Texas’ population is growing so fast that developers fear municipalities will slow or even stop construction of new homes, making affordable housing even more scarce, speakers at the Lumbermen’s Association of Texas (LAT) annual meeting warned.
Some of that conflict likely will show up next year if the state legislature looks at cities’ rights to extra-territorial jurisdiction: A provision found in just a few states that lets cities control activity in the land just beyond the city’s current limits.
“We expect to see a bullish market next year and in the next several years,” Don Allen, owner of the Fort Worth-based Aberdeen Land Co., told LAT members on Sept. 24. That’’s largely because Texas’ population, currently near 30 million, is expected to swell to more than 40 million by 2050 under one migration scenario and over 50 million in another, according to the Texas Demographic Center. Texas has four of the five busiest housing markets in the nation, according to Builder magazine’s Local Leaders list. The Dallas-Fort Worth Metropoplex, at No. 1, has more closings than the 38th through 50th markets on the list.
Lower mortgage rates should spur home-buying activity even further, Allen predicted. But that causes two types of problems: Prices and local protectionism.
Texas already has 336,000 fewer homes than it needs, and the resulting shortage has contributed to a 40% rise in median home prices in the Lone Star State between 2019 and 2023, Allen said. Affordable housing definitely is in short supply, he said.
That leads to the second problem: Changes in city laws and new regulations that are driving up costs, Allen said, sometimes arbitrarily. He said he sees cases in which the local jurisdiction, seemingly arbitrarily, begins demanding that pavement be an inch thicker than previously allowed.
Paul Pirok, the just- retired Senior Managing Director for Commercial Real Estate at Veritex Community Bank, said it has become much more difficult for builders to deal with municipalities.
“We had one builder doing affordable units that were mainly duplexes.,” he said Sept. 25. “One had to be a triplex. They got the plans approved, built the [triplex], but couldn’t get a certificate of occupancy. The building inspector said the triplex was multifamily and needed sprinklers. They retrofitted at big expense.” Then the inspector said they needed a bigger water main, piling on even more cost at the last minute
“Are you doing it for a real reason, and do you think the developer will pay it out of its profit?” Allen asked rhetorically of city officials.
One place where the growth challenge is playing out is in Princeton, Texas, 40 miles northeast of downtown Dallas. Princeton's population has grown so fast—to an estimated 28,000 today from 17,000 four years ago—that the city council this month passed a temporary moratorium on new residential projects while it analyzes how much infrastructure it needs to handle the growth.
Princeton had been viewed by some speakers as a rare location near Dallas where affordable housing could be built. (Statewide, Pirok said, the median price for a Texas home has risen to $412,300 today from $209,000 in 2000.) Allen said he believes some Texas cities may say they like growth, “but frankly don’t want a subdivision for first-time home buyers. Some counties want the second- and third time home buyers. They don’t want starter homes in their neighborhood.”
Allen also took aim at the concept of Extra-Territorial Jurisdiction (ETJ). In Texas, state law permits a municipality to designate certain areas (up to five miles outside their city limits for cities over 100,000) as ETJs and then possess certain controls over how land in the ETJ is used. The goal is to help the municipality involved plan and control growth in the area—and often, ultimately, get the ETJ ready for annexation. But while that is going on, the municipality can bar companies and neighborhoods inside the ETJ from setting up a “political subdivision” to provide water, sewer services, roadways, or similar services.
A group called The Texas City Limits Coalition formed a Politicial Action Committee this year to increase its efforts in the Texas Legislature to diminish municipalities’ control over ETJs. The Texas Association of Builders is a coalition partner.
Governing bodies with ETJs “do everything they can to prevent you from doing anything in your area until you agree to be annexed into their city limit,” Allen said. “The ETJs gave them miles of control from outside their city limits. … They want to have their cake and eat it too.”
In May 2023, the Texas Legislature enacted S.B. 2038, which makes it possible for landowners to remove their property from a city’s ETJ, thus exempting them from city ordinances and protecting them from getting annexed one day. A coalition of cities has sued the state, arguing the Legislature’s action is unconstitutional.
The Legislature will hold its next biannual general session in 2025. Allen said one of the biggest fights for builders will be to fend off attempts to nullify S.B. 2038. “Defending our gains” will be one of builders’ chief goals in 2025, Allen said. “That [ETJ} is one of the gains they have in our cross-hairs.”
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