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Rising Galveston rental and real estate prices leave mid-income workers in a housing quandary

GALVESTON

Galveston is famous for reinventing itself. After the 1900 Storm, survivors raised the entire city and built a 17-mile seawall to hold back storm surge.

Islanders managed to defy nature and maintain the architectural charm of their mixed-income neighborhoods. They jacked things up — gas lines, sidewalks, graves and all — filled in beneath and got on with life. The years after 1900 were some of the island’s most prosperous.

But after Hurricane Ike in 2008, a population drain that started in the early 1960s accelerated. Galveston’s population dropped from a peak of 67,000 to 47,000 by 2010. It has edged upward since, but only slightly, to about 50,000.

Since Ike, the island has increased tourism — witness bumper-to-bumper traffic on Seawall Boulevard and Harborside Drive on any given Friday. The University of Texas Medical Branch, threatened with closing down, was rebuilt and rejuvenated. The cruise ship industry has risen to prominence at the Port of Galveston.

And since Ike, changes on the island have altered the housing landscape.

Ike damaged a huge number of island homes, some beyond repair. All public housing was damaged so badly officials decided to knock it down. It still has not been replaced in full.

Owners with insurance rebuilt, some of them improving their homes and sprucing up run-down neighborhood blocks.

Others fled by necessity to the county mainland and beyond. Some came back and many didn’t.

After Ike, rents skyrocketed, changing the public perception that Galveston was an affordable place to live.

Galveston had long been a place where a majority of residents rented rather than owned their homes, and that didn’t change. Before Ike, 56 percent of Galveston households were renters; now it’s 57 percent, compared with 40 percent in the Houston region, according to the U.S. Census Bureau.

At the same time, “For Rent” and “Vacation Home” signs proliferated in Galveston as short-term rental units crept across the city.

After Ike, the need for service workers to support tourism and provide basic services increased, driving a need for affordable rents. In 2018, about one in six of all island jobs were in the accommodation and food services industry, paying an average $19,246 a year, compared with an average wage of $47,734 across all industries, according to the Bureau of Labor Statistics.

Galveston became even more a commuter city than it was before, a place where the population doubles every day when workers drive across the causeway for work, then leave at night for their homes on the mainland.

Housing prices for homeowners in Galveston increased by more than a third in the decade after Ike to a median price in 2018 of $207,800.

Meanwhile, up north in the county, subdivisions sprouted and populations increased exponentially.

These are the housing narratives city leaders, real estate experts, neighborhood organizations, employers and nonprofit planning groups, a decade after Ike, are hearing and attempting to understand, adjust to or rectify.

They are the narratives residents live every day.

WHAT’S NEXT?

Out of this housing narrative, a community-wide conversation has arisen about whether these trends determine what Galveston will be in the future or whether the housing situation can be set on a different course.

The nonprofit group Vision Galveston spent most of last year talking to island residents about these and other issues of livability and sustainability on the island. Affordable housing is the group’s first focus as it moves into 2020, attempting to spur development and redevelopment of low- to lower-middle income housing on the island.

“We’ve hired a Houston firm to dig into the housing picture to give us real data to work with,” said Keath Jacoby, project manager for Vision Galveston. “What do we need that we don’t have? We need more knowledge from the people who work here and the problems they face with housing. We need to address the problems of people who work here and want to live here.”

Service workers to support tourism, school district employees and public workers are at the top of the list of those who appear caught in the gap of what they can afford and what’s available, but that’s anecdotal, not a data-based fact, Jacoby said.

“We want to get a more comprehensive picture of what exists, who owns it, how much it costs, all of that,” she said. “Then the idea is: can everybody agree that this is the reality of housing stock and community space and what can we do to fix it?”

Vision Galveston will work in coming months with city leaders as it polls workers and employers, civic groups and residents across a wide range of income levels about why they do or don’t live here and other housing concerns, Jacoby said.

UNIQUELY GALVESTON

Galveston’s housing landscape is complicated by some factors that reflect the island’s uniqueness. Other factors place Galveston in the same housing pinch as the rest of the country.

In Galveston, lots of older housing is in need of modernizing and extensive repair after decades of abuse by natural elements, neglect or abandonment. The problem has persisted over decades.

Meanwhile, prices for new homes have risen significantly in Galveston, driven by the cost of building materials, increasing insurance costs and strict flood-protection regulations, said Lesley Sommer, association executive of the Galveston Association of Realtors, the trade group that owns and operates the Multiple Listing Service. Sommer compiles and analyzes data about the real estate market for local agents and Realtors.

The median price of a home in Galveston isn’t necessarily higher than elsewhere, but the price per square foot of property on the island is higher than average, Sommer said. A home that sold for $207,800 in Galveston in 2018 translated to $202 per square foot, higher than the $120 median list price per square foot in the Houston metro area, according to Zillow.

More square footage per dollar, bigger lots and, generally, more bang for the buck often drives potential homeowners to the mainland, Sommer said.

The problem of renting is equally as complex.

Higher rents consume more of residents’ disposable and essential incomes, affecting local economies and stressing family budgets, according to studies by the Real Estate Center at Texas A&M University. Generally, people should be spending no more than 30 percent of their income on rent or a house payment each month, and with stagnant wages and rising housing costs, that becomes harder to do.

Tight rental markets in Galveston and other parts of Texas are driven, at least in part, by the rise of Airbnb and other online vacation rental companies, according to the center. When many former long-term rentals are converted into short-term vacation rentals, availability and price become a simple matter of supply and demand — fewer long-term rentals available means landlords can demand higher rent prices.

Changes in the Galveston housing landscape inevitably include the city’s large stock of historic homes, a distinguishing feature of the island. Many of those homes, from tall Victorians to small raised cottages, historically belonged to middle-class working families and were passed down from generation to generation until they became too expensive to maintain or the property tax bill became too large to handle.

After Ike, in addition to lower-income people who lost their publicly subsidized housing and were forced to live elsewhere, a generation of the island’s lower-income residents were displaced from their family homes because the houses were in such bad repair the owners couldn’t afford to keep them.

In some cases, homeowners signed over the deeds to their property to unscrupulous investors for cash at well below market value, leading to the loss of possibly the only financial asset a family owned, said Galveston attorney Tom Dickens who has represented some of these families in court.

‘GOOD LUCK’

For young families starting out, the possibility of buying a home on the island can seem daunting, Sommer said. Or maybe the idea of becoming a homeowner is just no longer a priority, he speculated.

“What is the availability of affordable homes to buy and what does entry-level mean anymore?” he said. “Entry-level for a UTMB health professional is one thing. To be a minimum-wage worker and afford housing on Galveston Island or in the Houston-Galveston metropolitan region? Good luck.”

Recognition of the need for more affordable housing is widespread throughout the county, something Sommer and other Realtors frequently talk about, he said.

“The piece of it that’s hard in Galveston is that, generally speaking, in suburban markets, houses listed for $100,000 to $150,000-plus, it’s understood that they’re ready to move in,” Sommer said. “Here, a house might need another $150,000 of work.”

Another factor recognized nationally, the rise of investment groups buying up housing and turning it into rental property, has not officially been quantified as a driver toward more renters and fewer affordable homes to buy in Galveston, but could be part of the mix, Sommer said.

“It’s a very hard thing to track,” he said. “Unfortunately, we don’t have that data. I wish I did.”

Sommer has worked with Vision Galveston and said the comprehensive study of housing needs and realities will be a welcome source of data for the real estate industry.

“One of the things they’re looking at is who is purchasing existing homes in Galveston and whether we have become a place where absentee investors have bought up much of the housing stock,” he said.

The national trend is well established. A CoreLogic study this year showed that private equity firms, real-estate speculators and investors made up more than 11 percent of U.S. home buyers in 2018, nearly twice the levels before the 2008 housing crash. Investors bought one in five homes around the country in the bottom-third price range in 2018, according to the study.

In Galveston, where the housing crash came at the same time as Hurricane Ike, basically stripping the island’s housing stock down to bare bones prices — a bonus for investors with cash to fix and flip homes — that trend made much sense and, in some cases, hastened the fixing up of homes abandoned by homeowners after Ike and in need of major renovation. But many of those fixed-up houses became short-term vacation rentals, not full-time housing.

Sommer has witnessed a shift in that trend, possibly predicting a change in what’s afoot, he said.

“What I’ve seen were houses that needed a lot of investment, an investor came in and fixed them up then put them in the short-term rental market,” he said. “But eventually those houses went back into the middle-income real estate market for sale. It’s a new model of flipping, using the short-term rental market first, then selling.

“We’ve actually had that model for many years here in Galveston,” he said. “It was called a beach-house rental. Someone rented it and liked it, then eventually bought it. The difference is now you’re seeing that happen with the older homes behind the seawall.”

NOT HOMOGENOUS

Galveston has always been a resort town that, in many ways, wasn’t geared toward traditional starter homes or middle-class affordability. But it also has always been a resort town that’s a real community with a diverse population, said Jacoby, a Galveston native and Ball High School graduate who left the island, then came back to raise her family. She has three young children.

“Why has that changed in 2020?” Jacoby asked. “We need a diverse population here. That’s what always made Galveston a special place. It’s not homogenous. And I feel sure there are enough people who want it to be both rich and diverse.”

Galveston faces many challenges, like being a barrier island subject to hurricanes and rising seas. The overall cost of living is expensive. It’s not like most other places, but it has abundant natural and historic assets, “plenty of clay to work with,” Jacoby said.

“It’s the perfect place to try out some risky projects, to see if they’ll work. Why would you not want to do whatever you can to make this place more livable for everyone?”

Not everything about the housing conundrum is a bad thing, Sommer said.

“For me, the best thing in Galveston right now is that there are so many people concerned about it.”


News
For many League City residents, working means commuting

LEAGUE CITY

Chris Stevens moved to northern Galveston County about 25 years ago, and, despite jobs requiring him to commute as far as 60 miles each day, he’s never been tempted to leave, he said.

“You drive where the money is,” Stevens said. “League City is a great place to live, but there aren’t a lot of good, high-paying jobs, unless you’re a doctor, or something like that.”

Stevens’ situation is common in a region where traditional boundaries of cities and counties don’t mean much for commuters.

“The whole Houston metroplex is a traveling job circus,” he said. “That’s just how it is.”

About 60 percent of the city’s working population commutes to the northwest side of Harris County each day to work, Mayor Pat Hallisey frequently notes.

The statistic is important, to Hallisey and city administrators, because it points to the overarching problem they must address in the city’s near future — changing the perception of League City as a bedroom community.

While that statistic is staggering, it does not begin to tell the whole story.

“Some 85 percent of League City’s full-time employee residents drive outside League City to work every day,” said Scott Livingston, the city’s director of economic development. “It affects the economic development strategy of League City in a significant way.”

The city needs to recruit more primary job providers to the region if administrators want to cut down on how many commuters leave the city limits each day, Livingston said.

“We know that within a 45-minute drive time of League City, there are over 900,000 highly trained professionals in industries like aerospace, professional services, maritime logistics and petrochemicals, among others.

“But the idea is that, instead of all of those migrating elsewhere, how can we, as a city, attract more local quality primary employers?”

City administrators are working toward change, but the perception for at least the past 20 years has been that League City is a bedroom community, Livingston said.

Clear Creek Independent School District is League City’s biggest employer, providing jobs to more than 5,300 people in 2018, according to documents provided by the city. American National Insurance Co. is the second-largest, with 715 League City employees.

The University of Texas Medical Branch, which has made inroads into the northern part of the county in recent years, also finishes near the top of the list of biggest employers, along with League City itself, Livingston said.

While League City certainly has its task cut out for it to change the perception, there is some precedent among Houston-area communities for doing so, Livingston said.

“A bedroom community is somewhere people live, but work somewhere else,” Livingston said. “But a suburban community, by my own casual definition, is a community where people not just live and sleep, but also work there.

“That’s where we eventually want to go. And if you look at somewhere like The Woodlands, or Sugar Land, a lot of the cities that have done well — there are always exceptions — they eventually evolve with more local primary employment.”

City leaders have been exploring possibilities for more job providers for many years, Councilman Larry Millican said. Many residents who commute previously worked for NASA and switched to the oil and gas industry when fewer federal dollars began flowing into aerospace.

“NASA was such a job-driver here in the 1970s and 1980s,” Millican said. “Then, when things started shifting, people got tired of guessing if it was going to get funded or not.”

Now most of those workers commute to the Energy Corridor, off Interstate 10 near Katy, Millican said.

“They just enjoyed the lifestyle in League City, and they’re to the point where they’re not thinking about moving,” Millican said.

Such has been the case for Stevens, he said. And, in Stevens’ mind, it’s important to remember just how little city limits mean in the region.

Millican and Livingston spoke highly of the possibilities that might soon come when the Texas Department of Transportation finishes projects such as the Grand Parkway through Galveston County.

The Grand Parkway, or state Highway 99, is an unfinished loop around the greater Houston area under construction since 1994. Segment B of the project calls for a highway stretching from Interstate 45 at state Highway 646 to state Highway 288 in Brazoria County, officials said.

But for Stevens, it’s the sense of community more than the logistics that mean the most moving forward.

“I love League City,” he said. “I love my mayor. I love my neighbors.”


News
Looming pollution rules mean changes for local ships

As part of a worldwide effort to reduce emissions that undermine air quality, operators of the freighters, tankers, cruise liners and other large maritime vessels calling at local ports must clean up their acts by the new year.

A set of regulations known as IMO 2020 has shipping lines here and at ports around the world turning to a small number of solutions to reduce the level of sulfur dioxide, a byproduct of burning marine fuel that contributes to air pollution, in exhaust plumes billowing from vessel smokestacks.

Approved in 2009, the new rules are set to go into effect Jan. 1 and come at a time when some ports, including Galveston’s, are talking about ways to be cleaner and more sustainable.

But as the deadline nears, environmental groups argue some of the solutions are better than others and are especially cool to those favored by the cruise ship industry, a major player at the Port of Galveston.

HOW MUCH IN EMISSIONS

Cruise ships idling at the Port of Galveston, oil tankers berthed at the Port of Texas City and container ships sitting off Bolivar Roads in the Gulf of Mexico awaiting their turn in the Houston Ship Channel all are pumping fuel through their engines and emitting pollution — sulfur dioxide, carbon dioxide, nitrogen oxides and volatile organic compounds — into the air.

The chemicals often are linked to climate change and bad health effects such as asthma and cardio pulmonary disorders, and they’re not just a local problem.

The global maritime industry emits nearly 940 tons of carbon dioxide annually and is responsible for 2.5 percent of all global greenhouse gases, according to one calculation by the European Union.

There’s no exact calculation of the emissions from local ship traffic, said Adrian Shelley, the director of Texas office of Public Citizen, a public health advocacy group.

If you’re comparing seven cruise ships in the Port of Galveston to a fleet of heavy trucks, emissions from the port could equal anything from between 10 and 1,000 trucks, depending on what kind of fuel the hypothetical trucks are using, Shelley said.

Some studies show even a small number of cruise ships in Galveston can cause eye-raising amounts of pollution, Shelley said.

“The seven ships in Galveston are emitting as much pollution in a year as a day’s worth of pollution from all of the cars and trucks in the greater Houston region,” she said.

CHANGES COMING

The new rules imposed by IMO 2020, named after the International Maritime Organization, a branch of the United Nations, require maritime operators to reduce the amount of sulfur dioxide they produce.

They have three options. They can use new low-sulfur fuels, switch to liquid-natural gas, or continue using higher sulfur-content fuels and install devices called scrubbers to clean sulfur out of exhaust plumes.

The rules will apply to more than 50,000 merchant ships around the world that consume more than 4 million barrels of marine bunker fuel a day, according to the Reuters news service.

While many shippers are preparing to switch to the lower-sulfur fuels, the cruise industry plans to meet the new regulations by using scrubbers, rather than switching to low-sulfur fuel, industry sources said.

Even at $5 million a ship, scrubbers are cheaper than using the new fuel, those sources said.

The most common type of scrubber — know as open-loop — mixes seawater with exhaust gas, creating a slurry that’s filtered onboard a ship. After it’s filtered, the used water can be discharged at sea.

As of this summer, 77 Carnival Cruise Lines were equipped with scrubber systems, and the company aimed to have 88 ships equipped with the systems by 2020, according to a website created to share information about the company’s efforts to be IMO 2020 compliant.

Royal Caribbean announced plans to retrofit its ships with scrubbers in 2014.

More than 3,000 ships worldwide have been equipped with scrubbers, according to the Clean Shipping Alliance, an industry group formed in 2018 to advocate for the use and environmental safety of scrubbers.

Scrubbers and low-sulfur fuel are equally effective and environmentally sound methods of complying with the 2020 rules, according to the alliance.

Environmental groups disagree with that claim, however.

Scrubber technology is a “cheat” that lets shipping lines get around making real emission reductions, said Kendra Ulrich, senior shipping campaigner for the environmental group stand.earth.

“They’re turning an air-pollution problem into a water pollution problem,” Ulrich said. “They’re cheating on the standards to try to comply with the bare minimum, without actually trying to clean up the ship.”

Ports in Connecticut, Hawaii, Ireland, Norway, Malaysia, to name a few, have banned ships using open-loop scrubbers from dumping the filtered waste in their waters.

Galveston’s port has no such rules, said Brett Milutin, director of operations.

Ship operators wanting to discharge into the Galveston Ship Channel must have permission from the U.S. Coast Guard, however, Milutin said.

SWITCH TO CLEANER FUELS

Scrubbers are the preferred option for cruise lines to meet IMO 2020, but not necessarily for the rest of the maritime industry.

Refineries around the world are upgrading their facilities to produce lower-sulfur fuel ahead of the new standards. That includes most of the refineries along the Gulf Coast that produce heavy fuel oil.

The expected demand for lower-sulfur fuel has even spurred development of a refinery on the Galveston Ship Channel, which isn’t historically known as a refining port.

Texas International Terminals, a Galveston company, is building a 50,000-barrel-a-day processing plant to produce lower-sulfur fuels. The company is betting on high demand for low-sulfur fuels in coming years, said Todd Sullivan, company president.

“Our observation is that a lot of the cargo shipping market is going to the low-sulfur option,” Sullivan said.

The third option, switching to liquid natural gas, is difficult because there’s a lack of fueling facilities and a dearth of ships powered by natural gas.

That might change, however, because some of the high-profile companies that call at local ports have announced plans to build more LNG powered ships.

Carnival Corp. launched its first LNG-powered cruise ship in 2018, through its AIDA Cruise Line brand, and plans to launch 10 more across five brands by 2025. Royal Caribbean plans to build three LNG-powered Icon-class ships by 2025.

With that in mind, the Port of Galveston has put some thought into where it might put a fueling station for LNG-powered ships in the future.

In its new 20-year master plan, published in a final draft form in early November, the port suggested an LNG fueling facility could be built on Pelican Island, on the north side of the Galveston Ship Channel.

“LNG will be a critical fuel source moving forward for cruise and cargo vessels and could provide a strategic initiative for the port in the mid-term,” according to the master plan.