economicsHousing affordability gap hits Texas

Comptroller’s report cites housing shortage

October 2024 | by David Green

In early 2024, housing affordability — the ability of someone with a median family income to afford median-priced housing — hit its lowest level in the U.S. since 1985, mostly due to record-setting home prices and rapidly rising mortgage rates. Unique conditions during the COVID-19 pandemic, including increased opportunities to work from home, put upward pressure on housing prices. The Federal Reserve Bank of San Francisco estimated that remote work policies accounted for more than half of home price increases from November 2019 to November 2021. This period coincided with accelerated domestic migration, of which Texas and its metro areas were top destinations — the Dallas-Fort Worth-Arlington metro areas saw the largest total population gains and largest net domestic migration of all U.S. metro areas between 2020 and 2023.

Housing price pressures were heightened by an existing housing shortage in the U.S., fueled by a decline in housing construction following the 2007-08 financial crisis. According to a 2023 analysis by Up for Growth, a nonprofit organization that focuses on housing policy, Texas was 306,000 homes short of what was needed as of 2021. Analysis by the National Association of Realtors shows the greatest shortage is in homes that middle-income buyers can afford.

In August 2024, researchers with the Texas Comptroller of Public Accounts released The Housing Affordability Challenge (PDF), examining the factors leading to the rapid decline in affordability in Texas and across the U.S. and how the crisis is affecting Texans.

Housing costs should not exceed 30 percent of a family’s income. This ensures a family can pay for other living costs. The U.S. Department of Housing and Urban Development uses this as its common standard of affordability.

Home prices rise sharply

In Texas, median home prices rose by about 40 percent between 2019 and 2023, with sharp increases in 2021 and 2022 (Exhibit 1). Price increases were widespread across Texas metro areas, particularly in smaller metro areas. Brownsville-Harlingen experienced the largest increase during this period, jumping 73 percent.

Home prices did fall by 1.5 percent statewide in 2023, as home inventories recovered slightly. Notably, prices in the Austin metro area fell by more than 10 percent in 2023. Still, despite this decline, Austin metro prices were up by 43 percent between 2019 and 2023.

Exhibit 1 data

Texas Home Prices Rise and Inventory Falls

Year	Median Price	Months Inventory
1990	$68,470	10.59
1991	$71,656	9.79
1992	$75,525	8.81
1993	$78,396	7.84
1994	$80,294	7.33
1995	$81,851	7.51
1996	$86,462	7.11
1997	$90,879	6.3
1998	$96,063	4.92
1999	$100,952	4.64
2000	$111,642	4.87
2001	$118,808	5.07
2002	$123,725	5.77
2003	$127,017	5.97
2004	$128,883	5.55
2005	$135,788	4.79
2006	$141,905	4.8
2007	$146,105	5.86
2008	$145,613	6.51
2009	$144,633	6.58
2010	$146,417	7.57
2011	$147,500	6.3
2012	$157,000	4.63
2013	$170,000	3.65
2014	$182,500	3.36
2015	$195,500	3.21
2016	$210,000	3.1
2017	$223,900	2.98
2018	$233,286	3.17
2019	$241,358	2.96
2020	$259,990	1.63
2021	$300,000	1.21
2022	$340,000	2.64
2023	$335,000	3.38

Source: Texas A&M Real Estate Research Center

Housing affordability falls across Texas

The surge in U.S. house prices, coupled with the rapid rise of mortgage rates from about 3 percent in 2021 to nearly 8 percent in late 2023 (a 23-year high), caused the fastest-ever deterioration in U.S. housing affordability between 2021 and 2023.

Housing affordability fell precipitously between 2019 and 2023 in Texas and all its metro areas. According to Texas A&M’s Texas Housing Affordability Index, the statewide median family income (MFI) in 2019 was 62 percent higher than the amount needed to purchase a median-priced home in the state, assuming a down payment of 20 percent and a qualifying ratio of 25 percent, meaning the monthly mortgage payment cannot be more than 25 percent of the borrower’s monthly income. By 2023, the MFI was just 7 percent above the necessary income needed to purchase a median-priced home.

In Brownsville, McAllen and El Paso, the median-income family in 2023 could not qualify to purchase a median-priced home in the area (Exhibit 2).

MSA	Affordability Index 2019	Affordability Index 2023
Brownsville-Harlingen	1.61	0.95
McAllen-Edinburg-Mission	1.49	0.96
El Paso	1.70	0.99
Dallas-Plano-Irving (Metropolitan Division)	1.56	1.00
College Station-Bryan	1.71	1.06
Sherman-Denison	1.99	1.06
TEXAS	1.62	1.07

Source: Texas A&M Real Estate Research Center

Note: A ratio of 1.00 means that the MFI is exactly sufficient to buy a median-priced home in the area.

Housing cost burden

In 2022, about 34 percent of Texas households were cost-burdened, meaning they have housing costs comprising at least 30 percent of their income, according to U.S. Census Bureau data. Renters face more housing cost challenges than homeowners. More than half of renters in Texas were cost-burdened in 2022, compared with less than one-quarter of owner-occupied households.

Cost burdens are particularly acute in lower-income households — 88 percent of households with annual incomes less than $20,000 were cost burdened, compared with just 8 percent of households with incomes of $75,000 or more (Exhibit 3).

Exhibit 3 Data

Percent of Income Spent	Less than $20,000	$20,000 to $34,999	$35,000 to $49,999	$50,000 to $74,999	$75,000 or more	Total
Less than 20 percent	4.3%	13.7%	23.7%	34.2%	68.9%	44.7%
20 to 29 percent	7.5%	13.5%	21.6%	31.3%	23.1%	21.6%
30 percent or more	88.1%	72.8%	54.7%	34.5%	8.0%	33.8%

Sources: U.S. Census Bureau, 2022 American Community Survey 1-Year Estimates, Table ID: S2503; Texas Comptroller of Public Accounts analysis

Lower-income renters face housing shortage

Texas has just 25 affordable and available rental homes per 100 “extremely low-income” (ELI) households — those with incomes at or below the federal poverty level or below 30 percent of their area’s median income — one of the lowest ratios among all U.S. states. This is lower than the national figure of 34 per 100, according to the National Low Income Housing Coalition.

The report notes that there are only 7 million units available for ELI households, resulting in a shortage of about 4 million units for this cohort. Unlike households in higher income brackets that can rent cheaper units, ELI households cannot rent above their income limits, adding an even greater supply strain on ELI households.

Moreover, there is a dwindling supply of low-cost rental units across the U.S. and Texas. Between 2012 and 2022, available units in Texas with rental costs under $1,000 per month fell by 29 percent. Available units with monthly costs between $1,000 and $1,999 rose by 113 percent, while units with rental costs of at least $2,000 increased by 253 percent (Exhibit 4).

Exhibit 4 Data

Cost per month	2012	2022
Under $600	753,431	451,642
$600-$799	957,934	535,403
$800-$999	719,303	748,669
$1,000-$1,399	689,087	1,150,362
$1,400-$1,999	326,136	1,011,936
$2,000 and over	118,770	419,244

Source: Harvard Joint Center for Housing Studies tabulations of U.S. Census Bureau, American Community Survey 1-Year Estimates.

Note: Figures are adjusted for inflation.

Texas has made significant strides to address the housing affordability crisis, including being the top state for new building permits of privately owned housing units since 2008, far exceeding California and Florida. But there remains much work to improve affordability.

“Simply put, our state, which is generally well regarded for its low cost of living, is facing the pressure of a decline in housing affordability as our population and demand for housing continue to rise,” says Texas Comptroller Glenn Hegar. “This issue remains daunting and key to our continued overall economic health. My office will continue to work with lawmakers to provide support as they work to address this issue and prepare bills for the upcoming legislative session.”