Moving the Goal Posts on Housing Affordability 

Housing affordability is a statewide concern. The median price for new and existing homes combined has increased 41 percent in the last five years. This far exceeds the 28 percent increase in single-family rent and the 17 percent increase in apartment rent. This overall price change masks an underlying dynamic. While home prices are up generally, there has been a dramatic shift across price cohorts. This shift accounts for much of the affordability challenge. 

The new-home segment often sets the pace for home prices at the margin since builders price them to reflect the latest supply and demand conditions. This is true even though new homes are a small share of the total market. Recently, new homes’ impact may be even higher as they represent an increasing share of sales. In 2019, new homes accounted for 17 percent of Texas MLS sales. That share has grown to 26 percent in 2024. That new-home inventory is priced very differently today than in the past. 

If we segment new home starts into three categories based on sale price—less than $300K, between $300K and $500K, and $500K and up—we get the situation in Figure 1. For years, homes in the lowest price cohort were the norm, but no longer. Between 2001 and 2014, homes in that lowest category accounted for between 60 and 89 percent of all starts in Texas. That share had fallen 53 percent by the middle of 2020. In less than two years, the share of this core housing category had fallen further to just 13 percent of all starts. It has recovered only slightly to 20 percent this summer. In contrast, the $300,000 to $499,999 price cohort made up 55 percent of all starts this summer. The $500,000 and up price range totaled 25 percent of all starts this summer. This shift reflects a combination of factors, including that construction costs are up 43 percent in the last five years. Some of the shift also reflects builders adding larger models to their projects to meet the pandemic-era need for more living and working space at home. 

This shift in new home price cohorts has impacted the overall housing market in Texas. Figure 2 documents how median home prices have moved among the same three price cohorts (combining new and existing homes). Homes in the lowest price cohort accounted for two-thirds of all sales in 2019. Through the summer of 2024, that cohort now amounts to 39 percent. Over the same time, the highest-priced cohort saw its market share increase from less than 10 percent to 23 percent. Texas’ affordability challenge is driven by both supply and demand factors. The shift in market share across home price segments reflects the combined behavior of builders, homeowners, and potential buyers. Together, they have moved the market heavily toward the higher-price end.