2019 was a good year for the real estate industry in the United States. September and October were the two best months for new home sales in over 12 years, with sales up more than 30% year over year in October. Building permits and mortgage applications were also up. The problem is that, despite all of these numbers, they come at the end of a decade of under-building. That means that we’re headed into 2020 with record low housing stock.
On its own, low housing stock isn’t necessarily a big deal. It has an impact on home prices, certainly, but it’s not a crisis. We have to look at other factors, though – specifically the increasing rate and severity of various natural disasters. Looking specifically at Houston, which has seen massive job growth in the last few years and is still reeling from the impact of Hurricane Harvey, we can see a glimpse of the crisis the city could face in the event of another hurricane of similar scale.
A Booming City With Aging Housing
Houston has had a great few years in terms of job growth, with a 117% growth rate over the last three years, despite what should have been Hurricane Harvey’s economy dampening effects. Among the industries in which it leads the way is actually construction job growth, but that doesn’t mean the city is actually seeing a huge amount of construction. What it has seen is a significant growth in the number of potential homeowners and tenants, but its properties are some of the oldest in the country.
Experts on the Houston housing market note that the city has remarkably dangerous housing, particularly in the multi-family sector. That’s because its habitability codes are out of date and don’t cover many of the issues, as well as because a lot of Houston’s housing was built between 1960 and 1979, when construction standards were lower. Because of all this, property managers are struggling to keep up with tenant complaints and many buildings have hidden structural and health issues, made worse by hurricane-related water damage.
Insurance Barriers Add Insult To Injury
Given the risk of serious flooding and storm damage, it would make sense for all Houston property owners to have flood insurance. This would definitely help reduce the impact of floods and allow for repairs and new construction when storms hit land. When Hurricane Harvey hit, however, 80% of Houston homeowners lacked flood insurance, and now many are barred from applying for it. Even those who can may have to pay unmanageable premiums because insurers don’t want to take a risk on the market. The lack of insurance slowed down rebuilding during the initial period following Hurricane Harvey, and has made the available housing stock even more limited going forward.
An Industry Catch-22
There may not be enough housing in Houston – or elsewhere throughout the country – but one thing that natural disasters have done is create big business opportunities in the restoration industry. Unfortunately, this creates something of a conflict of interest among various parties; as construction businesses help build up Houston’s economy, they also have the lobbying power to hold up projects that might reduce the impact of storms on the city as a whole. And because storm damage prevention projects are extremely expensive, it’s easier for the city and state to justify holding back funding for projects that can’t be completed before the next storm cycle. Instead, everyone just waits and after the storm, federal and private money both contribute to rebuilding.
Is There Hope For Housing?
If another big storm hits Houston in 2020 while housing inventory is already so slim, what will happen to the city? There are a number of possibilities and likely all will manifest, at least in part
First, there will be those who can’t relocate. Often low-income individuals, this group has already had trouble accessing emergency funding and may end up in extremely vulnerable circumstances. This was the plight of many low-income Houston renters after Hurricane Harvey, since FEMA funding focuses on homeowners. Many of these tenants run the risk of becoming homeless since rents go up after a disaster, as available housing shrinks further.
Then, there are the disruptors. Various startups may enter the housing space to help make renting easier – more like booking an AirBnB than the current saga that renters experience. In fact, AirBnB itself has helped meet housing needs in various areas impacted by natural disasters over the past year. Like restoration professionals who have become part of the disaster capitalism mix, proptech startups also stand to benefit.
As for everyone else, the fact is that a lot of Americans are already facing the consequences of our affordable housing crisis and a growing number will feel that same pinch. Spending more than a quarter of income on rent is considered unaffordable, and it’s also becoming the norm, even among the middle class. Disasters in areas like Houston will push many residents into unaffordable housing situations.
It’s strange to face down a housing market that seems to be thriving and yet is untenable for so many of its participants, yet that’s precisely the current state of affairs – and Houston is just a case study of larger trends. Faced with such concerns, cities need to carefully consider how they’ll address affordable housing at a large scale. They can’t stop the storms, but they can support their citizens.