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Real Estate Trends

Examining the Houston Housing Market in 2018

Houstonians take a great deal of pride in their resilience in the face of hurricanes and major flooding. In fact, a large portion of the city’s residential and commercial growth can be attributed to its open defiance of nature—namely in the form of its lenient building regulations and accommodating zoning laws.

In the aftermath of Hurricane Harvey, many identified these factors as reasons for the immense amount of destroyed properties and debilitated infrastructure. Prior to the storm, though, the ability to develop housing anywhere—relatively cheaply—lead to a huge economic and population boom for Houston over the past decade.

According to census data, the city’s population had grown by nearly 10% from the spring of 2010 to July 2016. This provided an ample housing demand that, when paired with the constant push for new construction, created a steady trend of housing market growth. Non-Houstonians would anticipate that over 110,000 flooded homes and nearly $30 billion in infrastructural damage would immediately halt that trend, but the promise and precedent of Houston’s disaster resilience will likely carry the city’s housing market through much of 2018.

A Double-Edged Boon for Unflooded Residents

Historically, hurricanes raise home values in the state, often several years after the storms make landfall, and Harvey’s wake will offer similarly heightened valuations for unflooded properties.

Since Harvey displaced so many area natives—of varying socio-economic backgrounds and purchasing power—there’s a huge spike in demand across several property value tiers, with the exception of houses priced below $150,000, likely because of the relatively lower ROI yield from flipping these types of properties. Even still, October home sales in Houston outpaced those within the same period in 2016 by nearly 7%

Unflooded Houstonians will see impressive growth in their home value and equity, but reinvesting that capital into their homes, by hiring bathroom remodelers or reinforcing windows and doors, will be difficult due to labor and material shortages caused by the ongoing effort to rebuild the highly devastated areas of the city. These issues will only be exacerbated by residents in flood-prone areas hiring contractors to elevate their homes past FEMA safety projections or, at the very least, the highest-recorded watermark from Harvey.

Housing Competition Could Underline a Wealth Gap Among Displaced Houstonians

The most consequential question of Houston’s rebuilding effort is how it will accommodate for its displaced residents. Since Harvey, there’s been a surge in apartment leasing as flooded Houstonians look for temporary dwellings while their homes are rebuilt or they await insurance payouts.

Because Mother Nature doesn’t discriminate based on economic status, though, poor and middle-class households are competing against one another for these spaces. Those that can produce the leasing overhead the quickest will hold the advantage, which means those that need more financial accommodation may have to settle outside of the city’s more developed and prospering neighborhoods.

There’s also the added strain of outside investment. Shortly after Harvey, out-of-state investors began inquiring about properties to buy low and sell high, so there may be situations where Houston natives are left with fewer housing options because of outside “occupants” that drive up the purchase and rental rates of certain properties.

Hope Persists in Houston

Houstonians are no strangers to flooding, but the unprecedented nature and destruction of Harvey presents a unique and formidable set of challenges—both for the city’s overall rebuilding effort and the task of upholding the lofty expectation of an impressive housing market rebound.

That rebound will be felt immediately by a lucky few, but most will have to wait and see. Despite intermittent labor shortages and slow property rehabilitation efforts, many local and out-of-state home buyers are encouraged by the promise of incoming federal funding and private insurance money. Long-time residents may even see this all as part of the larger cycle of disaster, relief, and recovery.

It seems counter-intuitive to see so much investment confidence following such a destructive and nationally publicized natural disaster, but there’s simply too much belief in the city’s economic viability to slow population and development growth. The question then becomes how the city constructs enough housing supply to meet such resilient demand, while also not leaving itself vulnerable to another 500 or 1,000-year flood event—because, as this past hurricane season demonstrated, those numbers are just that.