These two states are seeing high rates of new construction, but how do they differ?
By Julia Edinger
For big builders, there are a lot of factors that go into determining which projects to build. For example, builders may question what markets may be most profitable, where demand lies, and what the cost of land is before beginning a new project. Additionally, climate concerns play a role. Green building standards can increase efficiency, but they can also be difficult to meet.
First, it is clear that the market demand exists in both California and Texas. Both states have witnessed people moving in from another state, according to the latest census data. And according to the California Legislature’s Nonpartisan Fiscal and Policy Advisor, while California is seeing many people moving to the state from New York, Illinois, and New Jersey, it is seeing a large wave of people migrating away to other western states with similar climates but a lower cost of living; Texas leads this list.
So, why are so many homebuyers moving from California to Texas? Well, the cost of living is significantly cheaper, according to a recent study from Investopedia. According to an article from Forbes comparing housing in the two states, housing in many California markets is out of reach for the average wage earner, while housing in just one Texas market is out of reach. In some California markets, like Orange County, only 20 percent of residents could afford a median-priced, existing, single-family home.
For homebuilders, this migration is seen by many as an inevitable consequence of a number of factors that make building in California both difficult and expensive. California has put many policies into place to address some of the underlying challenges with the built environment and urban planning. However, these policies have had an adverse effect of making it more difficult, or even more expensive, to build homes in The Golden State.
For example, the fees associated with building permits and planning can extend the length and cost of a project significantly before the construction actually starts. Other policies aimed to improve housing density with minimal impact to the environment and existing green spaces have created what many refer to as “artificial scarcity,” where the market was unable to provide enough products to meet the demand as a result of policy failure.
Texas is seeing the other end of this. Texas has long been known to live its motto: “Everything’s bigger in Texas.” The statistical data backs that up, with Texas home plans in multiple metros averaging higher square footages. Texas is well-known for its expansive yards, driveways, and homes that tower over their lots. The exurbs have long provided space for this, but as the state builds quickly to match an influx of migration’s demand, there is a growing need to address density.
There has long been critique of the “McMansion” style of homebuilding, a term used to describe suburban homes of 3,000+ square feet, typically those homes that are mass-produced. But the demand of migrant homebuyers in Texas is that of the average millennial: an affordable entry-level product. As Texas (and its popular metros) increasingly attract millennials, it is prudent that builders work to provide products at a lower price point.
This trend is certainly one that building experts are advising. Last year, the National Association of Home Builders released data stating that new single-family homes are getting smaller across the US. Perhaps Texas homebuilders can look at some of the innovative designs we are seeing in high-density housing solutions in California to address the need.
One of the most notable differences between building in California and building in any other state is California’s emphasis on building energy efficient houses. Title 24, the building code created by the California Energy Commission, works to decrease the greenhouse gas emissions currently produced by the built environment. While most builders agree this is a noble goal, some have struggled with various factors of this shift.
The 2019 standards of Title 24 were enacted on January 1st, 2020. These changes will reduce greenhouse gas emissions by 700,000 metric tons over three years, according to the California Energy Commission. This massive environmental impact is not without its challenges. An emissions change of that scale requires the use of solar for all new residential buildings that are three stories or fewer.
This was a drastic change, and some builders have struggled with the additional cost of implementing solar. One of the great challenges in this transition has been for builders to educate prospective buyers of the long-term savings they will accrue — despite a higher price tag on the home purchase.
The California Energy Commission has been very eager to work with builders to address any problem parts of the new codes. Still, it is a major shift that requires major adjustment.
While Texas still has moderate energy efficiency standards, it is worth considering how green building is shaping the market — and demand. In 2018, Texas made 5th place the list of the top 10 states for LEED-certified construction. However, in 2019, it didn’t even crack the top 10. Perhaps a statewide legislation is coming.
In the meantime, Texas cities are still managing to appeal to environmentally-conscious homebuyers by implementing their own energy codes, from Dallas’ cool roofs initiative to Austin’s community climate resolution.
It is a green wave washing over the nation. Builders, developers, and architects that build primarily in Texas or other markets can look at the successes and failures of various zoning and environmental regulations. Learn from California’s experience so that Texas can continue to develop affordably — while making it sustainable.