An Interview with source matter expert James (Jim) Gaines, Research Economist at TAMU’s Real Estate Center

How did the Texas real estate market improve in a weak economy and what are keys for its continued improvement?

JG: Texas’ real estate market stayed relatively unchanged during the troubling economy largely because we did not experience widespread, unsustainable growth (a “bubble”) in our housing prices. Texas has maintained a consistent percentage of homeowners verses renters for several years. However, there was some geographical volatility in areas that grew too rapidly too quickly. Consequently, these are the areas that now suffer most from more foreclosures now.

Keys to our continued improvement rely on the understanding of our major cities and their growth potential. The Real Estate Center at TAMU recently performed a study of Dallas/ Fort Worth, Austin, San Antonio and Houston to compare the local and national economy. Dallas/Fort Worth parallels most to the U.S. economy because of business types and employee base in the area. Houston’s energy-based structures make it least reliant on federal activities while Austin falls in the middle due to both government and high-tech jobs. San Antonio has become more of a manufacturing city, but more natural gas and oil opportunities will grow in the area too. With the overall job activity in Texas’ big cities, there is also a shift for more inner city housing options.

Legislation recently met to determine fund allocation for higher education. How does this affect university housing development?

JG: There will be more funds allocated to building classrooms and educational facilities verses housing. Although housing seems like a valuable development, it often turns out to be less profitable than expected because of the expense required to maintain the building.

Why is multifamily rising in popularity and what are the residential demands for Austin, Dallas / Fort Worth and Houston?

JG: The shift from homeownership to renting has several factors. Those that suffered a job loss are more apprehensive to buy because of fear of foreclosure. As well, the traditional first and second-time homeowners (aging from 25-35) have opted to rent instead. This is partially due to the difficulty of obtaining a home loan as well as postponing building a family until later in life. Finally, housing prices are not increasing right now so there is less of an incentive to buy.

During this strong development stage, how are transportation (i.e. public transportation, highway improvements) and other local amenities improving?

JG: Although housing is in demand, public infrastructure (transportation, water/sewer, etc.) will suffer if financed by state and local funds. Therefore, private roads and water/sewer solutions will become more popular to keep younger areas thriving.

Historically, trend watchers could determine a commercial development upswing by watching the increase of new housing starts. With new housing starts still lagging, what are the major trend factors and key identifiers for commercial real estate?

JG: The current debt capital does not entice banks to fund commercial developments. Industrial and office demands have shifted because of job loss and the overall decrease of square feet allotted to each employee. Brick and mortar bank branches are not expanding rapidly. Those that are built are often placed for brand recognition.

How dependent is the Texas real estate market on the national real estate market and what does Texas real estate look like for the next 5 years?

JG: In the next five years, Texas will be leading the real estate market because of tremendous population growth and increase in employment opportunities. We are one of few pro-business states partially because of the lower taxes offered. This will result in the national market relying on our real estate market.

What are some new funding tactics (or options for capital) to help both private and public Developers and Owners see a project from site selection through completion?

JG: Public and private entities are combining forces. In order for a private developer/owner to build, they need help from public groups and vice versa. Take Dallas’ Victory Park’s upscale development as an example. Although its purpose is to offer retail and restaurant space around American Airlines Center, it still requires upkeep and protocols from Dallas’ public groups – road and water construction and maintenance, government construction and design standards and parking fees.

With the push to develop land in lower income urban areas, what infrastructure pitfalls (water, drainage, streets, utilities, etc.) may hinder the progress? Any unconventional aspects that will encourage this geographical development?

JG: Popularity in inner, urban development moves lower income households into less popular suburban areas. Since generally central areas are better maintained, infrastructure will be less desirable the further you move from that area.