Observations on Houston's Housing Market

I have owned a paint contracting company for more than twenty years. Over the years I have looked at more than 10,000 jobs, most of which have been for residential work. As a result, I have seen a lot of homes. Indeed, other than Realtors, contractors easily see more homes than virtually any other profession.

This has provided me with a unique vantage point for observing Houston's housing market. During the past decade an interesting trend has developed, and it illustrates the benefits of Houston's relative freedom in land use.

The most significant trend is a move towards greater housing density in many areas of the city, particularly inside The Loop. As land values and demand for housing have increased inside The Loop, increased density makes economic sense for both builders and home buyers. This is readily evident in areas such as The Heights, Rice Military, Midtown, and many other parts of the city.

A common trend is for a developer to purchase several single family homes, tear them down, and build a number of three-story town homes on the lots. The economics make perfect sense--if a lot costs $400,000, even a modest home is unaffordable to most Houstonians. However, if four town homes are built on that lot, the price of the land is distributed among four home owners, rather than one. The home becomes significantly more affordable. Larger developments encompassing half of a block are not uncommon, with similar economies.

This has certainly been interesting to observe. As market conditions changed--that is, the demand for Inner Loop housing increased--land values rose. If the housing market retained the one house per lot status quo, demand would ultimately subside because of affordability. One result would be that Houstonians would be driven from the Inner Loop, resulting in longer commutes. Another would be that the population inside The Loop would remain relatively stable because there would be no expansion of the available housing, and demand for that housing would send prices skyrocketing.

A similar trend has unfolded downtown. I lived downtown in the mid-1980's, and at the time there were essentially only two places to live-- the Houston House and 2016 Main. After business hours downtown was dead. However, developers such as Randall Davis transformed abandoned buildings such as the Rice Hotel into condominiums, lofts, and other housing. Restaurants and entertainment soon followed, and now downtown Houston is a destination spot.

I must admit that while much of this was occurring I was not as observant as perhaps I should have been. But my recollection of the time line is that these trends are a demonstration of Say's Law-- supply creates demand. When the housing was limited in downtown, or Midtown, or Rice Military the demand was also limited. When the supply increased, the demand did as well, which in turn led developers to create additional supply.

A typical town house has a foot print measuring approximately 30' by 40'. (I've literally measured hundreds of them, and these measurements are remarkably consistent, though there are certainly differences.) The first floor generally consists of a two-car garage, a bedroom/ study, and a bathroom. The second floor has the main living area--the kitchen, living room, a powder room, and dining room--with few if any dividing walls. The third floor has the master bedroom. This is the typical layout, but many options are offered.

I have seen first floor bedrooms measuring approximately 12' by 12', I have also seen first floor "bedrooms" measuring 30' by 12'. I have seen relatively small kitchens and large kitchens. I have seen minuscule dining rooms and spacious dining rooms. I have seen lofted ceilings in the living room, rising two-stories high, and ceilings spaced at 10' high. I have seen third floors with a second bedroom, and third floors with only the master suite. In other words, while the basic floor plan for these homes is similar, a lot of variety is still offered to the consumer.

These homes generally have 2,400 to 3,000 square feet of living space, depending on the particular floor plan and layout. They are appraised at approximately $250,000 to $350,000, depending on location and the actual size of the unit. In Houston, a home owner gets a much larger home for much less money than most major cities. In Seattle for example, town homes of 1,200 square feet often sell for $600,000 or more.

The changes in the housing market have largely occurred because builders and developers do not have a long and expensive permitting process. They can respond to market demands, or anticipate those demands, without a lengthy process to secure government approval. And perhaps more significantly, they do not incur the excessive costs associated with the approval process in other cities, which allows them to keep housing at affordable levels.

Of course, there are those who do not like these changes. They argue that demolishing quaint bungalows and cottages to make way for town homes destroys the character of the neighborhood, that the town homes are too similar and plain, etc. Many have argued for less density in developments. Invariably, virtually all of these critics call for more government intervention and control. They don't like the way certain neighborhoods are changing and they want to use the power of government to put an end to it.

While these squeaky wheels often get the grease, they (and the politicians who cater to their demands) ignore the fact that many Houstonians do like these town homes. These homes would not be selling if this weren't the case. As is usually the case, the current residents of a neighborhood launch their protests, while many who will be impacted--potential future buyers--are oblivious to the controversy. They ultimately become the voiceless and unknown victims.

At the same time these neighborhood groups are fighting to impose their values on others, competing groups argue for greater density in development as a means of reducing commutes. The solution is not to battle over political power, but retain (and increase) freedom in land use. Allow individuals to choose their values and vote with their wallets. Not only has this served Houstonians well, it is also the moral thing to do.