In recent years, residents of states like California and New York have struggled to purchase homes, and it appears this trend will persist for the foreseeable future. On the other side of the spectrum, Texas, which has become an increasingly attractive destination for many Americans from other states, has successfully navigated these challenges and avoided the housing crises plaguing other areas. Experts are now shedding light on how Texas managed to sidestep the issues faced by states like New York and California.
But first…
How we got here? The onset of the COVID-19 pandemic prompted the federal government to implement numerous policies aimed at bolstering the American economy. This influx of grants, benefits, and financial support, coupled with prolonged work-from-home policies, created an ideal environment for housing prices to soar due to skyrocketing demand. Several years later, this situation has left millions of Americans unable to afford their own homes, leading the nation into one of its most severe housing crises.
Interest rates hike
As life began to normalize post-pandemic, the rapid increase in housing prices started to moderate slightly. This change was further influenced by the Federal Reserve’s decision to raise interest rates, leading to a modest decline in housing prices in some regions. Nevertheless, the dream of homeownership remains out of reach for millions of Americans. Despite the stabilization of prices, the high cost of borrowing continues to make purchasing a home more expensive than in the past, with no immediate solution in sight for some states.
Different states, different solutions
Amid an ongoing housing affordability crisis in the United States, states traditionally governed by the Republican party, such as Texas, have been making significant strides in constructing millions of new homes in recent years. In contrast, Democratic-led states like California and New York face challenges in increasing their housing supplies.
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Housing shortage in the focus
The United States has experienced a prolonged housing shortage, primarily because the country did not build enough homes after the 2008 financial crisis. This shortage has contributed to sustained high prices over the past few years, even as rising mortgage rates have deterred potential buyers. Although the inventory of homes for sale has seen a slight uptick in recent months, it remains significantly lower than historical norms.
Speaking to Newsweek, Matthew Walsh, Moody’s Analytics housing economist, explained that the shortage of inventory is the main factor that drives prices up. “At the current sales rate, the housing market has only 3.5 months’ supply. While this is a challenging environment for homebuyers, the restricted supply is a boon for existing homeowners. House prices have never fallen on a national basis with less than six months of supply,” he said.
“Given that most potential homebuyers are also home sellers, inventories are further depressed by a coordination problem wherein owners are unwilling to list their homes for sale, given the risk they will not find a property to buy.”
California and Texas comparison
Texas has achieved the highest number of new homes built in the past few years. Prices have recently been dropping in Texas to support the sale of new homes. However, California has not been following the same path as it lags behind Texas a lot.
In the past two years, California gave the go-ahead for 116,693 new houses for single families, making up part of a bigger total of 221,983. Texas, on the other hand, allowed for 293,569 such homes, part of a larger figure of 477,825—this is over twice as many as California managed. The National Association of Realtors (NAR) has shared figures showing that, over the last decade, California approved 1,069,096 building permits in all, with 555,943 for single-family homes. Texas gave out 2,017,652 permits, with 1,303,555 for single-family homes.
More homes in the South
It’s tricky to pin down which state has put up more homes lately, but it’s clear the South has seen a lot of action. In 2023, Texas and Florida topped the charts for kicking off the most housing projects. Looking at the numbers relative to the population, Idaho, North Carolina, and Florida were the busiest states for new homes last year. New York only started on 26,000 new homes, and California got going on 106,000. In Texas, about 217,000 homes in total were started in 2023, according to Walsh.
The solution
In Texas, the higher number of permits issued for the construction of new homes is mostly due to the fact that the state “has less regulation for building”. Active homebuilders more frequently avoid California because they face a lot of regulations for starting a home. In addition, the cost of building a home in Texas is lower compared to New York and California. One way or another, Texas seems to have solved the housing problem many states face, offering more affordable housing and attracting thousands of out-of-state Americans to permanently move to the Lone Star State.
