Houston is facing many challenging stressors that are not likely to go away anytime soon. In many cases, they afflict not just Houston but much of the U.S..
Top 10 Issues
1.Aging Population
There is a relationship between an aging population and slower economic growth. The U.S. has a healthier economic outlook than other developed countries, but is faring worse than countries like Brazil and India where demographics impact growth. Over the next decades, China together with the majority of developed nations will age more quickly than ever before. In the 1960 Census, Houston’s 65 plus population was 5.6%, yet 50 years later in 2010 it was a nearly double 9%. Older people tend to sell their assets to fund retirement, while younger people are motivated to purchase homes. It makes sense that fewer young people implies less home buying. According to the Huffington Post, “over the next 40 years more people in this country will want to sell financial assets than buy them.”
As a by-product of an aging population, health care expenses may sky rocket.
2.Water
As the population increases and weather becomes more erratic, the need for drinking water infrastructure increases. The area will be challenged to provide water for the future. Population is expected to reach 8.8 million in 2035, an increase of 3 million people. Houston faces staggering public investment over the next 20 years and is already relying heavily on water reuse. Droughts make water availability unpredictable.
3.Funding of Public Employee Retirements Systems
According to realtor.org, both state and city retirement funds have been underfunded by billions of dollars. This is likely to prove very challenging to the provision of basic services both at the state and local levels. Services at risk are essential to real estate markets and properties. It’s critical to find a way exploit existing government assets in a rational way without adversely effecting future generations.
4.Aging Transportation System
Houston has the fastest population growth in the south. With 5,636 bridges many of which are functionally obsolete or structurally deficient, a lot of maintenance work is on the horizon. The rail network is private, but there is significant interface with public infrastructure. Potential safety hazards, delays in travel, and air quality issues due to increased vehicle emissions exist. With many factors limiting capacity, there is limited potential for rail to have an impact on traffic improvement.
5. Increased Traffic
Houston is plagued by significant highway congestion. A decrease in lane miles of 5% was measured between 2007 and 2011. The city is relying on toll roads, which are self-funding, to provide needed infrastructure. A Texas DOT study, anticipates the state needs to spend $370 billion to cover road maintenance and other essential repairs. Unfortunately funding is expected to be only $100 billion.
6. Electrical shortages
NRG Energy is going to construct a natural gas-fired power plant near Houston. With power demands increasing, a new supply is much needed. A 75-megawatt plant will power a system that captures greenhouse gases from an existing coal plant. Prior to completion of the carbon dioxide capture system, NRG will use the plant to generate electricity for the grid.
The Electric Reliability Council of Texas warns that the state could face rolling blackouts. Conservation or additional plant construction can prevent future shortages.
The 75-megawatt plant will be functional in 2013. By 2015, the capture system will be complete. NRG intends to sell the carbon dioxide to oil companies, which will use it to increase production of aging wells.
For more on energy read Grid operator ERCOT warns of possible electrical shortages.
7. Distressed Properties
Foreclosed homes invariably decrease property values. Frequently homes appraise for less than their purchase price. Banks show indifference by leaving vacant homes throughout almost every neighborhood. Vacant, homes are robbed of their appliances and vandalized. Copper pipes are removed destroying plumbing. Empty homes may become gathering places for vagrants and drug dealers. This means that thousands of homeowners can’t sell and buy up, or buy down for that matter.
8.Schools
HOUSTON (KTRK) – “Voters have approved a nearly $2 billion Houston ISD bond package intended to fix, rebuild or move outdated, dilapidated facilities. Houston voters sent a message today that all children, regardless of where they live, deserve to attend quality school in quality buildings that offer our great teachers the tools they need to prepare students for a successful future,”
The quality of Texas teachers is dropping due to non-competitive pay, so an 8.2% budget cut to school districts seems even gloomier. Jacob Vigdor, a Duke University professor, said Texan teachers earn 30% less than those in other professions. Salaries for Texas teachers are significantly lower than in other Sun Belt states and have been lagging behind inflation for the past 12 years.
9. Changing of Mortgage Deduction
The homeowner’s mortgage interest deduction has for many years helped to keep home buying affordable, but now Congress is considering cuts. Such cuts would also affect builders, because part of their business is fuelled by this buying incentive. About 40 million Americans save an average of $600 a year because of this deduction. Unfortunately, it’s expected to cost the Treasury nearly $100 billion next year.
On the bright side, many feel that the proposed $250,000 cap (down from $1 million) will have no effect on them. Of about 1,100 potential homeowners queried, in 19 U.S. different markets, only 5% said that lowering the ceiling to $250,000 was a major concern.
10.Unemployment and Uncertainty
People who have jobs and good credit are hesitating to purchase homes, well within their ability. They are hesitating to do so because of employment uncertainty and are waiting for the market to rebound. While probably not politically correct, the fact is the Three As — age, appearance and attitude — have a major impact on the plight of the older worker. People who don’t think that these things are important when evaluating an applicant’s potential for obtaining a job offer are mistaken. In many major corporations, employed people over 50 seem to disappear without a trace.
Remember, we are here to help buyers and sellers. Consider us your real estate source in Texas. Call Bill Edge at 713-240-2949 to see Houston homes in 24 hours or less.
Source: NAR Commercial Connections 3rd Qtr 2012, KTRK, Houston Association of Realtors
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