. “Unfortunately in that case, the city knew it was in the wrong, but decided to use taxpayer funds to drag it all the way to the Supreme Court,” said Dallas BA Executive Officer Phil Crone. “To make matters worse, the same practice continues in places such as McKinney, which has resulted in more costly and unnecessary lawsuits.”
In March, the new home affordability ratio reached 46.7%, meaning that less than half of those living in the region can afford a new home. According to the National Association of Home Builders, the cost of regulation has increased more than 30% over the last five years, and now, on average, accounts for more than $84,000 per home. More than one-third of Dallas BA builder members cited code changes and increased fees and dedication requirements as a substantial reason for added delays and increased costs. Some of these increases come in traditional forms such as impact fees, but others include onerous tree mitigation fees that approach the value of the land itself and installation of infrastructure traditionally left to utility companies without reimbursement.
“Especially in smaller cities poised for significant growth, discussion often centers around limiting multifamily construction and what can be done to ensure homes cost a certain amount in order to attract only those of a certain income level,” said Crone. “These nefarious social objectives deserve much more scrutiny than they are currently receiving.”
*Unless otherwise noted, data included in this article is produced by Meyers Research, the real estate consulting partner of the Dallas BA, via their Zonda application. Zonda offers approachable and intuitive real time housing data across the United States.