The Impact of Pandemic-Era Migration on Housing Affordability in Texas

Texas, long regarded as an affordable place to live, is currently grappling with rising home prices that threaten the affordability that once defined the state. The surge in housing costs is largely attributed to the influx of residents from California and other more expensive regions—a migration trend that has reshaped housing dynamics in the Lone Star State.

In 2021, the California-to-Texas relocation route emerged as the most popular interstate move in the United States, with approximately 111,000 individuals, equivalent to roughly 300 daily, making the transition. This massive migration has had an adverse impact on affordability, leading to concerns about the Californization of Texas.

A recent analysis by the Federal Reserve Bank of Dallas delved into housing affordability in Texan cities, gauged by the proportion of housing units within the financial reach of families earning the median income. The findings revealed a significant decline in housing affordability in several Texan cities. In San Antonio, for instance, nearly two-thirds of homes were deemed affordable to median-income families at the beginning of 2014. However, by the end of 2022, this figure had dwindled to less than one-third. A similar trend was observed in Dallas, Fort Worth, and Austin, with a slight upturn noted earlier this year.

The adverse impact of surging prices is particularly evident in cities that have traditionally been considered havens for government workers, educators, and other middle-class professionals seeking affordable housing. In Raleigh, North Carolina, for example, the percentage of affordable homes plummeted from 73% in the first quarter of 2014 to just 40% in the second quarter of this year. Sacramento, Colorado Springs, and the Fort Myers metropolitan area have all experienced comparable declines in housing affordability.

The pandemic’s effects have triggered unprecedented spikes in prices, causing many regions to deviate from their historical affordability norms. The combination of surging demand, elevated labor costs, and increased building materials prices, influenced by the pandemic, has significantly driven up property values in Texas. The state’s home values witnessed a substantial post-pandemic surge, with the peak reaching a 20% year-over-year increase in early 2022. While this surge has paralleled California’s housing market in the mid-2000s, Texas homes still remain more affordable in comparison.

Luis Torres, a senior business economist at the Dallas Fed’s San Antonio branch, emphasized that despite the price increases, Texas remains more affordable than many other states. However, the state has encountered a notable reduction in affordable housing, a significant deviation from its historical cost-effective reputation. Unlike the national housing boom and bust that preceded the 2007-09 recession, Texas maintained relatively stable housing prices from 2000 to 2005.

The affordability challenges in cities like Sacramento and Raleigh are primarily attributed to the influx of first-time buyers from coastal cities and the growing local tech sector. The surge in demand, combined with a limited housing supply, has placed a substantial strain on the affordability of these markets. Prospective buyers, particularly first-time purchasers, are contending with a market characterized by historically low inventory and intense competition, driving up prices and hampering affordability.

In Texas, the state’s reputation for affordability has long been a magnet for out-of-state residents, and the pandemic accelerated this trend. Net migration increased by nearly 60% in the five quarters following the onset of the pandemic. Texas is still more affordable compared to many other regions, with the median listing price in Texas significantly lower than that of California.

The influx of Californian residents has been a key driver of housing demand in Texas, notably in cities like San Antonio. The affordability situation in San Antonio began to deteriorate in the first half of 2021, influenced by rising demand, increased labor costs, and higher building supply prices associated with the pandemic.

Nevertheless, while housing affordability has faced substantial challenges, there is evidence suggesting potential improvements. Recent data indicates that moderating demand, a result of escalating costs and increased housing inventory, may slow down the erosion of affordability. The second quarter of 2023 saw a modest increase in the proportion of affordable homes in San Antonio compared to the end of 2022, offering a glimmer of hope amid the affordability concerns.

In summary, the affordability challenges facing Texas underscore the complex interplay of factors, including migration trends, supply and demand dynamics, and the broader economic environment. While Texas remains relatively affordable compared to many other states, the state is grappling with a shift in affordability, particularly in cities that have traditionally offered affordable housing to a diverse range of residents.