land development INTERVIEW
30,000 Home Starts a Year in Houston? Written by Janis Arnold
Kirk Laguarta and Duane Heckmann of the Land Advisors Organization, with nearly 30 years of experience each in CRE, specialize in master-planned community and residential lot development; however they also sell multi-family sites, commercial sites, and industrial development/sites. Historically, downturns in the Houston CRE market have been related to ‘loose money’; this was a factor in the downturn that occurred during late 2007 through 2009. Nationally, banks were so badly burned during that recession that they’re still not back into the lot development end of the real estate business to any appreciable extent. However, in Texas the banking industry is healthy and, particularly in Houston, there’s no problem with ‘loose money’. Thus, in respect to financing, there appears to be little danger of overbuilding at the present time. Economically, Texas has recovered from the last recession much faster than the rest of the nation. The state’s vibrant oil and gas industry, primarily because of new developments in shale fracking, has led the city of Houston to create 100,000+ jobs per year. During the period from 2009 to the present, Houston’s tremendous increase in jobs has resulted in increased demand for housing. Bottom line: the development of new residential lots in the greater Houston area has not kept pace with the demand for new homes needed by Houston’s growing population. Seven of Houston’s top ten master-planned communities will be fully developed and sold out within 3+/- years by the end of 2016. Cinco Ranch and The Woodlands will be fully developed from a single-family home standpoint within the next two years. Today, those two communities account for nearly 2,000 home starts, which is around 7% of the home starts in Houston. It takes a minimum of 24 to 36 months from the time a developer or homebuilder starts looking at a piece of property until they get that first lot on the ground. New master-planned communities generally start slowly, and may produce 100+/- homes the first year. Eventually, MPCs increase to 300 to possibly 400 home starts per annum. Cross Creek Ranch, a Johnson Development community, is an example of a replacement MPC for the tremendously successful Cinco Ranch. Wood Forest, another Johnson Development community, is taking over where The Woodlands lets off. Within the past 16 months, at least 24 properties that are greater than 350 acres have been purchased for development. Prior to July 2012 Houston had seen no large land purchases for single-family development going back to 2008. Thus, during a 4-year period, there were no significant residential land development purchases, yet the sale of homes in the Houston area continued at a pace of 18,000 to 20,000 homes per year. Today’s oil business is much more technologically driven than was
16 redNEWS.com
Duane Heckmann
Kirk Laguarta
the oil boom that occurred in the 80s. The industry’s highly educated and technologically advanced workers are commanding high paying jobs. Back in the 80s, job development included more roughneck or blue-collar jobs, whereas today’s oil and gas industry employs more white-collar positions. To a large extent, these new hires are working all over the world out of a Houston home office. To quote Kirk Laguarta, “If there’s a fracking job going on in North Dakota or Russia or Venezuela, you can bet that somebody in Houston has something to do with it.” The creation of high tech new jobs isn’t limited to the oil and gas industry; the same sort of thing is happening in Houston’s vibrant growth medical community. Houston is now the energy capital of the world and will remain the energy capital of the world for the foreseeable future. The fracking revolution has changed the landscape in terms of the volume of oil and gas product available in the nation and the world. In the United States and Canada, enough gas to last several generations has been discovered, and, because of fracking production methods, this oil and gas is inexpensive to produce. This fact alone is predicted to significantly change manufacturing across the U.S. and will lead to the United States becoming a net exporter of oil and gas. Houston’s newly employed workers and their families have to live somewhere and these individuals want to live in communities with good schools and quality amenities. Earlier this year, Metrostudy presented information regarding the demographics of Houston as it relates to the housing market. During the previous 30 years, the City of Houston averaged 25,000 home starts per year. However, the average number of home starts for the previous 25 years increased to approximately 30,000 per year. Projecting into the next 30 years, Metrostudy suggests that the city will have to produce at least 30,000 home starts per year to keep up with projected growth and demand. Laguarta feels that 30,000 is too conservative a figure and projects that Houston will need a minimum of 32,000 starts per year simply to