Last week, the Wall Street Journal released an article titled, “Once America’s Hottest Housing Market, Austin Is Running in Reverse.” To the residents of Austin, this is great news—finally, home prices may be coming down.
But a dip in home prices is only a drop in the bucket of housing affordability. Housing prices may be going down slightly, but are homes now affordable?
The sad fact is that, in Austin and throughout Texas, the answer is a solid “no.”
The same day that the Wall Street Journal released its article, we also released our paper on housing affordability, which contains a discouraging dose of reality for prospective homebuyers.
Even though list prices may be declining, they’re declining from an incredibly high place, meaning that housing prices are still significantly higher than historical norms. In fact, over the past four years, median housing price in Texas has outpaced the income of Texas families.
Part of the reason for high housing prices is the fact that local zoning ordinances and regulations add to the cost. Simply put, the zoning ordinances make it harder to build homes that the average Texan can afford. Large lots with large houses cost large sums of money. The bottom line is that local government regulations are pricing entire generations out of the housing market.
Additionally, more goes into housing affordability than the house price. In many parts of Texas, property taxes take up more of the monthly payment than the loan does. Property taxes may seem low at a statewide average of 1.66%, but that average places Texas as having the 6th highest effective property tax in the nation. No wonder homeowners are struggling to make payments!
But it’s not all doom and gloom—there are some concrete things that the Texas Legislature can do to relieve the burden on taxpayers. The first, and most obvious, is to provide additional property tax relief. Texas can do this by directly buying down property taxes, but it can also help homeowners by changing the Voter Approved Tax Rate Election (VATRE).
Currently, cities and counties can raise taxes by up to 3.5% without an election. If they want to raise taxes by more than that, then they need to hold an election—this is the VATRE.
So, many cities and counties simply raise taxes by 3.49% every year to avoid having to hold an election.
If the Texas Legislature set the VATRE to 0%, then anytime cities wanted to raise taxes—even by 0.1%—they would need to ask the taxpayers for permission. This ensures that taxpayers are consulted whenever their taxes are raised.
On home prices, however, there are not many solutions for the Texas Legislature to consider, but there is still something they can do—block the local ordinances and regulations that make it harder and more expensive to build homes. This won’t directly lower prices, but soon enough, as housing supply increases, we’ll probably see relief on the prices as well.
If the Legislature takes up all these reforms next year, then we’ll truly see a reversal in housing affordability—and we’ll be able to say that all of the Texas housing markets are running in reverse.