Healthy housing market, not oil, best reflects HoustonĂ¢'‚¬'„¢s economy
July 22, 2008

Friday, July 18, 2008   The price of oil has been dominating the headlines in most news and business publications lately, and Houston has received more than its fair share of tongue-in-cheek punditry from publications across the nation as they attempt to tie our economic and housing success to the recent run-up in oil prices. Newsweek’s article is headlined, “Houston, We Have No Problem,” and the Chicago Tribune suggests we should change our official motto to “America’s Pain: Houston’s Gain.”
Perhaps Houston will join the rest of the country in its economic and housing-related misery, but the facts lead one to think not. Let us remember: Our economy was strong and growing well before the rise in oil prices, based on our fundamental underlying demographics.
A few publications however take a more objective view of Houston’s current prosperity, such as Kiplinger’s Personal Finance, which rates Houston as America’s best city in which “to live, work and play” in its July issue.
While the record price of oil makes for great headlines, the Kiplinger’s article unearths the more complex reasons behind Houston’s boom.
“Not only does the Houston metro area lead the nation in job growth, but also its cost of living stands well below the national average. Housing prices run half those of other metro areas its size,” Kiplinger’s writes.
GROWTH AND AFFORDABILITY
Let there be no mistake, Houston’s favorable cost of living, housing affordability and business climate are the long-term keys to our continued success. Our metropolitan area has grown by roughly 120,000 persons per year over the past 10+ years and most demographic analysts are predicting the same rate of growth over the next 20 years and beyond.
Affordability is the key to a healthy and sustainable housing market, and that has long been Houston’s greatest strength.
In the housing industry, there is a historical rule of thumb known as a qualifying ratio: An individual can only afford to spend 28 percent of his pre-tax or gross monthly income on mortgage, taxes and insurance. A corollary rule of thumb is that an individual can roughly afford a home that is 2.5 times his annual income with mortgage rates in the 6 percent to 7 percent range.
How much it costs to live is central to any definition of quality of life. The cost of housing is critical to this equation as a monthly mortgage payment typically makes up the largest portion of a monthly household budget, and when a family must spend more than 28 percent of its income on housing, then quality of life begins to deteriorate as other parts of the family budget are squeezed or sacrificed. And this is where the current housing crisis began.
HIGHS AND LOWS
As the price of housing skyrocketed in many markets across the nation, the affordability of housing took an opposite and equally rapid plunge, reaching historic lows. Unfortunately for those on Main Street, Wall Street has never seen a problem that it didn’t try to take advantage of, and voila subprime, Alt-A, stated-income and other “exotic” loan products were hatched — all to make the pool of home buyers larger, and to make homes more “affordable” to them by redefining the historic rules of thumb.
At the same time, the most critical driver of those skyrocketing home prices has been excessive government regulation driven by over-zealous hordes of “not in my backyarders” (aka NIMBYs) and politicians all too willing to oblige the NIMBYs’ wishes. The concept of making the “new guy” pay for everything is not only shortsighted, but just plain wrongheaded. Continued economic progress, along with the related improvements and additions to our infrastructure benefit everyone, not just the new guy.
We must provide affordable and quality homes and communities for our children and grandchildren, and this will not occur if we load all the costs of infrastructure improvements into the price of new homes.
Fortunately, Houston is well-positioned to continue to lead the nation in housing affordability. Quality of life and housing affordability are two of the major advantages it has over all cities of a similar size, and Houston’s market-driven approach to land use and regulation have been critical to maintaining these advantages. Houston cannot, however, stand pat and rest on its past success, but must work to build for future success.
SUSTAINING GROWTH
Here are a few suggestions — not answers, just suggestions — on how Houston can sustain its enviable record of growth:
• Strive to bridge the “Inner Loop” and “suburban” divide that has for too long strangled any attempt to start a meaningful dialogue about the future of the region. Rather than sticking to short-sighted “urban” vs. “suburban” views of Houston’s future, work together to forge a single vision recognizing that Houston must have both a redeveloping urban core and continued suburban growth. The common denominator must be maintaining and enhancing the regional quality of life.
• Continued increases in commercial and residential densities inside the Loop cannot continue unabated without a comprehensive review of the supporting infrastructure needs and a comprehensive plan that addresses them. As an example, “on-your-lot detention” is not a comprehensive solution to increased density.
• Suburban growth under the current “there are few to no rules” approach must also be challenged. The current minimum standards do not adequately address several key issues that are critical to long-term, sustainable neighborhoods. Landscaping, open space/parks, architectural/building standards and mandatory homeowner associations should not be considered as amenities as these items are core to how a community will look and live 10, 20 or more years from now.
Houstonians can work together, and Houston will continue to be in the news for its economic success, affordability and quality of life.


TED NELSON is central division president of Newland Communities, with six active developments currently under way in Houston.

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