How One Sunbelt City Granted More Building Permits Than An Entire State

How One Sunbelt City Granted More Building Permits Than An Entire State
How One Sunbelt City Granted More Building Permits Than An Entire State

The Federal Reserve released a report on homebuilding that sheds a somewhat unwelcome light on a glaring disparity in the real estate industry. The report showed that Dallas, Texas issued more building permits in April than the entire state of California. Many real estate analysts think the lack of inventory in California (compared to states like Texas) contributes to California's housing affordability crisis.

Building authorities in the Dallas Fort Worth metropolitan area approved 7,851 permits during April, while the same authorities all over California approved 7,612. The disparity is even more glaring considering that the Dallas-Fort Worth (DFW) metro area comprises roughly 8,000,000 people, whereas California has 39,000,000. It also goes a long way toward explaining why buying a home in Texas is so much cheaper than in California.

The California Association of Realtors reports that the median home price in California is $900,000. According to Redfin, Texas' median home price is $352,000. Redfin also shows that Dallas, like most of Texas, is in the middle of a building boom and has a median home price of $444,900. That means you could theoretically buy three houses in Texas or two in Dallas for the price of one in California.

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The price disparity is even larger in California's three largest cities, which all have median home prices over $1,000,000. All this begs the larger question of why one city in Texas could grant more housing permits than the entire state of California. State and local policymakers in California are certainly well aware of the inventory crisis, but collectively they have not been able to put a dent into it.

The answer isn't one factor but several, which are choking off much-needed home buildings in California. Perhaps the most obvious factor is land cost. Although California and Texas both cover large land masses, their respective geography makes building in California's population centers much more expensive.

San Diego, Los Angeles, and San Francisco are bordered by mountains on the East and the Pacific Ocean on the west. Collectively, these three cities have built on almost all the land that's suitable for doing it. By contrast, Dallas, Houston, and San Antonio are surrounded by largely undeveloped land.

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That, plus the fact that the mass migrations into California began in the 1940s and 1950s compared to the 1990s and 2000s in Texas, all put California land prices into the stratosphere. California land has a multigenerational head start on Texas regarding land appreciation. That also means the cost of living in California is much higher, making it more expensive to hire the skilled labor necessary to build.

California’s status as a destination state for nearly 75 years has contributed to a significantly different business climate than Texas. A strong "anti-development" sentiment took hold in the Golden State, which led it to pass many restrictive building codes and zoning ordinances. These days, building anything in California requires approval from multiple agencies, which can take years.

Texas, in contrast, has the door wide open. The largest metro areas in the Lone Star State have hung out the welcome mat for developers, including a much easier permitting process. So, when builders are penciling out where they can go online and start making money quickly after breaking ground on a new project, Texas projects win that race almost every time.

Then there is the end-user cost. With interest rates near 7%, selling a new $450,000 house in Dallas is much easier than a $1,000,000 home in San Diego. This is a matter of simple arithmetic. Annual household income needs around $500,000/year to afford the $900,000 median-priced home in California, but only half that to afford the $445,000 in Dallas.

Considering all these factors together helps explain why one city in Texas can outbuild an entire state in California. This disparity in housing availability and price is a big reason so many Californians are moving to Texas, and Dallas in particular. The old saying goes, "If you build it, they will come." Currently, Dallas is experiencing significant construction activity.

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