More than 18 months after COVID-19 rattled the globe and, by some accounts, sent the price of everything, including housing, skyward, the market is finally showing signs of cooling.
Lumber prices, although still high compared to pre-pandemic years, have declined. Housing inventory growth statewide has increased from about one month in June to roughly 1.5 this fall, according to the Texas A&M University Real Estate Research Center.
There are indications a wild buying blitz might be nearing an end, or at least a flattening curve.
But that’s small comfort to leaders in places like Galveston, where high housing costs have for decades eroded the population of middle-class residents, blocked young families from settling on the island and put a heavy burden on low-wage workers essential to its service industry economy.
Experts agree the private market, on its own, won't build housing affordable to most middle-income families — it’s just not profitable. How to fill that gap, however, is a point of debate.
Some cities created zoning rules to encourage denser development, while others helped developers through subsidies or tax breaks.
Policies and public investment meant to encourage development of affordable housing have been met with bitter opposition in some communities, however.
Experts and leaders seem to agree that attempting influence the market forces that determine how much a dwelling should cost is tricky, complicated and fraught with risk of failure and abuse.
How deeply governments should get involved, and even whether they could solve the problem, is a matter of hot debate.
SUBSIDIES: SLIPPERY SLOPE?
The private market is never going to build affordable housing on its own, said John Paul Listowski, District 5 councilman and owner of Lux Custom Homes.
The return on investment just isn’t there for lower-priced homes, he said.
"'Subsidy’ is a word that a lot of people don’t like, but it is what it is,” Listowski said. “It lowers the cost.”
But local leaders have been reluctant about giving private companies breaks to build houses.
Jim Yarbrough, who was Galveston's mayor from 2014 to mid-2020, argues it's theoretically possible for government to improve the situation, but it's rarely successful.
“I think that’s a slippery slope,” Yarbrough said.
The government must ensure subsidies actually get passed on to consumers and that subsidized homes are sold to actual residents, not investors who'll flip them at higher prices in a few years, he said.
“I just think it’s too hard to target good intentions,” Yarbrough said. “You can structure a program to make it happen. But there are just too many loopholes, too many ways for people to circumvent it and you don’t get the desired result.”
QUALITY OF LIFE
Current Mayor Craig Brown isn’t a big fan of subsidies either, he said.
“I just think it's not the role of government to be competing with private industry,” Brown said. “The city’s role is a facilitator bringing the parties together to see what would be the best approach.”
Brown, instead, sees improving Galveston’s quality of life as key to attracting residents.
“The city needs to put a lot of attention to security, safety, cleanliness, green spaces and parks, transportation,” Brown said.
The city should work to provide the best possible services and amenities, which will encourage more people to settle on the island, Brown said.
Some cities, however, think it’s government’s role to get involved, said Roger Arriaga, executive director of the Texas Affiliation of Affordable Housing Providers.
“There’s never been enough resources at the state or federal government to provide for the development of affordable housing at the state level or nationally,” Arriaga said. “Cities are starting to take matters into their own hands.”
Some cities, for example, have issued general obligation bonds to build affordable housing, he said.
San Antonio voters are preparing to decide on a $1.2 billion May bond proposition that could include about $250 million for affordable housing initiatives.
Denver leaders in 2016 dedicated a portion of impact fees charged on new development to a $150 million housing trust fund. At the time, the city set a goal of building 6,000 homes for low- to moderate-income families by 2026.
'DROP IN THE BUCKET'
More than government subsidies would be needed to solve the problem, however, said Luis Guajardo, urban policy research manager at the Kinder Institute for Urban Research at Rice University.
“The public subsidy side, it’s not enough,” Guajardo said. “It’s a drop in the bucket. The supply of what’s available is very, very small compared to the need.”
Still, public investment might help at a larger scale, he said.
“We certainly need to see more investment from the federal and state government,” Guajardo said. “There’s a market failure here. The market is not meeting that demand.”
Rather than investing public money, many cities instead have used zoning and planning regulations to make it easier for denser housing developments to come into the market.
Higher and denser building means more homes on smaller footprints and more supply to drive prices down. But such plans frequently meet intense resistance for that very reason — people who've already invested in nearby real estate object for fear the value of their property will fall, and because they fear increases in things including traffic and crime.
Austin, where the median home price is $550,00, has spent a decade trying to rewrite its land development regulations to accommodate denser development in response to runaway population growth and housing costs.
Sometimes called CodeNEXT, the program prompted a 2019 lawsuit from a group of Austin residents opposed to the land development rewrites. They claimed the city hadn’t properly notified residents. Although a district court judge ruled for residents in early 2020, the case still is tied up in appeals.
Minneapolis, where the median price is $325,000, gave a sweeping welcome to denser housing in 2018 when the city council eliminated single-family zoning altogether. The move meant every neighborhood could have structures with as many as three units — triplexes.
The change also was seen as a victory for racial equity, because minority groups had traditionally faced more barriers to home ownership than white families.
Other cities, including Portland and Seattle, made similar changes.
Galveston, where the median home price has reached $345,944, outpacing the rest of booming Texas, is no stranger to zoning battles. A 2015 rewrite of the city’s land development regulations was long and contentious.
The city council in 2018 approved a ban on duplexes in historic districts, a move supporters said would maintain the character of historic neighborhoods. Opponents argued the ban stepped on private property rights and would make the city's housing problems worse.
Fear of renters and dense housing — sometimes linked to racial stereotypes — are pervasive, said Andrew Aurand, vice president for research at the National Low Income Housing Coalition.
“There’s pretty predominant opposition to multifamily housing in some communities,” Aurand said. “I think that’s just based on negative perceptions about renters.”
Some residents might oppose changing zoning regulations because they prefer bigger lots that make neighborhoods feel more traditional, Brown said.
Galveston might need to explore changing its zoning rules if it wants to get serious about tackling affordable housing, Brown said.
“I’m not saying they should be changed," Brown said. "But that’s something the community as a whole really needs to look at."
Such changes might include easing setback requirements or policies that allow building right up to a property line, both of which allow more density, he said.
CITY BUILDING HOUSING
City affiliated groups over the years have made some tangible effort toward increasing the stock of affordable housing.
Galveston Housing Authority has sponsored at least two single-family developments for low- and moderate-income buyers.
And Galveston Housing Finance Corp. and the Galveston Property Finance Authority — have for years bought or built houses for sale at-cost. It’s a house-by-house attempt to alleviate affordability problems.
Barton Square at 73rd Street and Avenue N 1/2 was built 20 years ago under these programs to attract middle-income families and have been touted as successes by city leaders.
Jinping Yang took advantage of a good price when he and his family bought their Barton Square home in 2001, he said.
Yang, who is now retired from the University of Texas Medical Branch, still lives in the house 20 years later.
He was glad to get into the Barton Square home and has watched home prices rise across Galveston. Yang owns a few rental properties to help out with his retirement expenses and the value of those homes has shot up, he said.
That’s true across Texas, he said.
“The house prices rise because some people come from New York, California,” Yang said. “Here it has steadily increased in price.”
He has seen friends move off the island to mainland communities, where they can get a little more house for their money, he said.
“It’s the same price,” Yang said. “They can get a big yard, new house.”
HOUSE BY HOUSE
Barton Square was a large-scale project, but the boards also focus on building single homes or getting vacant homes back on the tax rolls, said Patricia Bolton-Legg, president of the finance corporation and finance authority.
Acquiring the land and titles and constructing homes can be a long, complex process, especially when trying to acquire vacant lots from out-of-town owners, she said.
“Then you have convoluted ownership and it takes a lot of time and effort to clear those titles,” Bolton-Legg said.
Renovating old homes is beneficial to the whole neighborhood and puts local residents back into houses in a city where many property owners aren't local, she said.
“The neighbors loved it,” Bolton-Legg said.
The Galveston Housing Finance Corp. and Galveston Property Finance Authority have built about 100 homes during their existence, Bolton-Legg said.
Robert Cox, a nurse at the medical branch, also took advantage of a midtown house built by the finance corporation and authority when he moved to Galveston in 2016 from Oklahoma.
Cox spent a year looking for homes in Galveston, where the cost per square foot was higher than in Oklahoma, he said.
“When we moved, we were not really prepared,” Cox said. “This house was at the right place at the right time. We were not quite sure what our financing would allow.”
Cox purchased the home for about $143,000, he said. That was about $100,000 below the median price for the year.
“The challenge, really, that Galveston has — and it’s not a new one — is that there needs to be a decision made that there needs to be a middle class living on the island — if that is in fact what they want,” Cox said.
"GEM OF A CITY"
The two boards largely have been inactive since late 2019, when the city council decided to combine them with the Galveston Redevelopment Authority. In the past, the redevelopment authority oversaw tax increment reinvestment zones, or TIRZs, districts meant to encourage developers to invest in specific areas by paying them back for public improvements, like streets and sidewalks. The city has been phasing out TIRZs.
That inactivity has been frustrating because the city needs to put emphasis on middle-income housing, Bolton-Legg said.
“This is such a gem of a city, Galveston,” Bolton-Legg said. “It has so much potential to be a place that everyone wants to live, not just the rich, not just the poor.”
Aside from a few projects like Barton Square, massive subdivision construction would be a difficult prospect for the city just because of the land needs.
Locked to the limits of the island, the city can’t attract sprawling subdivisions like mainland communities, said Jeffrey Sjostrom, president of the Galveston Economic Development Partnership.
City leadership at times has bounced the idea of collecting property parcels to create a land bank, which could be used either for commercial or residential development. Like El Dorado, a land bank promises clear benefits, but the tract of land feasibly large enough has been elusive.
Except for the West End, Galveston just doesn’t have large swaths of undeveloped land, Yarbrough said.
“We’re not League City,” Yarbrough said. “We’re not Friendswood. We’re not Texas City. We don’t have a lot of space to have big multitrack subdivisions to have developers come in.”
Those large subdivisions, by virtue of mass production, deliver cheaper housing, he said.
Instead, the focus has shifted to infill development.
The economic development partnership has explored the idea, Sjostrom said.
“We’ve looked for a number of financing options,” Sjostrom said. “We continue to explore infill redevelopment opportunities. We haven’t found the magic pill.”
Galveston has lots of houses that are vacant or behind on taxes or in disrepair, after an owner died or moved away, Bolton-Legg said.
“Let’s focus on the little parcels of land we do have identified,” Bolton-Legg said.
Some community groups have been working to find places for infill housing or to renovate broken-down houses for resale.
Community planning group Vision Galveston has a development arm called Build Galveston focused specifically on affordable housing, Vision Galveston CEO Christine Bryant said.
If it was profitable for the private market to build affordable housing, it would, Bryant said.
“And it's not cost beneficial,” Bryant said. “So, it takes an organization like Build Galveston to step in to look at all the resources available and make it attractive for private sector development.”
That could mean programs that reduce a developer’s costs but the organization still is in its infancy phase and nothing is set, she said.
“I don't know what those will be,” Bryant said.
QUALITY OF LIFE
Housing challenges will persist, but eventually, the out-of-control popularity of the Texas market will slow down and demand for homes will slow with it, Arriaga said.
“There’s a limit to that economic vitality and that limit has to do with the binding constraint of how much housing is available,” Arriaga said. “At some point, that limit will be reached and people will stop moving here. At some point, we get to the point where the housing doesn’t offset the income they would generate.”
That won’t stop the crisis, however, he said.
The city might not be able to solve the housing problem, Brown said. As more people move to the area, demand will continue to stay high, dragging prices up, he said.
“I do envision 10, 15 years from now still having concerns we have today,” Brown said. “I think it’s just the nature of our island that those issues will always be with us. Affordable housing is an issue in every community in the world.”