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Market News and Trends

Affordability Pressures in Austin


Much has been said over the past couple of years about housing affordability in the Austin area, and rightfully so.  It is a fact that housing has become more expensive over the past several years:

Austin Metro Average Price 2013-2014Moreover, virtually all of the increase in unit sales has been above $200,000:

Austin Metro Price Distribution 2013-2014As of today, MLS data indicates a YTD average sale price in the metro area of $333,402 for 2015, up 9% from the 2014 average.  Final price distribution data for 2015 isn’t available yet, but based on this historical information, some have concluded that Austin real estate is “over-valued,” or in “bubble territory.”  As I have written before, though, there is a difference between price increases created by speculative investments, and real increases in property value driven by the forces of supply and demand (see Another “over-valued” report).

For several years, the Austin area has been highly ranked in studies of population and employment growth:

Austin Metro Population 1970-2014

With unemployment in the 3% range, job growth is largely keeping pace.

Between 2005 and 2014, the metropolitan area’s population grew 34%, from 1,453,358 to 1,943,299.  The Austin Business Journal reported this week that the City’s demographer estimates the area population as of October 1, 2015 was 2,020,452.  If we assume 2.5 individuals per household, that means that we added about 30,000 households in the first 10 months of 2015!

In the meantime, construction of new places for those folks to live lags far behind:

Austin Metro Building Permits 1980-2014

Focusing narrowly on the period since our last market peak shows how stark this situation is:

Austin Metro Building Permits 2005-2015

Permitting activity for new single family homes has been increasing since 2011, but plans for new 5+ family properties have declined since peaking in 2013.  If we assume that the last two months of 2015 equal the monthly average of the first ten months, then total dwelling units permitted this year will be essentially flat compared to 2014, and will be just 80% of the number of permits issued at our 2006 peak!

That’s the recipe for price increases — enormous and growing demand versus severely limited supply:

Table - Population vs. Building Permits 2005-2015

So based on this admittedly simple analysis, we have gained about 40,000 more households than we have homes for.  Generally, the closer you are to the center of the metro area, the more expensive property is.  That is forcing more and more people to move to the periphery of the area (and beyond).

This is not hopeless, however.  There are ways to address this trend, by allowing the addition of much more, and more varied, housing stock throughout the area.  It will require bold action by leaders in Austin and surrounding communities.  It will require facing and accepting change.  Done properly, though, the result can be many attractive, vibrant, and more affordable neighborhoods all over Central Texas, and a way to continue the cultural and economic vitality that make Austin Austin.

I will write separately in the coming weeks and months about Austin’s relative affordability compared to other major metropolitan areas, and about steps that can help to improve affordability over time without sacrificing livability.  Yes, home prices are up here, and for good reasons, but the future can still be bright.

(Sources of data in this post:  Real Estate information from Texas A&M Real Estate Center. Population and Building Permit info from Census.gov.)

About Bill Morris, Realtor

Many years of business experience (high tech, client service, business organization and start-up, including 18 years in real estate) tell me that service is the key to success and I look forward to serving you. I represent both buyers and sellers throughout the Austin metropolitan area, which means first-hand market knowledge is brought to bear on serving your needs. Learn more about my background and experience, my commitment to my clients, my profession, and to the real estate industry at CentralTexasHomeSearch.com.

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