Texas’ Opportunity To Make A Dent In Rising Housing Costs

Texas and Florida have long bragged about the number of immigrants they receive from high-cost states like New York and California. But that migration may begin to slow down, as housing costs rise in the former pair of states. Florida has enacted some meaningful reforms in response. Will Texas follow?

A recent paper by Lee Ohanian and Joseph Vranich of the Hoover Institution concludes that housing costs are a key driver of business departures from California. “Headquarters migrations out of Santa Clara, Alameda, and San Mateo counties [are] not only to control business costs but to recruit workers with the benefits of lower housing costs,” they write.

But rising housing costs in Florida and Texas pose a risk to their impressive growth. “If you buy a house in Miami today versus just three years ago,” said Peter Thiel to Bari Weiss in a recent interview, “you’re paying four times as much for a monthly mortgage payment,” due to the combination of higher housing prices and higher interest rates.

As my colleague Roger Valdez regularly points out, antiquated housing regulations restrict growth in the supply of housing, leading to higher prices. “There’s a little bit of everything in Texas,” Valdez writes, “even the kind of thinking that too often prevails in policy debates about rising housing prices”—that is, restricting supply and hoping that subsidies to the poor will make up the difference.

The City of Austin, to its credit, has attempted to update its land use code to expand housing supply, only to be paralyzed by multiple lawsuits from groups that favor the status quo.

In response, Texas governor Greg Abbott has advocated state-based reform that would preempt these local vetos. “As opposed to the state having to take multiple rifle-shot approaches at overriding local regulations, I think a broad-based law by the state of Texas that says across the board, the state is going to preempt local regulations, is a superior approach,” says Abbott.

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Two land use bills being considered by the Texas legislature stand out: one on “third party review” (House Bill 14) and one on lot size requirements (Senate Bill 1787).

Third party review, a priority of Texas House Speaker Dade Phelan (R.), would streamline the homebuilding process by allowing experts like architects or engineers to sign off on site plan reviews, among other aspects of the permitting process, similar to a law signed in April by Gov. Ron DeSantis (R.) in Florida. Site plan review consumes the most time in the permitting process, adding up to 5 percent to the final price tag of the home for every 3.5 month delay. Tackling this bureaucratic bottleneck can function as a relief valve on cities which struggle with high turnover.

The second law, lot size reform, would transform the cost required to buy one home by restoring the property right of an owner to own a medium sized lot of 1,400 square feet. Less restrictive lot sizes are a vital component of any efforts to make housing more available and affordable for Texas’ middle class. In the South, 40% of housing costs are land. Mathematically, if Texas cities can reduce the land to build a home on, they can make a dent in the overall costs. Austin requires 5,750 square feet, while Dallas requires a minimum of 5,000 square feet. It comes as no surprise then that Austinites spend 48 percent of yearly household income on housing costs, while Dallasites spend 42 percent of their yearly income on housing.

A 2019 paper by Brian Asquith, Evan Mast, and Davin Reed for the Upjohn Institute estimates that new buildings lead to an immediate decrease in rents in the surrounding area by 5 to 7 percent. Sounds good, right? Well yes, unless you’re one of the neighboring landlords who benefits from higher prices.

These landlords and their allies claim to support “community” over “developers,” but the result of their favored policies is to exclude lower- and middle-income Americans from their communities.

This problem isn’t new. All across America, “not-in-my-backyard” NIMBYs fight against “yes-in-my-backyard” housing activists striving to remove regulatory constraints to housing supply. But the problem is particularly striking in Texas, a state that claims to stand strongly for free enterprise, but frequently falls short when special interests are involved. The Texas legislature should take advantage of the opportunity in front of them to do something constructive.