Houston: Is ‘Space City’ Running out of Housing Space?

Houston is home to a complicated housing market. That’s not surprising, considering that it’s the fourth-largest city in the United States, the largest international cargo hub and has a city limit that’s one-third larger than New York City’s.

But the Houston housing market’s most notable feature is the exceptionally wide range in price between two otherwise comparable homes in different ZIP codes. Houston doesn’t top the list of City-data.com’s list of markets with the highest housing value disparity — Atlanta holds that distinction — but Houston is by far the biggest town among the top 100 of 50,000+ residents and the only one with a population exceeding 2 million.

This kind of discontinuity in the market is often linked to social factors that perpetuate poverty, because which side of the divided highway your house sits on is often the only determinant of why it’s worth some percentage less than the same house a quarter mile away. And, since property values on your side of the interstate don’t appreciate as quickly as those on the other side, you can’t grow wealth as quickly as your near-neighbors.

But that unfortunate trend might be reversing in Houston for one very good reason: The city’s population is growing quickly, and its housing stock is virtually standing still.

[Caption (Free via Creative Commons providing credit is given): The Unisphere in Flushing Meadows-Corona Park, a vestige of the 1964 World’s Fair. Credit: Beyond My Ken]

 

 

 

 

 

Caption: Houston’s skyline viewed from Sabine Park. Credit: Jujutacular

A Tale of one City

What’s good for the energy sector is good for Houston, which has long been tied economically to oil and petrochemical industries. As long as the pipelines are pumping crude down toward the Houston Ship Channel, there will be a pipeline of people moving into town.

And, as of this writing, the oil is flowing. As disruptions strike Venezuela and significant parts of the Middle East, America — that is, Texas — has extended its lead as the world’s largest exporter.

Unlike other cities sitting atop the world’s oil patches, Houston has consistently strived to diversify its industrial base. Its nickname Space City comes from the NASA complex that has come to be known as the Johnson Space Center, which houses the mission control room that has overseen every manned spacecraft the agency ever launched. But Houston also has frothy career opportunities in broadcasting, telecommunications, electronics and of course construction.

The closer you get to the Gulf of Mexico, according to one recent report, the better the economy — and housing market — get. “East, southeast and south Houston apartment properties, especially those in areas near the Texas Gulf Coast, are capturing significant interest as a busy port and petrochemical boom drive apartment demand, according to a 2019 Marcus & Millichap study. “Cap rates in these submarkets have averaged 50 to 100 basis points higher than comparable properties in central Houston, as well as those located in areas to the north and west.”

Although 2018 saw a spike in deliveries of new rental units in Houston, they were in large part replacements for housing stock lost in 2017’s Hurricane Harvey, which is a major reason why supply isn’t currently keeping up with demand. “While a tragic event, the impacts of Hurricane Harvey on Houston’s housing market have resulted in a quick snap rebound for the multifamily sector,” the report continues. “With demand continuing to increase as Houston begins its economic recovery, the multifamily sector should see a return to growth and the construction pipeline.”

According to Texas A&M’s data, the Downtown submarket is experiencing the most growth in multifamily units. Sugar Land/Stafford/Sienna, Montrose/Museum/Midtown and I-10 East/Woodforest/Channelview have all seen several recent grand openings, as has Galleria/Uptown. Meanwhile, Braeswood/ Fondren SW, Baytown and Energy Corridor/CityCentre/ Briar Forest have seen a number of large apartment buildings change hands. Construction toward the end of last year was concentrated in Lake Houston/Kingwood, Heights/Washington Avenue, and Montrose/Museum/Midtown.

Judgment Calls

There’s a lot to recommend Houston, but there’s no wishing away the city’s stark economic divide. It has more than its share of ZIP codes with the highest net capital gains, but it also has more ZIP codes than any other American city with the lowest.

There are other livability issues. It’s one of the most humid cities in the U.S. and endures some of the nation’s hottest summers. Ever since Harvey, floodplain maps are being redrawn and flood insurance is becoming a serious expense for homeowners and housing stock investors. Further, if you venture away from the touristy areas, you might find yourself in one of the most robbery-prone neighborhoods north of the Rio Grande — although crime has been declining incrementally since 2006.

Still, Houston ranks up there with other top-tier American cities when it comes to job growth, rising rents and other signs of a healthy metropolis. But in Houston — even more so than almost any other American city — the key to success in real estate is location, location, location.

Houston at a Glance

  • New construction: 4,100 units (2019 projection), continuing a three-year decline
  • Average effective rent: $1,136/mo, up 3% from 2018
  • Median annual household income: $47,793, up dramatically from $42,439 in 2000
  • Occupancy: 89.7% and rising

Sources: Marcus & Millichap, Texas A&M University, City-data.com