Commercial Real Estate

CRE Opinion: A Strong Texas Economy and the Challenges It Brings

The widespread construction in Dallas-Fort Worth, paired with a labor shortage, makes affordability a top concern moving forward.

Brian Cramer of Newland Communities

What’s not to love about Dallas-Fort Worth if you’re a real estate developer?  More than 624,000 jobs have been created over the past six years in all sectors: retail, industrial, office, hospitality, multi-family, and single-family. Construction is “the norm” for us in DFW (you can’t miss the cranes and orange cones). We look forward to when millennials start buying houses and baby boomers fill active retirement communities.

Today, developers are doing everything we can to keep up with the growth and meet demand.

However, even with all the success and good news in the market, I think it’s a smart plan to look ahead for possible pitfalls. There’s an old saying to plan for the worst and hope for the best. We need more than a “hope for the best” attitude, so that we’re prepared and get the best outcome.

As a residential developer, we anticipate challenges daily: mortgage rates, government regulation and approval processes, and, most of all, affordability. The obvious component of affordability is the labor shortage in the marketplace. Cycle times to develop lots have increased from nine to almost 14 months in certain areas. Build times for homes has increased from four to six months—or more. To be fair, this is driven by several factors including the decrease of the labor supply from the recession and fierce competition among the other sectors. Just look at the major infrastructure projects across North Texas and you know how competitive the labor market has become.

Shortages in skilled and unskilled construction workers are expected to grow. The Associated General Contractors of America reported that Texas-based companies showed that among the positions that were most difficult to fill were roofers (it is no surprise that every company answering the survey reported problems hiring roofers), bricklayers, carpenters, plumbers, electricians, drywall installers, and cement masons.

Training programs and higher pay rates dramatically affect the affordability of construction—especially home ownership.

As the nation debates immigration policy, the number of potential workers is also a key determinant of cost.

A less obvious, but interesting side of the immigration issue is homeownership of foreign-born residents. A large percentage of foreigners come to the U.S. for education and remain here to hone their craft in IT, medical, and business fields to name a few. Along with that came the American dream of purchasing a home. According to a Trulia report, in 1994, the homeownership rate of those born in the U.S. was 66 percent, while that of the foreign born was 48.1 percent, representing a 17.9 percentage point difference. That disparity became wider until the early 2000s to about 20.7 percentage points in 2001. That gap hit its lowest point in 2015 at 15.4 percentage points. In Texas, the gap is even narrower at 6.2 percentage points, which shows how vital immigrants are as a buyer segment to the Texas economy.

Strong growth, increasing demand, and managing affordability are challenges we all want. Solving these issues brings political considerations into play as well. The sooner our country resolves those the better we will be.

I am hopeful about the continued growth of America’s (and Texas’s) economy, the affordability of housing, and the strength of the American dream of owning a home.

Brian Cramer is senior vice president at Newland Communities.