Texas, the land of wide open spaces, had long been known for its abundant supply of cheap land. But that might be changing.
Economic growth and an influx of new residents are pushing up the price of land in the Lone Star State, according to research published this week by the Texas A&M Real Estate Center. As a result, land costs are accounting for an increasingly larger share of the price of a home here, while remaining low compared to the U.S. as a whole.
Statewide, 20.4 percent of the cost of a typical single-family home went to the land in 2016, up from 5 percent in 2011, the research shows. In Houston, the share rose to 25.1 percent in 2016 from 7.1 percent in 2011, the steepest incline among other large Texas markets.
The median price of a home in Texas rose from $138,000 at the beginning of 2011 to $230,500 in April, while in the Houston metro area it increased from $136,950 to $240,000, according to the real estate center.
In many parts of the state, a tight supply of homes on the market and a shortage of construction workers — problems that plague large parts of the U.S. — are causing home prices to surge.
Economic growth is drawing thousands of new residents to Texas, but there is a limited supply of land that is available to be developed, with access to all the required infrastructure, said Jim Gaines, the real estate center’s chief economist. He noted that municipal fees, such as impact fees intended to cover the cost of water infrastructure, are also on the rise.
“It’s a common-sense, obvious thing — as you grow the number of people and households, they’re going to need housing somewhere,” Gaines said. “The supply of the land is fairly plentiful, but supply is always relative.”
At 20.4 percent of the cost of a home, Texas land prices are still relatively cheap compared to elsewhere in the U.S., according to Texas A&M’s research. In 2016, the cost of land accounted for 33.5 percent of the price of a typical home nationwide, up from 24.8 percent in 2011.
But Texas has lost some of its edge in home affordability, which has historically helped the state attract residents from elsewhere, according to the research. In 2016, the median price of a home in Texas was 78.8 percent of the nationwide median, while in 2005 it was 61.6 percent.
Land prices are likely to continue their rise while Texas’s economy grows, Gaines said.
In San Antonio, land prices contributed to 15.2 percent of the cost of a home in 2016. In the Dallas metro area, land costs accounted for 29.4 percent of the cost and in Fort Worth, 22.4 percent.
“Until we figure out how to develop and convert that raw developable land into developed land, and to it at a cost-efficient ratio,” Gaines said, “we’re going to have this continuing thing.”
Nancy Sarnoff contributed.