TG - Summer 2024

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TEXAS REAL ESTATE RESEARCH CENTER T E X A S A & M U N I V E R S I T Y

In This Issue Wind and flood insurance explained Common property disputes Innovating workspaces

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SUMMER 2024

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VOLUME 31, NUMBER 3 www.recenter.tamu.edu @recentertx TEXAS REAL ESTATE RESEARCH CENTER

5 | What Drives Wind and Flood Insurance?

Summer means vacations, afternoons at the pool, and nights at the ballpark. It also means the beginning of hurricane season, making this an appropriate time for a discussion of factors that impact wind and flood insurance.

Richard Rudolph

Won’t You Be My Neighbor? | 2 (But Respect My Property)

It’s a beautiful day in the neighborhood . . . until a property dispute arises. Here’s what you need to know about issues neighboring property owners commonly encounter. Rusty Adams

8 | Ground Control Most Influential Land Price Factors

Can credit market contractions lead to declines in rural land values? What about changes in household incomes or home values? This article digs into the data to answer these questions and more. Tian Su

10 | Clear as MUD Municipal Utility District Notification Compliance Made Easier

Home Economics | 22

Complying with MUD Notice requirements is a dirty job, but home sellers have to do it. Good news, though: requirements have been given a good scrubbing to make the process easier.

Kerri Lewis

Analyzing Consumer Spending and Housing Costs

16 | Building a Better Workplace Lessons from University Investments

Is it time for commercial property owners to go back to school? Not necessarily, but universities could have much to teach about what tomorrow’s talent is looking for in a work environment. Harold

D. Hunt, Stephen A. Ramseur, Bucky Banks, and Hemashruthi Ganesh

Featured Columns 13 | Brokerage Q&A 14 | TRERC Website NEW LOOK! MORE FEATURES!

25 | 2024 Real Estate Forecast Update SUMMER REVISIONS!

26 | Land Conference Roundup 28 | Land Insights

You’re probably familiar with a basic household spending budget, but what about one for the entire country?

TRERC’s research director looks at how U.S. consumer spending relates to overall housing costs. Daniel Oney Executive Director, PAMELA CANON Director of Strategic Initiatives, GARY W. MALER Research Director, DANIEL ONEY Senior Editor, BRYAN POPE Associate Editor, KAMMY BAUMANN Creative Manager, ALDEN DeMOSS Graphic Designer, ROBERT P. BEALS II Circulation Manager, RYAN PERRY Lithography, RR DONNELLEY, HOUSTON

ADVISORY COMMITTEE: Doug Foster, San Antonio, presiding officer; Besa Martin, Boerne, assistant presiding officer; Troy C. Alley, Jr., Arlington; Kristi Davis, Carrollton; Vicki Fullerton, The Woodlands; Patrick Geddes, Dallas; Harry Gibbs, Georgetown; Doug Jennings, Fort Worth; Rebecca “Becky” Vajdak, Temple; and Barbara Russell, Denton, ex-officio repre­senting the Texas Real Estate Commission.

TG (ISSN 1070-0234) is published quarterly by the Texas Real Estate Research Center at Texas A&M University, College Station, Texas 77843-2115.

VIEWS EXPRESSED are those of the authors and do not imply endorsement by the Texas Real Estate Research Center, Division of Research, or Texas A&M University. The Texas A&M University System serves people of all ages, regardless of socioeconomic level, race, color, sex, religion, disability, or national origin. Nothing in this publication should be construed as legal or tax advice.

For specific advice, consult an attorney and/or a tax professional.

PHOTOGRAPHY/ILLUSTRATIONS: Center files, pp. 1, 2-3, 4, 5, 8-9, 10-11, 12, 18, 19, 21 (top right), 22-23; Courtesy of Mays Business School at Texas A&M University, pp. 16-17, 20 (left); Robert Beals II, pp. 20 (right), 21; Alden DeMoss, pp. 14-15, 25; Bryan Pope, p. 28.

LICENSEE ADDRESS CHANGE. Log on to your Texas Real Estate Commission account to change your mailing address. © 2024, Texas Real Estate Research Center. All rights reserved.

ON THE COVER: Location is key in determining weather-related insurance costs and coverage levels. Pictured here: a summer lightning storm illuminates El Paso’s skyline. Photograph from Center files.

TEXAS A&M UNIVERSITY

Texas Real Estate Research Center

RESIDENTIAL

(BUT RESPECT MY PROPERTY) By Rusty Adams Key Takeaways • Property owners have rights, but actions causing harm or nuisance to neighbors can have legal consequences.

• Property line disputes are best resolved with a written boundary line agreement.

• Building structures beyond property lines can lead to legal liabilities and may require removal.

• Natural water flow between properties is allowed, but altering it in a way that harms neighbors can lead to legal action.

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There’s no experience quite like cutting your own live Christmas tree out of your neighbor’s yard.

– Dan Florence, Zombies Love Pizza

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any readers will remember being sent to a neighbor’s house to “borrow” a couple of eggs or a cup of sugar, and it was once common for neighbors to gather for “barn raisings.” Those practices are less common these days, but neighbors remain an important part of life, for better or worse.

In the best of circumstances, neighbors respect each other’s rights, help each other, and may become good friends. Some interactions between neighbors, however, are not so neighborly. Here are some of the more common issues landowners face in dealing with the folks next door.

My Neighbor and I Can’t Agree on the Boundary!

The boundary between adjoining properties is generally determined by the description in the deed that conveyed the property. Thus, the line surveyed and described is the property line. Property lines are not determined by the location of a fence or any other physical thing unless those things are used as monuments in the survey.

Sometimes, of course, neighbors disagree on the location of the boundary, and sometimes descriptions locate the boundaries in different places. In the event of uncertain or disputed boundaries, landowners have several options (including going to court, but that’s often not the best option).

Neighbors may orally agree to the location of the boundary. However, the boundary must be marked by some monument or a fence, and such agreements may not be binding on subsequent purchases

of the property. Boundary line agreements may be implied in the proper circumstances, but proving them requires litigation.

Often, the best option is for neighbors to enter into a written boundary line agreement describing the location of the line. The agreed line should be marked. If there are any existing fences or markers that do not accurately mark the agreed line, the agreement should specify that they do not mark the boundary.

My Neighbor Built Over the Property Line!

In the absence of an easement or agreement, a landowner may not put any structure on his property that encroaches beyond the boundary.

Examples of encroachments include buildings or structures extending over the boundary (including eaves hanging over the boundary), fences, tree branches or roots, and drainage ditches.

If the encroachment infringes on the adjoining landowner’s rights, the encroaching landowner may be held liable in damages, and a court may require him to remove the encroachment and restore the property. A landowner may petition a court for an injunction against a threatened encroachment.

It’s My Property and I Can Do What I Want!

Unless deed restrictions, regulations, or zoning ordinances say otherwise, a landowner may use his property however he wants, as long as the use

is reasonable and does not infringe on his neighbor’s legal rights. That is, he may not damage his neighbor’s property by nuisance, negligence, or physical harm.

Examples might include diverting or impounding water, causing the encroachment of a damaging substance, or removal of lateral support (discussed later in this article). Other things, such as foul odors, dust, smoke, noise, vibration, or bright lights, can be nuisances if sufficiently extreme.

As mentioned above, regulations and zoning ordinances may give others the right to limit how land may be used. This generally falls under the police power of a governing entity.

Likewise, deed restrictions may give other landowners or property owners associations the right to control land use. Usually, such covenants are public record and run with the land.

Essentially, the landowner has agreed to these restrictions by purchasing the property.

My Neighbor’s Property Drains Onto Mine!

When one property is higher in elevation than an adjoining property, the owner of the higher property may allow water to flow to the lower property as long as the water flows in its natural course. However, the owner of the higher property may not change the natural slope to divert water from its natural course onto the lower property. If this happens, an injured landowner may seek damages and/or an injunction.

My Neighbor Is Contaminating My Property!

A landowner may be liable to his neighbor if he causes or allows a damaging substance to encroach on his neighbor’s property or groundwater. These might include agricultural waste, salt water, air contaminants, or dangerous or toxic chemicals.

My Neighbor’s Excavation Is Destroying My Land!

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ight of lateral support means that land has the right to be supported by adjoining land.

Each of two adjoining parcels of land is entitled to the lateral support of the other. Land in its natural state and not burdened with structures is entitled to lateral support, and a landowner is liable for interference with the lateral support of adjoining land.

For example, if a neighbor excavates or builds a ditch that causes the land to cave in or wash away, he is liable for damages and/or subject to an injunction. This right to lateral support is absolute; it is not subject to the rights of the neighbor.

However, this right is absolute only with respect to the land itself. Put another way, the right protects only the soil, not improvements placed on the soil. If a neighbor’s removal of lateral support damages buildings or structures on the land, he is liable only if he is negligent in doing so. The idea is that by placing improvements on the land, the land has been altered in a way that creates a need for lateral support

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(i.e., to support the improvements) where none previously existed. Likewise, if one landowner adds dirt to his land and raises it above his neighbor’s land, he has no absolute right to his neighbor’s lateral support of the newly created land. The adjoining landowner is liable only if he is negligent.

Where Does the Fence Go, and Who Has to Pay for It?

In a closed-range county, county stock laws require livestock owners to fence their livestock in. Additionally, livestock owners must not knowingly permit animals to roam on the right of way of a highway. Otherwise, if there are no applicable restrictions or regulations, a landowner may choose to fence his property or not.

In certain circumstances, a fence may be a nuisance. For example, it may restrict access or pose a danger.

(Texans should note that barbed wire is generally not considered dangerous.) As long as the fence is not a nuisance, however, it can be any type of fence the landowner chooses. Again, other regulations, ordinances, or deed restrictions may apply.

A fence that separates two properties may be on the boundary line, or it may be on one side or the other.

If the fence is built on the boundary, landowners may share the cost of

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the fence, but adjoining landowners have no obligation to do so. If neighbors share the cost of a fence on the boundary line, it is jointly owned. If one owner builds a fence on the boundary line at his own expense, he owns the fence. In that situation, the adjoining landowner may still use the fence as part of a fence enclosing his property, and may attach his fence to the neighbor’s fence, as long as it is on the boundary. If a fence is built on one side of the property line, it belongs to the owner of the land on which it is located. The adjoining property owner may not change the fence or attach another fence to it without permission, as that would be trespassing.

A jointly owned fence may not be removed except by consent or after six months’ written notice. If a fence is on one side of the property line, the owner may require a neighbor’s adjoining fence to be disconnected by giving six months’ written notice. Likewise, if a neighbor’s fence is attached to a fence owned by another, six months’ written notice is required before detaching the fence.

Neighbors may enter into agreements about the placement and maintenance of fences. Such agreements should be in writing and recorded in the property records of the county where the properties are located.

My Neighbor’s Trees Hang Over My Property!

A tree is owned by the person who owns the land on which the trunk is located. The owner of the tree may be liable if the encroaching tree limbs or roots damage the neighbor’s property. Thus, it is prudent for a property owner to trim his trees back to avoid such problems. If he fails to do so and the branches hang over a neighbor’s property, the neighbor may trim the branches, but only up to the boundary line. he neighbor may not enter the adjoining property to do so without consent. A neighbor who trims the overhanging branches should take great caution to make sure of the boundary line, and also to avoid damaging the tree, or he could be subject to liability.

And, of course, neighbors should refrain from cutting their neighbors’ trees, even for Christmas.

Nothing in TG should be considered legal advice. For advice or representation on a specific situation, consult an attorney.

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Rusty Adams, J.D. (r_adams@tamu.edu) is a member of the State Bar of Texas and a research attorney for the Texas Real Estate Research Center.

INSURANCE

By Richard Rudolph

Key Takeaways • Proximity to water or high-risk areas affects premiums and coverage availability.

• Housing material and style impact wind damage susceptibility, influencing insurance costs.

• Newer homes may have lower premiums due to better construction.

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omeowners in most parts of the state occasionally have to contend with windstorms, whether hurricanes or tornadoes, and those in or near coastal regions often have the added risk of flooding. For many of these homeowners, windstorm and flood insurance are necessary considerations. In some areas, such insurance is required.

Nearly 20 factors determine a homeowner’s insurance premium, deductible, and coverage limits, but four factors have a greater impact when homes are subject to the perils of windstorms and flooding. Homeowners need to understand each of these.

Location is Key

The home’s location is probably the most critical factor. Homes located near coastal areas are subject to

hurricanes, tornadoes, and flooding, whether wind-driven or the result of tidal surge or overflow. Homes located away from the coast—such as in the Panhandle, West Texas, and the Hill Country—are still subject to tornadic and straight-line winds.

Wind speed maps for the United States, which show how the strength of extreme windstorms varies across the country, typically show four wind zones, each differentiated by predicted wind speed: • Zone I: winds up to 130 mph.

• Zone II: up to 160 mph.

• Zone III: up to 200 mph.

• Zone IV: up to and beyond 250 mph.

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Texas Wind Zones the severity of wind speed Design and Build and how those speeds Oklahoma Amarillo hen determining Little would affect structures not City Rock rates and coverdesigned to withstand such age limits, insurers forces. Data on wind speed Fort Worth Dallas factor in a home’s buildand wind direction, along Abilene El Paso Shreveport ing materials (frame, brick with other meteorological veneer, masonry, etc.), style measurements, are loaded (for example, multilevel into computer models to foreHouston versus ranch), and overall cast winds. When combined construction.

San Antonio with historical data from past ZONE 1 First, homeowners should events, the resulting map (130 mph) understand wind load, which ZONE 2 depicts the frequency and Special Wind Region (160 mph) is a measure of the dynamic strength of windstorms.

ZONE 3 pressure wind puts on a This type of map is used Hurricane-Susceptible Region (200 mph) surface. Dwellings are subprimarily to develop national ZONE 4 Source: Federal Emergency Management Agency (250 mph) jected to three types of wind and international building force: codes intended to protect • uplift pressure that can cause a human life, but the codes can also the National Flood Insurance Program roof to rip away; have the ancillary benefit of minimiz(NFIP). These properties are in a 100• shear pressure, a horizontal presing property damage. year floodplain and have a 26 percent sure that causes tilting or leaning; Three of the four wind zones are chance of flooding during a 30-year and present in Texas (see map). Zone IV mortgage term. Owners of propercovers the area north of a line drawn ties in the moderate-risk flood zones, • lateral pressure that causes from Beaumont to Abilene to Amarillo. the 500-year floodplain, or in low-risk movement or sliding.

Zone III lies south and west of Zone flood zones (areas beyond the boundHomes designed with large, flat IV, stretching south past San Antonio aries of the 500-year floodplain) can surface areas collect more wind load to the southeast corner of New Mexico voluntarily participate in the NFIP or than homes with smaller surface and the far western edge of the Panattempt to purchase flood insurance areas. Similarly, designs that force from their homeowners’ insurance handle. Zone III is further subdivided wind into a small area increase the company. NFIP premiums are high into a hurricane-susceptible corridor wind load on the structure. Openings covering the area west of Houston and and the limits low, but these costs such as doors and windows are struccould be much lower than the cost of south to Mexico. Zone II is south and turally weaker than adjoining walls, no coverage. In addition, the NFIP has and their failure allows more wind load west of Zone III, stretching from San Antonio to the southeast corner of New a 30-day waiting period for insureds to build inside the structure. For home who voluntarily participate before Mexico. Zone I is not present in Texas. construction tips, see sidebar. lood zones are determined in a flood insurance becomes effective.

When it comes to flood insursimilar manner, but there are 15 In general, most insurance compaance, the foundation, openings, the separate major designations. nies will readily offer some amount of structure’s height above the NFIP These are grouped by letter designaflood coverage as an endorsement to base flood elevation, fill, and erosion the homeowner’s policy for low-risk tion into ten high-risk zones (A and control become relevant factors in the areas. In moderate- or high-risk areas, insurer’s decision-making process.

V), four moderate-to-low risk zones flood coverage may be challenging, (B, C, and X), and one “indeterminate Most floods are not raging torrents of risk” zone (D). These zones are further expensive, or impossible to obtain. debris-filled water, but rather gradual One important note: although the broken down according to the type inundation without significant currents. insurance industry uses the informaof flooding, depth of flooding, and In areas where flooding is accompalikelihood of flooding. These zones tion about wind zone territories and nied by more forceful movement of are shown on a Flood Insurance Risk flood zone designations, it does not water, wall construction becomes an Map, or FIRM. determine those territories and desadditional factor.

Properties financed with federal ignations. Those were created by the Raising the Roof funds (such as through the VA or FHA) Federal Emergency Management and located in one of the FIRM’s ten Agency (FEMA), other governmental Both the type of roof and the roofing high-risk zones must be insured under agencies, and universities. materials factor into the extent of

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This Old House

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Gable Roof

Richard Rudolph, Ph.D. (famousreindeer2@yahoo.com) is a research fellow with the Texas Real EL LO Estate Research Center and has 20 years of experience in insurance brokerage and 30 years of experience in insurance and risk management consulting and education.

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Source: Federal Emergency Management Agency

Hip Roof

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Hip roofs are more resistant to wind damage than gable roofs

The last major factor is age. Simply put, a newer home is more likely to be in better repair than an older home, resulting in less damage from wind.

More important, though, are the recent improvements in wind-specific and flood-specific building codes based on research various organizations—

primarily the American Society of Civil Engineers (ASCE)—and universities in areas affected by severe windstorms have conducted in conjunction with FEMA. These collaborations have resulted in many ASCE standards that govern construction techniques to prevent or reduce wind- and waterrelated losses to structures.

Choosing to build or purchase a home is a major financial commitment—a balance of costs and benefits. But when the home is exposed to windstorm and flood, the cost/benefit equation and the balance of aesthetics and safety must be reconsidered.

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Hip roofs are effective against wind, but they are costly to build and repair.

Eaves can present additional problems. A roof with a large eave overhanging the wall can readily redirect horizontal wind, turning it into an uplift force. Eaves should not extend far from the wall to minimize uplift pressure, and all roofs should be strapped and anchored firmly to the foundation.

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damage from windstorms (but are obviously not a significant factor when it comes to flood damage).

A hip roof, with the roof sections meeting at a point, creates an aerodynamic shape that allows wind to flow over the surface more readily, while a gable roof provides two flat vertical surfaces at the ends that are easily subjected to wind load (see figure).

Measures Homeowners Can Take to Better Protect Their Home

While choosing to live on the coast or overlooking a beautiful river has many benefits, it does come with the risk of exposure to wind and flood, which, in turn, means purchasing high-premium, high-deductible, limited availability insurance.

However, there are things homeowners who accept that risk can do to better protect their homes in addition to purchasing insurance.

First of all, savvy homeowners must understand the zones in which they live and learn about the ASCE standards and building codes that apply to new construction.

The choice of building materials for new construction has a major impact on a home’s ability to withstand the tremendous pressure created by wind and water. Concrete, followed by steel-reinforced masonry blocks, steel-frame construction, and wood-frame construction with hurricane strapping are the preferred construction materials for resisting hurricanes.

Unfortunately, their expense matches up with their ability to resist windstorms, and the expense increases the value of the home, which then increases the premium.

Construction techniques such as continuous framing material, hurricane clamps at joints, and bracing joints and rafters improve a structure’s resistance. Windows and doors must be pressure-resistant or covered with hurricane shutters. Walls and roofs should also be reinforced to protect the interior from

wind-blown debris such as 2x4 studs, which can pierce the flat surface like a missile.

For existing homes, retrofitting the structure to meet the standards is extremely costly, so the homeowner must be diligent in learning exactly what codes were followed and what techniques were used when the home was built.

Home maintenance is vital as it prevents loose materials from being ripped away, exposing the interior to wind load and water.

Some of these measures also apply to the peril of flood, but there are additional considerations for homes in flood zones.

While not always aesthetically pleasing, building the home on pilings or stilts will raise the home above the anticipated flood level. uilding codes also specify the presence of flood openings that automatically allow water to enter and exit the home, thus reducing the force of flowing water against the exposed surface.

Foundations must be constructed to resist erosion, and any structures designed to break away under water-flow pressure must not create additional debris that can damage the home.

In areas exposed to coastal flooding, any strapping intended for windstorm or flood must be resistant to corrosion.

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LAND MARKETS

ground control

Most Influential Land Price Factors

Key Takeaways

• Credit availability affects Texas rural land prices positively.

• Household income and agricultural production significantly influence rural land prices.

• Home price increases have a relatively small impact on land prices, although the effect may be greater in urban fringe markets.

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and markets function because of an available supply of credit, meaning limits on credit pose challenges for potential buyers. From March 2022 to July 2023, the Federal Reserve raised the short-term fed fund rate 11 times to combat inflation.

In response, banks increased their credit standards and constrained loan offers, and a phenomenon called credit tightening occurred. The question is, if the credit market begins to contract, will it lead to a decline in rural land values? Possibly.

To answer this question, the Texas Real Estate Research Center (TRERC) developed a model that measures the

By Tian Su

impact of credit availability on Texas rural land prices while controlling for other potential market influences.

TRERC has noticed that research on agricultural land values using summary data often obscures factors that may help explain differences, such as the land’s distance to urban centers.

In addition, relying on summary data prevents the use of innovative models that are common in fields like residential land or housing value studies. Therefore, rather than relying on broad credit indicators such as interest rates, the study employed data collected at the county level to capture location variations and improve the

• value of machinery reported in the Census of Agriculture.

TRERC’s study found Texas rural land prices are heavily influenced by traditional farm returns as well as a number of nonfarm variables (see figure). These variables help explain land prices over time and differences from county to county. The coefficient indicates the estimated effect of the associated variable.

Total Deposits (in Millions of Dollars)

prediction of market trends. TRERC’s model used data for 147 of the state’s 254 counties collected at five-year intervals (2007, 2012, and 2017). The model evaluated median rural land price using the following variables: • credit availability measured by the number of different bank companies in a county and total deposits in banks in the county measured in millions of dollars per square mile; • median value of single-family home; • government payments received per acre, excluding conservation payments; • median household income; • a rural–urban continuum indicator; • per-acre market value of agricultural products sold; and

Home Value 0.0032 Credit Availability (Total Deposits) 0.0672

The deposit variable coefficient of 0.0672 indicates that, for total deposits measured as millions of dollars per square mile, each additional $1 million in deposits implies a $67.20 per acre increase in land price—a substantial impact on land values.

A possible reason for this could be that when banks have more funds, they grant more loans to land buyers.

This increase in credit supply may push land prices up.

Single-Family Home Values (in Thousands of Dollars)

The estimated impact of the home value variable indicates that a $1,000 increase in home price generates only a $3.20 per acre increase in the price of rural land. This minor effect indicates that while expansion of the single-family home market has a statistically significant effect on rural land prices, that effect is not practically significant. Home price increases signal potential increases in demand for developed land, so this effect

Household Income 0.0731

Land Price

Rural Land Indicator -0.1529 Agriculture Production 0.0012

For more on this, see the online technical report Credit Availability’s Effect on Texas Rural Land Markets. would likely be larger in urban fringe markets.

Household Income

A $1,000 increase in median household income results in a $73.10 per-acre increase in land value. This suggests that increased prosperity, which improves purchasing power, greatly impacts rural land prices.

Agricultural Production Value Per Acre

Agricultural products (i.e., crops and livestock) sold also has a substantial impact on land prices, with a $1.00 increase in agricultural product value boosting land prices by $1.20 per acre.

Rural-Urban Indicator

The rural–urban continuum code variable, which is nearly statistically significant, indicates that distance affects Texas land values.

A larger code signifies a more rural county, while a smaller code signifies a more urban area. TRERC’s model shows a negative effect of -0.1529 for each unit increase in distance from population centers, indicating that the farther away the land is from metropolitan cities, the lower the demand for commercial land.

Most Impactful Factors

Several nonagricultural factors impact Texas rural land values, with median household income having the strongest influence.

Credit availability, however, is also a big driver, confirming results of multiple recent land value studies conducted outside of Texas. Lenders can assess and mitigate loan risks and better manage their investment portfolios if they are aware of these positive impacts on land values.

Tian Su, Ph.D. (tsu@tamu.edu) is an assistant research scientist at the Texas Real Estate Research Center at Texas A&M University.

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BROKERAGE

Municipal Utility District Notification

By Kerri Lewis Compliance Made Easier Key Takeaways • In 2023, the Texas Legislature revamped MUD Notice requirements for better accessibility.

• TREC introduced Form 59-0 to aid sellers in providing MUD Notices effectively.

• MUD Notices must be provided to buyers before contract execution or included as an addendum to the contract at the time of execution.

• Failure to deliver on time grants buyers termination rights or potential damages.

• Ensures transparency and smooth transactions, benefiting both buyers and sellers.

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rying to find information to complete a Municipal Utility District (MUD) Notice can be a dirty job.

Luckily, over the past year, the Texas Legislature and the Texas Real Estate Commission (TREC) have made it easier for the home seller to provide a complete MUD Notice.

To begin with, what is a MUD, and who regulates it?

In general, a MUD plays a crucial role in enabling development in areas that lack existing infrastructure. It is a political subdivision of the State of Texas authorized by the Texas Commission on Environmental Quality (TCEQ) to provide water, sewage, drainage, other utility-related services, and recreational services (such as parks, pools, and sport courts) within the MUD boundaries. They generally serve a master-planned community.

A MUD acts as a financing tool for developers to establish essential infrastructure in new developments. MUDs may adopt and enforce all necessary charges, fees, and taxes to provide district facilities and services. A board of directors, elected by the property owners, manages and controls all the MUD’s affairs.

The MUD can issue bonds to cover upfront costs of building water treatment plants, sewage systems, drainage systems, or other services.

Property taxes levied by the MUD then repay the bonds over time. This is why receiving a MUD Notice is so important to homebuyers: they need to know how much the current and future tax obligation on the property will be to the MUD before they agree to purchase the property.

TCEQ is responsible for the general supervision and oversight of MUDs. This includes monitoring MUD activities and their compliance with state laws, providing information to the public, and reviewing applications for the formation of a MUD. Once a MUD is approved, TCEQ appoints a temporary board of directors until an election by property owners in the district can be called to elect permanent board members.

What the Legislature Changed

In 2023, the Texas Legislature made significant changes to the MUD Notice form sellers are required to give to buyers. These changes were set out

in HB 2815 and HB 2816, and the new laws became effective in June and September of 2023, respectively.

These changed the responsibilities of sellers to notify buyers in the following ways: • The three MUD Notice forms set out in the statute were repealed, and a new section (49.4521) setting out required language that must be contained in any MUD Notice was added. This means there is no longer a specific set form for MUD notices as long as the required information is included in the form provided.

• The prescribed notice must include the title “NOTICE TO PURCHASER OF SPECIAL TAXING OR ASSESSMENT DISTRICT” in at least 24-point bold font.

• The new notice requirements contain more detailed information about tax rates, assessments, and services.

• MUDs are now required to post a copy of a MUD Notice containing all the information required

by Section 49.4521 applicable to their MUD on their website for public access (if they are required to maintain a public website under Section 26.18 of the Tax Code).

Overall, the changes in the bills aim to make MUD information more accessible to the public.

be a few that are not required to post it. To help license holders assist their clients in these situations, TREC adopted a new voluntary form effective February 2024 entitled “Notice to Purchaser of Special Taxing or Assessment District” (TREC Form 59-0). This new form contains all required statutory language but has blanks to fill in the specific data for the MUD where the property is located.

License holders can provide this form to sellers when there is not another compliant MUD Notice available to them.

The new form contains a caution to license holders and sellers about its use: Section 49.453, Texas Water Code, requires each district to make the form of notice containing the information in this form available to the public on the district’s website or otherwise. If available, Seller should use the district’s form instead of this form. If the district does not have the form of notice on its website or does not publish a form of notice, Seller should obtain the information from the

New TREC Form

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MUD Notice Delivery Requirements

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he bottom line for sellers and license holders is, if the seller fails to deliver the required notice to the buyer in a timely manner, the buyer has a right to terminate the contract at any time, up to and including the day of closing.

If a MUD Notice is not provided and the buyer closes on the property, the buyer may sue for damages in the future.

If, however, the seller delivers the required notice late, but before closing, and the buyer closes the purchase of the property, the buyer is deemed to have waived any right to terminate the contract or claim damages.

Kerri Lewis (kerrilewis13@gmail. com) is a research fellow with the Texas Real Estate Research Center EL LO and a member of the State Bar of Texas and former general counsel for the Texas Real Estate Commission.

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Consequences for Failing to Deliver

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oth the Texas Water Code and TREC contracts require the MUD Notice to be delivered. Section 49.452(a-1) of the Texas Water Code states “a person who proposes to sell or convey real property located in a district must give the purchaser the written notice as provided by this section and Section 49.4521.” Although MUD Notice content changed some, the delivery requirements of Section 49.452 did not. Even though they are not new, this is a good time for review.

Paragraph 6.E(3) of the One to Four Family Residential Contract (Resale) provides that if the property is in a district created under the Texas Water Code, that chapter “requires Seller to

• Execution: All sellers and buyers are required by the Texas Water Code to sign and date the MUD Notice. Sellers are signing the notice as they are providing it, and buyers are signing to acknowledge receipt (whether before execution of the contract or at closing of the contract).

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In other words, if there is no MUD Notice posted, it is the seller’s job to supply the information to be inserted into the new TREC form, and the seller should get that information directly from the district. If the MUD Notice is not posted on the district’s website, sellers might be able to obtain the required information directly from the MUD’s office or in the county property records if the MUD filed a notice there.

deliver and Buyer to sign the statutory notice relating to the tax rate, bonded indebtedness, or standby fee of the district prior to final execution of this contract.” Note that the seller and buyer are on notice of their requirements to sign the MUD Notice before executing the contract. Further, Paragraph 6.E.(11) specifically names “MUD” as one of the required notices that “have been given or attached to this contract,” serving as a second reminder to license holders and the parties.

The most important services a license holder for either the seller or the buyer can provide is to know where the MUDs are located in the area they serve and make their clients aware of the MUD Notice delivery requirements. So, what are the delivery requirements?

• Content: As previously discussed, Section 49.4521 sets out the specific type and form of information required to be included in the MUD Notice. This new section provides for more information to be given to the buyer.

• Timing: The MUD Notice must be delivered to the buyer before the purchase contract is executed or included as an addendum to the contract at the time of execution.

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district and complete this form with the information from the district.

& QA

Brokerage

A short sale is the sale of a property where the seller’s net proceeds will be insufficient to satisfy the balance of the seller’s mortgage loan(s). A seller can sometimes avoid foreclosure if a short sale can be negotiated.

Q

A seller who believes he cannot sell the property for what he owes has asked me to assist him in selling the property.

Is this a short sale? What should I do?

A

For Example

The law requires a license holder to be “educated in the characteristics involved in the specific type of real estate being brokered for others” [TREC rule 531.4 (4)]. It also requires that the license holder be mentored when performing a new type of brokerage activity the first three times [535.2(h)(5)]. Short sales are different from a sale where the proceeds of the sale cover the existing lien. Finally, if the lienholder does not have her own Short Sale Addendum (which many do), license holders are required to use TREC’s form 45-2 to attach to the contract pursuant to TREC Rule 537.11(a).

The seller in the question above has talked to his mortgage company and told them the situation (i.e., that he overpaid for the property a few years ago and cannot keep up with the payments). Several neighbors have been unable to sell their homes for a comparable price that would satisfy this seller’s mortgage loan. The seller is getting scared. He is supposed to start his new job in San Diego in two months and wants his family to move with him. The broker finds a willing mentor who is competent in short sales to assist in this listing. The mentor assisted more than 50 short sale sellers a few years ago and knows the tenacity and the processes it takes to get the approval of the lienholder to accept less than is owed and still release the lien against the property at closing.

Best Practice If you have no experience with short sales, you must have an experienced license holder help you every step of the way to be the best fiduciary you can be for consumers. Make sure you read and understand how TREC’s Short Sale Addendum works.

AR SE

H C

Kerri Lewis, J.D. (kerrilewis 13@gmail.com) is a member EL of the State Bar of Texas and LO former general counsel for the Texas Real Estate Commission (TREC). Avis Wukasch (avis@2oldchicks.com) is a broker and former TREC chair. Both are research fellows with the Texas Real Estate Research Center.

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First, if you think that “short sale” refers to the time it takes to close, you should not take this listing. However, you should ask your broker to help you find someone who is competent in assisting a seller complete a short sale to coach or mentor you through this process.

Texas Real Estate Commission form Short Sale Addendum (form 45-2) should be reviewed with the client and attached to the purchase contract.

What the Law Says

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What is a short sale?

By Kerri Lewis and Avis Wukasch

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Q A

Short Sales

Nothing in this publication should be construed as legal advice for a particular situation.

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13

Our Website Just Got Better!

Menu tabs labeled by sector to better help you find relevant content.

trerc.tamu.edu

Click “See all content” in the menu for each tab to access the site’s content library. The library includes advanced filtering options to let you search content by date range, topic, MSA, author, and more.

You can also view content chronologically in ascending or descending order.

All data pages now have enhanced user capabilities, including: • Advanced filtering options.

• Interactive tables giving you flexibility in terms of data selection.

• Increased chart selection, including on-demand chart creation (see housing data inset).

• Data gallery with interactive maps created using visualization software.

• Data export capabilities for all data sets.

14 TG SUMMER 2024

Hou

Regular users of the Texas Real Estate Research Center’s website likely noticed the site’s recent makeover—and it’s not just cosmetic. The biggest changes are enhanced site navigation and increased flexibility when viewing, filtering, and downloading data sets.

using activity data can be accessed under both the “Housing” and “Data & Reports” tabs.

Use the online subscription form to receive digital TRERC publications and notifications about upcoming conferences and events.

Quickly find information tailored specifically to you by selecting a persona, topic, and MSA from this dropdown menu at the top of every page.

Explore TRERC’s new website at trerc.tamu.edu

TG SUMMER 2024

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COMMERCIAL

Building a Better Lessons from University Investments

By Harold D. Hunt, Stephen A. Ramseur, Bucky Banks, and Hemashruthi Ganesh Key Takeaways • Mandates and traditional amenities have not lured employees back to offices following COVID. • Aligning office investments with modern university facilities could boost attendance and office values by creating innovative, collaborative environments.

• Successful investments in modern learning environments suggest similar strategies could enhance office spaces for better productivity.

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Workplace S

ince COVID, significant time and money have been spent trying to provide workers with an attractive “office experience,” hoping to lure them back to office properties. Investments in amenities such as gourmet food or health and wellness facilities haven’t been as successful as hoped. Only 14 percent of workers polled by CoStar felt that upgraded tenant amenities would motivate them to come into the office more frequently.

An even less successful alternative has been employer mandates forcing workers back. Not only have those not

been shown to increase productivity, but many workers can feel betrayed when companies mandate a full-time return to the office, according to IT research and advisory company Gartner.

CoStar reports that U.S. office attendance stabilized at about 50 percent of pre-COVID levels in 2023.

One casualty of poor attendance has been average office values, which decreased 50 percent in 2023 from their peak, according to CRED iQ data. More recently, the square footage of new leases is about 20 percent below the pre-COVID average.

Is it possible that the capital expenditures (CapEx, which, in this context, refers to investments used to build, upgrade, and maintain physical structures) being spent are not maximizing office worker attendance, productivity, and well-being? If so, targeting private-sector office CapEx to align with how funds are being spent on modern educational facilities at many American university campuses may be a more effective alternative.

Investments in state-of-the-art campus buildings designed to promote innovation and creativity are confirming that structures can positively impact people. However, CapEx invested in private commercial real estate must be spent carefully in today’s environment of higher capital costs. The goal of such spending should be to provide a solid return on investment (ROI) that attracts and retains the best talent, be it students or workers.

Different personality types must be considered when creating an office environment that is engaging and productive. The concept of “splitters” versus “blenders” was discussed in a 2022 Gallup report, where splitters work best at home or in the office but want to maintain a strict schedule of hours in each location. Alternatively, blenders prefer to work at their convenience on a weekend, in the evenings, or during the early morning hours.

Many younger workers who have become accustomed to such flexibility in academic settings will prefer similar flexibility in professional arenas. If the built environment, influenced by correctly targeted CapEx, can cater to such a flexible workforce, worker performance and satisfaction should be enhanced.

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HIGH-PERFORMING STUDENTS have been increasingly drawn to universities that offer more innovative, newly constructed facilities.

An example of targeted CapEx investment in commercial leased office space is KBS Realty Advisors’ $24 million upgrade of the 60 South Sixth office tower in Minneapolis.

Renovations were similar to those found in many innovative universities.

The retrofit was specifically designed to boost worker collaboration and productivity. Several real estate professionals in the Minneapolis market noted the growing demand for such creative workspace.

Closer to home, the six-story, 140,000-square-foot Soto building in San Antonio was completed in 2020.

Specifically designed to attract office tenants looking to hire and train the best talent (see the spring 2022 TG article “Flight to Quality”), the Soto is enjoying 95 percent occupancy.

CoStar reports 76 percent occupancy in San Antonio’s Class A office buildings completed since 2010.

Twenty-five of the top public and private universities based on U.S. News & World Report best colleges rankings were selected for an evaluation of their CapEx investment in facilities during the past ten years.

18 TG SUMMER 2024

The university findings were then compared to facility CapEx at the top ten U.S. employers as voted on by top university engineering students.

Although relationships between the variables discussed do not automatically mean that a change in one variable causes a change in others, the analysis does show multiple parallel relationships. As more data become available, further in-depth analysis will be required to confirm any causation.

What Attracts Students?

H

igh-performing students have been increasingly drawn to universities that offer more innovative, newly constructed facilities. Increased enrollment rates and targeted CapEx spending at public and private universities suggest investing in infrastructure may be attracting the best and brightest

students. A stronger relationship was found for private schools than for public schools, although both were positively impacted.

Increased CapEx moved in tandem with improvements in student work efficiency and collaboration.

The same positive relationship was discovered with higher academic achievements such as SAT scores and graduation rates. CapEx in the built environment may also enhance a student’s vocational, social, financial, and physical well-being based on a positive relationship with higher graduation rates and second-year salaries.

Salary levels indicate employers are willing to pay more for students from top universities, suggesting a positive ROI from university CapEx along with the student’s investment in their education.

Many U.S. public universities have increased capital expenditures significantly. The New York Post reported

that one university, the University of Kentucky, spent an astounding $805,000 per day on campus developments for more than a decade.

Corporate Findings

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he relationship between investment in physical infrastructure on university campuses and improved entrance scores, GPAs, and graduation rates led to a further examination of performance measures for workers in corporate America. Several interesting parallel relationships were discovered between CapEx spending and financial metrics.

Eleven years of data were examined from the top ten most popular U.S. employers: Google, Microsoft, Apple, GE, Intel, Amazon, Johnson & Johnson, IBM, Ford, and Boeing. The companies represent industries involved in technology, consumer products, automotive, and aerospace. A consistent investment in facilities was discovered.

Growth in CapEx by Microsoft and Johnson & Johnson compared with their total market capitalization demonstrated that both have grown CapEx

spending despite a higher cost of capital. Johnson & Johnson landed on Fortune’s list of World’s Most Admired Companies in 2023 and ranked number one on the pharmaceutical industry list. In 2023, Microsoft won Best Company Compensation, Best Company Perks & Benefits, Best CEOs for Diversity, Best Leadership Teams, Best Company Outlook, Best Engineering Teams, and Best Global Culture.

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19

Apple is also investing in a 900,000-square-foot campus on 281 acres in Wake County, North Carolina. The $1 billion investment will bring 3,000 jobs to the state. Ford Motor Company is investing $1.8 billion in its Oakville Electric Vehicle Complex, while Amazon is spending $2.5 billion on HQ2 in Arlington, Virginia. That facility will host over 2,000 employees.

The best companies to work for are attracting the best talent, and CapEx is one contributing factor to their financial and cultural success.

What This Means for Real Estate Professionals

In his 2020 book, Rethinking Real Estate, author Dror Poleg noted a significant gap between the enriching experiences students receive at top universities and what they may encounter in the typical corporate office environment. The disparity may be contributing to higher turnover rates in specific job roles. To address this, corporations and commercial real estate professionals must find the right balance of a cohesive corporate

culture and optimization of their office space to align with changing worker preferences.

Corporations adopting advancements found at leading universities implementing targeted CapEx should expect to hire and retain top talent in today’s evolving corporate landscape. Everyone would like to have a fabulous workplace, but firms must balance the productivity of their workers against the costs of such a space.

More affordable, lower-tier office space will continue to be in demand for some tenants.

Case Study: Wayne Roberts ’85 Building at Mays Business School at Texas A&M University

P

rivate universities often come to mind first when considering state-of-the-art educational facilities. Buildings such as the University of Chicago’s Charles M. Harper Center, Georgetown University’s Rafik B. Hariri Building, and MIT’s Lisa T. Su Building are enriching, collaborative, and visually beautiful structures worth studying. However, many public universities are embracing the notion that structures positively impact student performance as well.

A new building under construction for Texas A&M’s Mays Business School is a perfect example.

The Wayne Roberts ’85 building broke ground on Oct. 28, 2022. Slated for completion in late 2024, the fourstory 82,500-square-foot facility will 20 TG SUMMER 2024

house a variety of flexible spaces that will provide engaging instructional experiences and learning environments. The building will showcase how the power of targeted spending on physical structures can produce superior outcomes for both academia and private business.

“The vision for an expansion of Texas A&M’s business school was an environment that promotes three themes: connectivity, creativity, and collaboration,” said Bill Peel, executive director of learning environments for Mays. “The building is designed to be a reflection of how business will be conducted in the future.”

A great deal of thought went into how innovative academic spaces could foster those three themes.

Eight learning studios will be configured for maximum flexibility, enabling students to work in teams to solve real-world business challenges. The grand atrium will accommodate seating for up to 250 people for formal programs and speakers that can easily be reconfigured for other uses such as recruiting fairs or student events. A fast service café will offer interior casual seating for up to 50 people as well as additional seating on an adjacent patio. Collaboration Plaza will provide space for meetings and team sessions in an outdoor setting. The fourth floor will be dedicated solely to the Center for Executive Development.

The superior learning environment is intended to produce Mays graduates that perform better in today’s workplace. “The building is designed to create space where collisions occur,”

Research shows targeted and thoughtful capital investment in physical office infrastructure, mirroring investment by private and public universities, can lead to enhanced employee performance and wellbeing. A few visionary corporations have seen the benefits of targeted facility investments, although little research has focused on their achievements. Hopefully, the broader office market will consider trends shaping the future workforce when designing, developing, and leasing office space.

Harold D. Hunt, Ph.D. (hhunt@tamu. edu) is a research economist with the Texas Real Estate Research Center; Bucky Banks (bbanks@mays.tamu.edu) is associate director and executive assistant professor for Texas A&M’s Master of Real Estate program in Mays Business School; Stephen A. Ramseur is executive professor for Texas A&M’s Master of Real Estate program and holds the Julio S. LaGuarta Professorship in Real Estate; and Hemashruthi Ganesh is a graduate research assistant.

THE WAYNE ROBERTS ‘85 BUILDING, currently under construction at Mays Business School at Texas A&M University, seeks to showcase how targeted spending on buildings can produce superior outcomes in both academic and corporate environments.

said Peel. “Students are meant to collide with other students, faculty members, and former students. Those collisions result in conversations that create opportunities for learning.” he design was conceived after extensive facility benchmarking by Mays employees. The benchmarking involved an examination of: (1) other buildings on the A&M campus, (2) other Texas business schools, and (3) other business schools in the Southeastern Conference. Other facilities nationwide were also benchmarked, creating a library of outstanding facilities in the active learning space. The Dean’s advisory board also provided access to innovative private-sector spaces developed by corporations such as Deloitte, KPMG, and commercial brokerage firm CBRE.

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Three different task forces were formed during the development, with the first tackling university programming requirements for any new building on campus. The second task force worked closely with the architects during the planning and design phase while addressing overall budget considerations. The third task force was a micro-level group studying the actual learning environments.

“This last group got very granular, looking at what kind of technology to use and how interactivity could be built into the technology,” said Peel. “Everything from seating, work surfaces, tables, lectern configuration, and lighting was tested and chosen.”

Outside experts in technology and furnishings also worked with this group to implement what is producing

positive results in both higher education and corporate learning spaces.

“What you find out in this process is facilities should no longer be a static investment that remains unchanged for 30 years or more,” said Peel.

“Buildings should be an envelope to be reconfigured for whatever activities are going on inside them. As times change, you want your buildings to be more agile and adaptable. When this building comes on board, Mays will be right up there with the top business school facilities across the country.”

Exposure to such an advanced learning environment will produce students who have much higher expectations for their workplace facilities in the private sector.

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ECONOMY

Home Economics

By Daniel Oney

Analyzing Consumer Spending and Housing Costs

Key Takeaways • The Consumer Expenditure Survey helps revise the calculation of the Consumer Price Index and tracks household spending.

• Since the 1980s, housing expenses have risen while spending on transportation and food has declined, influenced by economic events like the 2007 housing bubble and COVID-19.

• Mortgage holders spend the most on housing.

In Texas, lower-income households spend a higher percentage of their income on housing than the national average.

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onsumer spending is fundamental to the economy, and Consumer Expenditure Survey (CES) data is a useful tool to assess the state of American and Texas households. With data spanning over 40 years and details on many budget categories, it is the most comprehensive survey of the spending habits of U.S. households. This article includes estimates of household spending over time and compares U.S. and Texas spending patterns with a focus on housing expenses. Real estate practitioners may find these metrics useful in their market analysis.

Figure 1. Spending by Major Category (U.S. Totals, 2022) Average Household Spending (=$72,967)

Long-Term Spending Trends

Food Housing Transportation Personal Insurance and Pensions

Healthcare Apparel Entertainment Other

Source: Texas Real Estate Research Center analysis of U.S. Bureau of Labor Statistics data

22 TG SUMMER 2024

The CES has many uses, including revising the calculation of the Consumer Price Index (CPI) and comparing household spending across all major expense categories (see sidebar for a discussion of the relationship between the CES and the CPI).

The U.S. Bureau of Labor Statistics (BLS) publishes both the CES and CPI. Consumer spending data are published annually with detailed information for the nation. More recently, the BLS has released somewhat less detailed data for the largest states, including Texas. The CES is the most comprehensive survey of Americans’ spending habits and covers every major item in most household budgets. Figure 1 shows the share of spending for the seven largest summary components plus the remainder. Over 100 expense components, including details on many types of food, apparel, fuels, and more, are published in CES tables annually.

Household spending patterns have been surprisingly stable from decade to decade. Figure 2 compares spending by large summary categories from 1984, the earliest available data for the current CES. The 2007 and 2019 data points are important benchmark years. They are snapshots of household budgets just prior to major economic events, specifically the

housing expenses ($19,000). Renters, which include those in single-family rentals and apartments, spend over $20,600 a year on housing.

Figure 4 presents housing spending as a share of total after-tax income.

Homeowners with a mortgage are still the highest spenders, devoting 39 percent of income to housing. Owners without a mortgage use only 16 percent of income on housing. Renters’ incomes are relatively lower than homeowners, and this leads to a 29 percent share going to total housing costs.

Comparing U.S. and Texas Housing Expenses

Figure 2. Consumer Spending by Major Category Over Time (U.S.)

35.1%

35.9%

37.2%

37.0%

19.6%

17.6%

17.0%

16.9%

30.4%

34.1%

32.8%

33.3%

15.0%

12.4%

13.0%

12.8%

1984

2007 2019 2022 Food Housing Transportation Other

Source: Texas Real Estate Research Center analysis of U.S. Bureau of Labor Statistics data

Great Recession (or Financial Crisis) and the COVID shutdown. The latest published data are for 2022.

The share of spending on transportation and food has decreased between 1984 and 2022, while the share spent on housing has fluctuated. Housing’s budget share reflects market circumstances in these years. Housing consumed the largest share in 2007 during the housing bubble before the Great Recession. It fell slightly just prior to COVID and increased again in 2022 during that fevered housing market.

The food budget has varied in recent years, but it remains below the 1984 high point. Transportation’s share of spending has consistently fallen over the interval.

Focusing on Housing As the largest component in the CES, housing deserves a closer look. The summary data presented above represent the average for all households.

In reality, different types of households have different spending profiles when it comes to housing.

Figure 3 compares the average spending based on housing tenure: homeowners with a mortgage, homeowners without a mortgage, and renters. Of the three types, mortgage holders spend the most on housing, over $38,000 annually on average.

Homeowners without a mortgage enjoy a much lower outflow due to

Looking closer to home, insights about Texas can be drawn from state-level data that the BLS began publishing in recent years. The BLS publishes data only for the four largest states (California, Florida, New York, and Texas). State results have less detail and higher margins of error than the national data. With these warnings in mind, one can still estimate the relative burden of housing on household budgets.

Figure 5 shows the share of total housing-related spending by Texans as a percentage of the national average spending. The results are shown for all households and by income quintile. For instance, for all households, when it comes to housing expenses, Texans spend 102 percent as much, or 2 percent more than, U.S. households overall.

Figure 3. Total Spending on Housing Items by Household Type (U.S.) $38,137

$19,088

Own With Mortgage

Own Without Mortgage

$20,627

Renters

Household Furnishings and Equipment Household Operations, Housekeeping Supplies Utilities, Public Services Other Lodging Maintenance, Repairs, Insurance, Other Property Taxes Mortgage (Interest +Principal)/Rent

Note: The CES applies mortgage interest as spending but mortgage principal as a change in net assets. This is correct from an economic accounting perspective, but households experience both components as an out-of-pocket expense. Data in this figure include interest and principal within the mortgage expense to present a more common-sense picture of spending.

Source: Texas Real Estate Research Center analysis of U.S. Bureau of Labor Statistics data TG SUMMER 2024

23

The chart also shows the situation in terms of spending on the three largest household expenses (housing, food, and transportation) combined. The spending gradient across income quintiles shows Texans with lower incomes tend to spend more on housing and the three major expenses than their national counterparts.

At higher income levels, Texans tend to spend a smaller share of income on these expenses. Specifically, Texas households in the bottom three quintiles (bottom 60 percent) spend more than the same quintiles nationally. Texas households in the top two quintiles (top 40 percent) spend less than those quintiles nationally. These income quintile results hold for housing and for the combined housing, food, and transportation comparison.

As this brief spotlight on high-level trends and some of the housing components shows, the CES can inform market analysis of residential and retail trends. The Texas Real Estate Research Center will continue mining this survey in its ongoing coverage of the Texas economy and its real estate markets.

Daniel Oney, Ph.D. (doney@tamu.edu) is research director with the Texas Real Estate Research Center.

Figure 4. U.S. Share of Spending on Housing Items

by Household Type (After Taxes)

40%

39%

Household Furnishings and Equipment Household Operations, Housekeeping Supplies Utilities, Public Services Other Lodging Maintenance, Repairs, Insurance, Other Property Taxes Mortgage (Interest +Principal)/Rent

29%

30% 20%

16%

10% 0%

Own With Mortgage

Own Without Mortgage

Renters

Source: Texas Real Estate Research Center analysis of U.S. Bureau of Labor Statistics data

Figure 5. Texans’ Spending as Percentage of U.S. Spending (Overall and at Income Quintiles) 130%

119% 102%

All

118% 102%

99%

Lowest Percent

Second Percent Housing

103%

Third Percent

93%

92%

Fourth Percent

87%

91%

Highest Percent

Housing, Food, Transportation

Note: Includes TRERC estimates of mortgage principle for Texas households. Data averaged over the 2012-22 period.

Source: Texas Real Estate Research Center analysis of U.S. Bureau of Labor Statistics data

Relationship Between CES and CPI

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he Consumer Price Index (CPI) attempts to measure inflation faced by U.S. consumers. Dating back to WWI, it is one of the oldest economic indicators published in the U.S. Essentially, the CPI measures the monthly percentage change in the prices U.S. households face. The index focuses on urban households.

It tracks many individual goods and services. The total sum of spending on these items is called the “basket.”

The U.S. government has a long history of collecting data on consumer spending, but the modern Consumer Expenditure Survey (CES) began publication in the 1980s. The data are collected through a combination 24 TG SUMMER 2024

of diaries and surveys completed by households throughout the year.

Government statisticians use the annual CES to see how much of household earnings are spent on each item in the basket. If spending on an item increases or decreases, that item is given more or less weight, respectively, in the CPI. Over time, changes in technology, tastes, and preferences can cause major shifts in household spending. For example, if the share of total spending going to food increased by one percentage point, then the CPI should give one percentage point more emphasis on food. Once the weights (shares) of all goods and services are known, they can be

multiplied by the latest prices for each item in the basket to produce a total spending estimate.

The BLS also attempts to adjust the CPI for factors like changes in the quality of goods and services.

Many different CPI indices are produced that represent price changes in the total basket and for components individually or in various combinations. For example, a widely watched index is for so-called core CPI, which excludes the often-volatile food and energy components. The current total weight or individual contribution to CPI for some key expenses include (out of a total 100 percent): food, 13.5 percent; shelter, 36.2 percent; and energy, 6.7 percent.

T CAS RE

TEXA SR

L ESTATE FO EA

2024

2024 Texas Real Estate Forecast By the TRERC Research Team

UPDATE

Approaching the midpoint of 2024, the Texas Real Estate Research Center (TRERC) research team’s expectations for key macro drivers—the foundation of TRERC’s asset forecasts this year—remained largely unchanged from the spring. Although interest rates and the consumer price index were both revised upward while natural gas prices were revised downward, the team does not think these will materially change their asset predictions from the spring update. However, more changes are expected for Legal & Geopolitical drivers (see below). To look back at our original forecast, use the QR code.

Key Macro Drivers Spring 2024

Revised Summer 2024

U.S. 1.9% to 2.9%

U.S. 1.9% to 2.9%

TX 2.9% to 3.9%

TX 2.9% to 3.9%

U.S. 1% to 2%

U.S. 1% to 2%

TX 2% to 3%

TX 2% to 3%

30-Year FMR 6% to 7.5% Federal Reserve Fed Funds Target Range 4.5% to 5.5%

30-Year FMR 6% to 7.75% Federal Reserve Fed Funds Target Range 4.5% to 5.5%

INCOME

TX 2.7% to 3.8% (nominal)

TX 2.7% to 3.8% (nominal)

SPENDING

U.S. 2% to 4% (nominal)

U.S. 2% to 4% (nominal)

POPULATION

1% to 2%

1% to 2%

INFLATION

Consumer Price Index 2% to 3% Producer Price Index 1% to 2%

Consumer Price Index 3% to 4% Producer Price Index 1% to 2%

West Texas Intermediate $80 to $100, ending 2024 at $90

West Texas Intermediate $80 to $100, ending 2024 at $90

Henry Hub Natural Gas Prices $2.75 to $3.75, ending 2024 at $3.50

Henry Hub Natural Gas Prices $2.00 to $3.00, ending 2024 at $2.25

ECONOMIC OUTPUT

JOBS

INTEREST RATES

ENERGY PRICES

LEGAL & GEOPOLITICAL

How it Changed

On June 28, the U.S. Supreme Court issued an opinion in Loper Bright Ents. v. Raimondo, overturning the Chevron doctrine. In cases challenging administrative rules promulgated by federal agencies, the Chevron doctrine required courts to defer to a “permissible” agency interpretation of those rules if the statute granting agency authority was ambiguous. The court held that Chevron deference is inconsistent with the Administrative Procedure Act and is no longer required. Courts must exercise their own independent judgment in interpreting administrative rules, as they would any other rule or statute. This opens the door for numerous challenges to administrative rules.

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Land Conference ROUNDUP Texas landowners wear many hats, and we don’t just mean Stetsons. In addition to land management and stewardship, they need a solid understanding of energy issues, changing state laws, land economics, and even ag-related crime prevention. A lineup of industry experts were on hand at the Texas Real Estate Research Center’s recent Outlook for Texas Land Markets conference to cover these topics and more. Here are some highlights.

Land Market Outlook “Markets depend on people’s attitudes about social and economic conditions. Current developments have soured the outlook for a significant proportion of Americans.

Heavy government debt contributes to this malaise. Uncertainty inspires investors to buy rural land.”

CHARLES GILLILAND, PH.D. Research Economist Texas Real Estate Research Center

Rural land markets across Texas continued to show signs of weakening, including the slowdown in the rate of price increases and drop off in activity. However, over the last two to three quarters, the rate of decline in sales volumes and acres sold has moderated. Additionally, while the statewide annualized price change remains positive, price changes are widely mixed across Texas land market areas, from down 24 percent to up 28 percent last year.

“We expect to see declines in the statewide price over the next four to six quarters, while we expect the drop in sales volumes and acres sold to bottom out and then gradually rise over the same time frame.”

LYNN KREBS, PH.D. Research Economist Texas Real Estate Research Center

Energy Markets Energy markets are following the lead of energy policy from the Biden administration. Implications of the Inflation Reduction Act and other acts are impacting markets.

26 TG SUMMER 2024

• Crude oil prices are increasing as producing countries respond to Biden administration actions. Expect high gasoline prices through 2024 and, depending on the election results, potentially into 2025.

• Natural gas, on the other hand, is in oversupply. Prices will remain low across the U.S. as the Biden administration attempts to limit exports and as crude prices remain high.

• Electricity grid continues to shift to more renewables. Reliability is a concern, resulting in an explosive move toward batteries.

• Not all of these moves are being addressed as positives.

For example, the industry is commenting heavily on the latest rules on governmental hydrogen subsidies.

DETLEF HALLERMANN, PH.D. Clinical Assistant Professor, Dept. of Finance Director, Reliant Energy Trading Center Texas A&M University

Economy Real estate markets depend on population growth, and Texas’ recent growth is not unprecedented.

California was the growth leader for 80 years but became less accommodating. Texas’ competitiveness will suffer without continued infrastructure and housing investment.

Most Texas growth is increasingly concentrated in the big cities.

If smaller metros could attract more growth, Texas might grow more affordable and with a higher quality of life.

The state’s economy is extremely dependent on high-end services.

Historic “real” sectors like energy and agriculture are growing slowly.

This service-led growth is adding economic value faster than jobs (i.e., GDP is growing faster than employment).

DANIEL ONEY, PH.D. Research Director Texas Real Estate Research Center

Inflation is still too high but has come down over the past year and is converging to the Fed’s 2 percent target.

The U.S. labor market remains strong, and lower inflation has not come at the cost of higher unemployment.

Demographics, technological change, and globalization are important drivers of the medium- to long-term outlook.

Aging (and in some cases shrinking) populations will weigh on global growth going forward. The U.S. is better placed than many other advanced economies in this regard.

Rapid technological change in recent years has not been accompanied by faster productivity growth. It remains to be seen whether AI will change that.

Globalization was a tailwind for global growth over the past quarter century and helped keep inflation in check. Deglobalization would deprive the global economy of that tailwind and create a more challenging environment for inflation control.

MARK A. WYNNE, PH.D.

VP and Associate Director of Research Federal Reserve Bank of Dallas

Legislative Update The new federal Corporate Transparency Act contains new reporting requirements for business entities and carries hefty civil and criminal penalties for failure to comply.

The Texas Legislature was busy.

Highlights include: • SB 1514, which changed the definition of “company agreement” in the context of limited liability companies (LLCs).

Business owners should be cautious about what “other writings” may potentially end up as part of their company agreement. A potential gray area includes emails and text messages.

• HB 3697 and HB 14, which are designed to streamline plat approval. Among other provisions, the bills prohibit counties from adding additional requirements, strengthen timing requirements, and allow for third-party document review or development inspection.

• HB 3492, which requires fees for processing engineering or construction plans or inspecting improvements to be set by considering the actual cost of the processing, rather than the cost of the construction or improvements to public infrastructure.

• HB 2127, which prohibits municipalities and counties from adopting or enforcing ordinances or rules inconsistent with state law, and allows persons to sue for violations of the prohibition.

Antitrust is the issue of the day in real estate. Recent settlements and pending cases are changing the landscape of the real estate industry. No one knows just how sweeping the effects will be. Recent settlements mean that sellers agents are no longer able to make blanket offers of buyer agent commissions

on an MLS. New practices will evolve to accommodate this change in the market.

Two companion cases currently under consideration at the U.S. Supreme Court have the potential to change the regulatory environment for years to come. The Supreme Court is considering overruling or modifying the “Chevron doctrine,” which requires courts to give broad deference to the exercise of rulemaking power delegated to federal agencies. The cases are Loper Bright Enters. v. Raimondo and Relentless Inc. v. Dept. of Commerce.

RUSTY ADAMS, J.D. Research Attorney Texas Real Estate Research Center

Agricultural Crimes Theft is on the rise. Property owners can make themselves a hard target by: • Photographing and documenting equipment and all other property.

• Branding cattle.

• Keeping gates locked and keys out of equipment.

• Investing in video cameras or game cameras.

• Taking note of suspicious vehicles.

• Immediately reporting theft to local law enforcement agency.

• Not disturbing a crime scene.

• Thoroughly researching Internet deals. There is a difference between a deal that is good and one that is too good to be true.

BO FOX Special Ranger Texas & Southwestern Cattle Raisers Association

Wildlife Management Rapid state growth is rapidly placing added pressure and demand on our rural landscapes. An early predictor of fragmentation and eventual

conversion of agricultural lands is increasing market values.

In addition to changes in farms and ranches, changes in landowner demographics have resulted in shifts toward non-traditional agricultural uses. For example, an increasing number of landowners have an interest in managing for wildlife populations instead of more traditional activities.

Wildlife management cooperatives serve as a tool to support these changes in land uses and associated landowner demographics as a mechanism for conservation and future stewardship of farms and ranches.

ROEL R. LOPEZ, PH.D. Director, Texas A&M Natural Resources Institute Professor, Department of Rangeland, Wildlife, and Fisheries Management Texas A&M University

Private Property Rights • Only 5.3 percent of America is developed, with 2.5 percent of this being open space, including city parks and golf courses.

• There has been no statistically significant change in conversion of land to development in recent years.

• Federal conservation programs create a federal nexus to the land.

• Lands with conservation easements in perpetuity are no longer private property. Control of the land is transferred from the landowner to the land trust or governmental entity.

• The Inflation Reduction Act changed the purpose of the conservation programs with the intention to mitigate climate change, reduce livestock emissions, and allow federal control of agriculture production.

MARGARET BYFIELD Executive Director American Stewards of Liberty

TG SUMMER 2024

27

Land Insights

By Lynn D. Krebs

Editor’s note: This article reflects the most current data available at the time the article was written (May 15, 2024).

Texas Rural Land Market Developments

T

ighter financial conditions and uncertainty about future economic and financial conditions continued to subdue activity in Texas rural land markets through first quarter 2024. Other contributing factors likely include constrained liquidity, declining personal net savings, and, potentially, geopolitical risks.

Nonetheless, regional differences across the state have become more pronounced, with mixed directions in price changes among the seven Texas regions. Two of the regions with the best price growth (Northeast and South) saw continued declines in quarter sales volumes. The two regions with the most negative price changes (West and Gulf Coast & Brazos Bottom) saw stabilization in sales volumes (at lower levels) over the past three quarters.

Year in Review – Large Land Sales

Annual sales volume slipped 34.7 percent year-over-year through 1Q2024 (Table 1). The volume is like that reported last quarter, though the year-over-year decline is not as drastic. Looking at quarter-only totals, the drop is also not as severe. Sales in 1Q2024 were down 13.4 percent from 1Q2023, and the 1Q2024 number Table 1. Annual Change in Statewide Land Metrics, 1Q2024 Statewide

Annual Change (Percent)

Price Per Acre

3.7

Total Dollar Volume

-40.9

Sales Volume

-34.7

Average Acreage Size

-24.8

Total Acres Sold

-43

Source: Texas Real Estate Research Center at Texas A&M University

28 TG SUMMER 2024

is likely to be revised slightly higher in upcoming quarters. Nonetheless, the continued cooldown in sales is obvious. Annualized sales volume has declined ten consecutive quarters to levels not seen since 2013.

Even while sales volumes continued to decline, albeit in smaller increments, prices rose at a pace slightly lower than last quarter and, for context, on par with the annual rates of increase in 2016 and 2017. Based on current data, statewide price rose 3.7 percent to $4,688 through first quarter 2024.

The real (deflated) price per acre rose a mere 1.1 percent.

The typical parcel size shrank from the same quarter a year ago, down by 24.8 percent to 1,186 acres. This was down from last quarter’s typical size of 1,301. Region 1 (Far West Texas), where size was down 28.3 percent, has a large impact on this number; although it accounts for a tiny proportion of the sales, it covers a large proportion of the state’s land mass. Nonetheless, size was down in every region except Region 1 (Panhandle and South Plains).

Total acres sold statewide was down 43 percent year-over-year. Every region saw a decline in total acres sold. Region 7 declined the least at 37.4 percent while Region 6 saw the steepest decline at 59.6 percent to the lowest level TRERC has on record dating back to 1966. Total dollar volume statewide declined by 40.9 percent over the prior annualized total to levels last observed in 2Q2020 and 2Q2017.

While the statewide rate of price increase slowed to below 4 percent, price was flat compared to 4Q2023.

However, price change results were widely mixed across the regions, with prices down from a quarter percent to nearly 5 percent in four of the seven regions and up by more than 10 percent in two of the others (Table 2).

Region 6, despite the massive decline in acres sold noted above, saw a hefty 10.8 percent increase in median price.

Overall, these results show market

Table 2. Annual Price Change

by Region, 1Q2024 Panhandle & South Plains

-0.3%

Far West Texas

54.8%

West Texas

-2.9%

Northeast Texas

10.2%

Gulf Coast & Brazos Bottom

-4.8%

South Texas

10.8%

Austin-Waco-Hill Country

-0.2%

Source: Texas Real Estate Research Center at Texas A&M University

activity has fallen below normal levels while price growth is weakening and appears to be turning negative.

Outlook

Texas rural land markets appear to be in a holding pattern of moderating declines in activity and declining rates of price appreciation and a higher number of land market areas (16 of 33) with negative annualized price changes. Widespread capitulation is still not evident, but reductions in listed prices are becoming more common.

Uncertainty in capital markets— specifically interest rate changes and available capital—and inflation are hovering over investment activity. TRERC’s latest forecast model indicates statewide price per acre is likely to decline in the next quarter or two and continue to gradually decline through 2025. The indicated 2024 year-end price is predicted to be 2 to 3 percent below the current level and potentially down 7 to 8 percent by the end of 2025. However, that same forecast is predicting total acres sold should reach a floor this quarter or next, then begin to gradually rise through 2025 and beyond. Specifically, the model predicts total acres sold to rise by 5 percent by the end of 2025.

Lynn D. Krebs, Ph.D. (lkrebs@tamu.edu) is a research economist with the Texas Real Estate Research Center.

For more information, see the Texas Real Estate Research Center’s rural land data page.

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