Tierra Grande - January 2018

JANUARY 2018 â„¢

JOURNAL OF THE REAL ESTATE CENTER AT TEXAS A&M UNIVERSITY

COLLEGE STATION, TEXAS 77843-2115

In This Issue Globalization and Manufacturing Texas Housing Pyramid Public Waterways Moving Texans Foreign Ownership of Land

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JOURNAL OF THE REAL ESTATE CENTER AT TEXAS A&M UNIVERSITY

Director, GARY W. MALER

14 Up the Creek

Chief Economist, JAMES P. GAINES Senior Editor, DAVID S. JONES

Navigating Public Waterways

Managing Editor, NANCY MCQUISTION

Texans love their lakes, ponds, rivers, and creeks. If you didn’t already know, state law gives you certain rights to use those waterways even if they cross private property. Learn the details of the law, then enjoy boating, fishing, and swimming to your heart’s content.

Associate Editor, BRYAN POPE Associate Editor, KAMMY BAUMANN Art Director, ROBERT P. BEALS II Graphic Specialist/Photographer, JP BEATO III Graphic Designer, ALDEN DeMOSS Circulation Manager, MARK BAUMANN Lithography, RR DONNELLEY, HOUSTON

BY RUSTY ADAMS ADVISORY COMMITTEE: Doug Roberts, Austin, chairman; Doug Jennings, Fort Worth, vice chairman; Mario A. Arriaga, Conroe; Russell Cain, Port Lavaca; Alvin Collins, Andrews; Jacquelyn K. Hawkins, Austin; Besa Martin, Boerne; Walter F. “Ted” Nelson, Houston; C. Clark Welder, San Antonio; and Bill Jones, Temple, ex-officio representing the Texas Real Estate Commission.

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

Telephone: 979-845-2031.

VIEWS EXPRESSED are those of the authors and do not imply endorsement by the Real Estate Center, Mays Business School, 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: JP Beato III, pp. 1, 16–17 (bottom); Real Estate Center files, pp.

2–3, 4, 5, 6, 7, 9, 11, 12, 15, 16–17 (top), 24–25, 26–27, 28; Robert Beals II, pp. 18–19, 21, 23. © 2018, Real Estate Center. All rights reserved.

2

Globalization’s Effects on Texas Manufacturing With its location on an international border and access to maritime trade routes through the Gulf of Mexico, Texas has reaped many benefits from free trade. But not all the effects have been positive. Here’s why.

BY LUIS B. TORRES AND WESLEY MILLER

7

How Much Home Can a Household Afford?

ON THE COVER Unexpected snowfall blankets Bryan

PHOTOGRAPHER JP Beato III

JANUARY 2018

Can your family afford a $200,000 home? Well, it depends. How much do you make? How much can you put down? Can you get a low mortgage interest rate? How high are property taxes in the area? In short, it’s complicated.

BY JAMES P. GAINES AND CLARE LOSEY

18 All the Right Moves

Texas has the highest mobility (people moving in state) in the nation, followed by Florida, California, and New York. It also attracts more movers from other countries than the U.S. does as a whole. All the relocating affects commercial and residential real estate markets.

BY ALI ANARI

24 This Land is Their Land

The amount of U.S. land owned by foreign investors might surprise many, with forestland, pastureland, and cropland being the most sought after. The U.S. Department of Agriculture’s Farm Service Agency has oversight.

BY CHARLES E. GILLILAND

1

Commercial

Globalization’s Effects on Texas Manufacturing Lu By

. Tor is B

res and Wesley Miller

nce again the impacts of free trade are at the forefront of international economic discussions. From renegotiating the North American Free Trade Agreement (NAFTA), to the Trans-Pacific Partnership, to Brexit, many nations are reanalyzing their views on international trade and globalization. This article examines the impacts of two major trade liberalization events on Texas manufacturing employment: the implementation of NAFTA and China’s accession into the World Trade Organization (WTO).

The general effects of globalization are well established.

Trade barrier reductions typically benefit economies at the aggregate level but, in turn, redistribute economic activity.

Distributional changes imply the transfer of resources from one group to another. For example, economic activity could shift between industries, geographic regions, or income strata.

Practically speaking, liberalizing trade has a net benefit for each participant, but there are respective winners and losers within the groups.

Within the United States, Texas benefits greatly from free trade because of its location on an international border and its access to maritime trade routes through the Gulf of Mexico.

Texas became the national export leader in 2002 and currently accounts for more than 17 percent of total U.S. exports. Texas

2

exports support over one million jobs, 95 percent of which are manufacturing related.

However, globalization and resource reallocation also harmed many Texans. Since 1975, more than 278,000 Texas jobs have been lost as a direct result of international trade. Communities supported by labor-intensive industries, such as the border metropolitan areas, suffered disproportionately. The consequences of intense exposure to foreign competition not only reduced jobs but subdued wages and labor force participation while increasing income assistance transfer benefits (such as Social Security disability insurance and temporary assistance for needy families). The breadth of these ensuing struggles illustrates the pains of trade liberalization within a benefitting group.

NAFTA eFFECTS After World War II, the U.S. became the global leader in trade liberalization efforts. While globalization trends emerged throughout the second half of the 20th century, the most

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contentious event was NAFTA in 1994.

NAFTA created a trilateral trade bloc between the U.S., Mexico, and Canada, effectually pioneering agreements between high- and low-wage countries.

Given the U.S.-Canada Free Trade Agreement of 1989, the effects of NAFTA pertained predominantly to trade with Mexico. rior to NAFTA, the U.S. maintained relatively low restrictions on Mexican manufacturing imports. Beginning in 1965, Mexican export assembly and processing plants along the U.S.-Mexico border benefitted from favorable U.S. duty regulations. A year before NAFTA was signed, the average U.S. tariff on imports from Mexico was 2.07 percent, while Mexico applied an average of 10 percent on U.S. exports.

Two years after NAFTA, Mexico’s average tariff on U.S. goods dropped to 2.9 percent and U.S. tariffs on Mexican goods fell to 0.65 percent.

NAFTA’s initial regulatory effect reduced Mexican import tariff and nontariff barriers, thereby benefitting Texas manufacturers. In 1994, real manufacturing exports

JANUARY 2018

from the U.S. to Mexico surged 14.7 percent (Figure 1) amid large increases in Texas productivity (Table 1). Exports fell in 1995 during the Mexican peso crisis but quickly recovered and kept pace with import growth for the remainder of the decade.

Under NAFTA, the exchange of manufactured goods flourished between the U.S. and Mexico, but its impact on

Figure 1. U.S. Trade with Mexico (Millions of Dollars)

140,000

Manufacturing Imports from Mexico Manufacturing Exports to Mexico

120,000 100,000 80,000 60,000 40,000 20,000 0 1974

1980

1986

1992

1998

2004

Note: 1987 Standard Industrial Classification (nominal data) Source: U.S. Census Bureau

3

Table 1. Average Annual Labor Productivity Growth (Percent)

Import Penetration

Thousands of Jobs

17.9 percent. The trilateral agreement phased out all duties for textile and apparel goods that met specific rules-of-origin requirements, generating massive gains in import penetration.

Year Total Nonfarm Manufacturing By 2000, the apparel import penetration ratio topped the manu1991–1993 –1.3 0.0 facturing subsectors, and the textile ratio increased six-fold, 1994–1997 6.1 8.6 effectively erasing these domestic industries in Texas.

1998–2001 1.4 4.4 Mexican imports also penetrated the durable goods industry, 2002–2007 1.9 10.2 which typically requires more capital-intensive production 2008–2009 0.4 –2.2 than do nondurable goods. Three durable goods subsectors (fab2010–2015 2.0 3.8 ricated metals, machinery, and computer and electronic prodSources: Bureau of Economic Analysis and Bureau of Labor uct manufacturing) accounted for over three-quarters of the Statistics manufacturing employment growth between 1994 and 2000, employment was less homogeneous. Mexican manufacturing despite significant exposure to Mexican competition. Theoreticompetition, measured by the manufacturing import penetracally, increased competition negatively affects employment. tion ratio (Mexican manufacturing imports/U.S. output plus But it may instead create production sharing between indusglobal manufacturing imports minus global manufacturing tries in two countries by complementing each other instead of exports), doubled in the first seven years of NAFTA (Figure 2). competing. The ambiguous relationship between import penFaced with growing competition, Texas manufacturers manetration and manufacturing jobs suggests foreign competition aged to add 106,800 jobs by only partially influenced Figure 2. Manufacturing specializing in their comemployment trends.

Import Penetration parative advantage—highly 1,150 0.08 Texas-Mexico skilled, capital-intensive Economic 1,100 0.07 production.

China Integration 1,050 nsurprisingly, two of 0.06 the U.S.’s traditionally 1,000 It is possible that pre0.05 protected labor-intenNAFTA trade liberalization 950 0.04 sive industries, textiles and in Mexico decreased Texas Manufacturing Employment 900 apparel, suffered the largest 0.03 manufacturing employ850 increases in Mexican import Mexico ment substantially in the 0.02 800 penetration. Before NAFTA, 1980s, thereby diminishing 0.01 750 65 percent of Mexican textile NAFTA’s impact. Mexiand apparel imports entered 0.00 700 co’s import penetration 1974 1980 1986 1992 1998 2004 the U.S. duty free, and the increased 18 straight years Sources: U.S. Census Bureau and Bureau of Economic Analysis remaining imports received before the agreement, accelan average tariff rate of erating in the mid-1980s

A CONTAINER SHIP in Galveston Bay (pp.

2–3, left to right), Texas Pipe and Supply Company’s lot in Houston, hundreds of cars at a shipping lot in Mexico, and spools on industrial sewing machines in China.

(This page, left), a car carrier being loaded with Volkswagen vehicles in Mexico’s Port of Veracruz.

(Right) Mexican textiles and apparel imports spelled doom for those industries in Texas.

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CARGO FREIGHT containers in the Port of Hong Kong (left). Chinese factory workers assemble and test disposable lighters (right). Gears are cut in a factory near Shanghai (next page).

during the initial trade reform. Manufacturing employment At the turn of the century, manufacturing trade flows with did fall 7.6 percent from 1980 to 1989 but was battered by two Mexico slowed as both economies entered national recessions. statewide recessions.

Simultaneously, China joined the WTO in December 2001, ata on trade adjustment assistance (TAA), provided to boosting its manufacturing import penetration above Mexico’s workers displaced as a direct result of foreign trade, (Figure 1). By 2003, China overtook Mexico as the second largillustrate NAFTA’s impact on Texas job displacement est import supplier to the U.S. behind Canada. Mexico’s import (Table 2). The four subsectors listed accounted for 70 percent penetration was stunted as China consumed its market share, of the certified manufacturing TAA between 1994 and 2000. consequently altering NAFTA’s impact on Texas manufacturing.

As expected, the Texas apparel industry had the greatest losses, The change negated the reallocation of labor-intensive jobs quadrupling the average petitions obtained by any other indusfrom Texas to Mexico and redirected their destination to try. In contrast, China. China’s the durable abundant, lowTable 2: Average Annual Certified TAA Petitions goods induscost labor force Electronic and Transportation Total tries, along attracted U.S. Years Apparel Electrical Components Equipment Machinery Manufacturing with fabricated and Mexican 1975–1982 4 1 3 1 13 metal product manufactur1983–1993 6 3 1 1 19 manufacturing, ing jobs alike.

1994–2000 24 6 2 4 52 led employFierce competi2001–2008 7 12 3 7 57 ment growth tion once again Source: Department of Labor Employment and Training Administration after NAFTA. forced North Why did the American successful industries, those that epitomize Texas’ comparative companies to improve efficiency and productivity. As a result, advantage in capital-intensive production, require TAA? Texas manufacturers specialized even more in capital-intensive Increased cross-border integration between Texas and Mexiindustries, thereby increasing their dependence on Mexican can manufacturers generated intra-industry reallocations. On inputs. The transportation equipment sector exemplifies this average, 40 percent of Mexican imports contain American advanced integration. Texas now holds a strong comparative components. NAFTA stimulated cross-border production proadvantage in automotive manufacturing, supported primarily cesses, allowing the import and re-export of intermediate goods by upstream activity in Mexico. without burdensome tariffs. This flexibility allowed manuChinese Trade Liberalization facturers to maximize efficiency by relocating upstream and Chinese trade liberalization began in the 1980s, resulting in downstream activities according to their comparative advanimmediate increases in manufacturing competition (Figure 2). tages. Even before NAFTA, 73 percent of U.S. imports from Despite geographical barriers, Chinese import penetration nearly Mexico and Canada were intermediate goods (components; not matched Mexico’s, even after NAFTA, and ballooned after its fully assembled). Intermediate imports from Mexico consist WTO accession. Chinese manufacturing primarily threatened primarily of durable goods, explaining the increased import Mexican producers because of their similar export baskets, namely penetration and TAA in these sectors, combined with employin apparel, computers, and electronic components (Figure 3). ment and productivity increases.

JANUARY 2018

5

competitive advantage, Texas labor productivity must accelerate.

The signing of NAFTA and China’s accession to the WTO altered Texas manufacturing as expected. Both events shifted production toward industries with comparative advantages, resulting in increased productivity. Mexico’s proximity to Texas creates a unique symbiotic manufacturing relationship that supports both economies’ global competitiveness. Chinese competition fundamentally changed NAFTA’s impact on Texas manufacturing by directly competing with Mexico for low-skill labor.

As Chinese labor costs rise, other developing nations will replace that role in the global production process. Low-skill manufacturing jobs will not return to Texas, but substantial employment growth is possible behind a productive and educated workforce.

Current NAFTA renegotiations present a major threat to Texas manufacturing. Texas has been a primary beneficiary Productive Texas Workforce of the increased economic integration with Mexico, driving Following the Great Recession, global economic factors tilted the state’s exports to the top of the nation. The elimination or in Texas’ favor. The companies that survived the economic significant altering of the agreement would shock employment downturn emerged more robust and output as production proand efficient. For example, cesses scramble to adjust after Figure 3. Import Penetration in Industries advances in horizontal drilling two decades of stability.

Most Affected by China technology catalyzed the Texas Jobs are certain to reallocate (Millions of Dollars) 0.5 shale oil boom, stimulating but not necessarily back to direct and tertiary manufacturTexas or the United States.

0.4 ing jobs. As previously stated, Southeast Asian cost advanChina Apparel the transportation equipment tages would likely attract China Computer & Electronic sector continues to compete 0.3 Mexican jobs that are currently globally, partially due to its competitive under NAFTA. economic integration with Decreased manufacturing com0.2 Mexican producers. Additionpetitiveness, stemming from Mexico Computer & Electronic ally, Mexico’s import penetrabroker or hindered cross-border 0.1 tion increased faster than the linkages, could also negatively Mexico Apparel Chinese rate from 2010 to 2015, affect Texas employment.

0.0 indicating further efficiency Although there is great 2002 2004 2006 2008 2010 2012 2014 2015 gains in the North American Sources: U.S. Census Bureau and Bureau of Economic Analysis potential to update the 23-yearproduction process. old agreement, there are even Current economic trends in China also support manufacturlarger risks associated with its demise. ing reshoring efforts. After decades of rapid growth, Chinese Dr. Torres (ltorres@mays.tamu.edu) is a research economist and Miller wages are rising and weakening China’s low-cost advantage (wamiller@tamu.edu) a research associate with the Real Estate Center at that originally attracted multinational companies. China is Texas A&M University. losing some jobs to low-wage nations, such as Bangladesh and India, while others are moving production back to North THE TAKEAWAY America. Texas competes globally for manufacturing jobs, even with developing economies. However, the employment deterNAFTA shifted Texas employment and production toward minant lies not with labor cost but with labor productivity. high-skill industries and stimulated integrated manuFrom 2010 to 2015, Texas manufacturing labor productivity facturing processes with Mexico. China extended these averaged 3.8 percent annual growth, slower than any posttrends into the 21st century.

NAFTA period outside the Great Recession. To maintain its

nlike the period of economic prosperity in the 1990s, globalization in the 2000s was entangled with two major recessions that structurally changed the economy. From 2002 to 2008, Texas manufacturing employment lost 23,100 jobs as Chinese manufacturing import penetration nearly doubled. However, the number of certified manufacturing petitions for TAA exhibited only a slight uptick, while manufacturing production expanded.

China’s largest impact on Texas employment occurred in the computer and electronic products sector, which thrived after NAFTA. The combination of low wages and a rapidly growing domestic market pulled computer and electronic manufacturers toward Asia.

This industry lost more Texas jobs (19,700) than any manufacturing subsector between 2002 and 2008 but maintained steady production growth from increased productivity.

6

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Residential

How Much Home Can a Household Afford?

By James P. Gaines and Clare Losey

Housing affordability is broadly defined as the ability of a household (or family) earning the median income to qualify for the median-priced home. The fundamental determinants—home price and household income—have diverged since the recovery from the Great Recession, causing national and statewide declines in housing affordability.

The Real Estate Center’s Housing Affordability Index employs median family income relative to the median home price. Another measure of affordability, the Texas Affordability Pyramid (the pyramid), estimates the number of households that can afford to purchase a home at specific price intervals based on household income.

JANUARY 2018

7

Effects of Mortgage Interest Rates and Tax Rates on Qualifying Income

Dollars

S

everal variables affect housing affordability, including the mortgage interest rate and the effective tax rate. High interest and tax rates decrease affordability by increasing the required income to qualify for a mortgage loan. According to the National Association of Realtors’ “2016 Profile of Home Buyers and Sellers Texas Report” (NAR Buyers/Sellers Report), 86 percent of homebuyers in Texas used mortgage debt financing in 2016. The required qualifying income determines how much home a household can purchase.

Figure 1. Texas Affordability Pyramid >750,000 500,000–749,999 400,000–499,999 300,000–399,999 250,000–299,999 200,000–249,999 175,000–199,999 150,000–174,999 125,000–149,999 100,000–124,999 70,000–99,999 <70,000

Base Assumptions Down payment: 10 percent Loan term: 30 years Interest rate: 4.15 percent Qualifying ratio: 35 percent Property taxes: 3 percent of home value Utilities: 2 percent of home value Insurance: 1 percent of home value The required qualifying income varies widely based on some underlying assumptions. Under the base assumptions above, the monthly mortgage payment for a $200,000 home with a $180,000 mortgage is $874.99. The total monthly payment, which factors in the additional costs of homeownership, increases the required payment by $1,000 to $1,874.99. Property taxes are $500 ($200,000 × 0.03/12); insurance, $166.67 ($200,000 × 0.01/12); and utilities, $333.33 ($200,000 × 0.02/12) per month. Thus, the required annual qualifying income is $64,285 to purchase a $200,000 house.

Changes to the underlying assumptions, such as the mortgage interest rate and the effective tax rate, affect a household’s ability to afford the same-priced home. As the mortgage interest rate or the effective tax rate increases, the required

6.0% 4.7% 5.7% 11.1% 7.7% 9.7% 5.9% 6.5% 7.1% 7.6% 9.7% 18.4%

0

2

4

6 8 10 12 14 Percent of Total Households

16

18

20

Sources: American Community Survey, U.S. Census Bureau, and calculations by the Real Estate Center at Texas A&M University

qualifying income increases, which decreases the number of households that can afford that home. In essence, a higher required qualifying income excludes more would-be buyers from homeownership at a given price. nder the base assumptions, of the 9.54 million Texas households in 2016, over one-quarter of all households (28.1 percent) could not afford a home priced more than $99,999. Homeownership is not financially feasible for the substantial portion of these 2.67 million households, who often rent instead.

More than half (55.2 percent) of all Texas households could not afford a home priced at $200,000 or more. Nearly threequarters of all households (72.6 percent) could not afford a home priced at $300,000 or more. Only 16.4 percent of all households (1.57 million) could afford a home priced at $400,000 or more (Figure 1).

If the mortgage interest rate increases to 7 percent, the monthly mortgage payment for the same $200,000 home is $1,197.54, and the total monthly payment is $2,197.54. The

U

Texas Affordability Pyramid The Texas Affordability Pyramid calculates the required income to qualify for a mortgage loan for selected home prices. It then calculates the number of households that earn the required qualifying income for each home price and translates this into the percentage of all households that can afford each home price.

The pyramid considers mortgage principal and interest (the monthly mortgage payment) as well as additional regular and necessary monthly 8

costs of homeownership, such as property taxes, insurance, and utilities.

The monthly mortgage payment and the additional costs of homeownership equal the total monthly payment. The required qualifying income is computed from the total monthly payment. The model applies a qualifying ratio of 35 percent. That is, the total monthly costs of principal, interest, taxes, insurance, and utilities cannot be greater than 35 percent of gross monthly income.

The effective property tax rate is assumed to be 3 percent of home value, while insurance and utilities are assumed to be 1 and 2 percent of home value, respectively. Utilities include the cost of electricity, natural gas, water, and sewer.

The pyramid uses the effective property tax rate as opposed to the nominal tax rate. The effective tax rate represents the actual property tax payment divided by the current property value.

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More than half of all Texas households could not afford a home priced at $200,000 or more. Nearly three-quarters of all households could not afford a home priced at $300,000 or more. Only 16.4 percent of all households could afford a home priced at $400,000 or more.

Table 1. Required Qualifying Income Relative to Mortgage Interest Rate Home Price ($)

3%

4%

4.15%

5%

6%

7%

50,000 100,000 150,000 200,000 250,000 300,000 400,000 500,000 750,000

$15,076 30,152 45,229 60,305 75,381 90,457 120,609 150,762 226,143

$15,937 31,875 47,812 63,749 79,686 95,624 127,498 159,373 239,059

$16,071 32,143 48,214 64,285 80,357 96,428 128,570 160,713 241,070

$16,854 33,708 50,561 67,415 84,269 101,123 134,831 168,538 252,807

$17,822 35,643 53,465 71,287 89,108 106,930 142,573 178,216 267,325

$18,836 37,672 56,508 75,344 94,180 113,017 150,689 188,361 282,541

Note: Applies base assumptions, except for changes in mortgage interest rate.

Source: Real Estate Center at Texas A&M University

additional costs of homeownership remain the same. The required qualifying income escalates to $75,344 (Table 1). This near-3 percentage point increase in the mortgage interest rate raises the required qualifying income by over $10,000.

A decline in the mortgage interest rate to 3 percent reduces the monthly mortgage payment to $758.89 and the total monthly payment to $1,758.89, and the required qualifying income to $60,305. For the same $200,000 home, this 4 percent difference in the mortgage interest rate (from 3 to 7 percent) JANUARY 2018

produces a $15,039 range for the required qualifying income.

Changes to the effective tax rate follow a similar pattern. Using the base assumptions, the total monthly payment is $1,874.99, of which the tax payment is $500. If the effective tax rate were 1 percent, the monthly mortgage payment remains the same ($874.99), but the total monthly payment decreases to $1,541.65. The tax payment declines to $166.67 per month or $2,000 per year.

Table 2. Required Qualifying Income Relative to Effective Tax Rate Home Price ($)

1%

2%

50,000 100,000 150,000 200,000 250,000 300,000 400,000 500,000 750,000

$13,214 26,428 39,642 52,857 66,071 79,285 105,713 132,142 198,212

$14,643 29,285 43,928 58,571 73,214 87,856 117,142 146,427 219,641

3% $16,071 32,143 48,214 64,285 80,357 96,428 128,570 160,713 241,070

4%

5%

$17,500 35,000 52,500 70,000 87,499 104,999 139,999 174,999 262,498

$18,928 37,857 56,785 75,714 94,642 113,571 151,428 189,285 283,927

Note: Applies base assumptions, except for changes in effective tax rate.

Source: Real Estate Center at Texas A&M University

9

I

f the effective tax rate equals 5 percent, the total monthly payment increases to $2,208.32. The tax payment rises to $833.33 per month or $10,000 per year. The required qualifying income increases from $52,857 at a 1 percent tax rate to $75,714 at a 5 percent tax rate (Table 2). For the same $200,000 home, this 4 percentage point difference in the effective tax rate (from 1 to 5 percent) produces a near-$23,000 range in the required qualifying income.

As the interest rate increases, the number of households priced out of homeownership at each price interval increases (Table 3). If the interest rate were 7 percent, over three-fifths (62.4 percent) of households could not afford a home priced at $200,000 or more. This translates into 5.95 million households that could not afford a home priced at $200,000 or more.

If the effective tax rate was 1 percent, only 46.5 percent of all households (4.43 million households) could not afford a home priced at $200,000 or more. Under the base assumptions, 1.53 million more households are priced out of homeownership at the $200,000 level if the tax rate increases from 1 to 5 percent (Table 4).

Clearly, the greatest impact of changes to the effective tax rate on housing affordability is at the lower price levels.

Down Payment Effect on Affordability

Changes to the down payment also affect housing affordability.

A higher down payment actually results in higher affordability. A lower down payment increases the monthly mortgage payment and dictates that households must earn a higher required qualifying income to purchase Table 3. Cumulative Number of Households That Could Not Afford a Home the same-priced home (Table 5). Under Above Indicated Price Interval in 2016 Based on Mortgage Interest Rate the base assumptions, a household must earn $64,285 to qualify for a $200,000 Highest Priced Mortgage Interest Rate home. The household must earn $65,952 Affordable Home to qualify for the same-priced home with ($) 3% 4% 4.15% 5% 6% 7% a 5 percent down payment and $66,452 <100,000 2,482,712 2,648,796 2,674,650 2,825,578 3,005,595 3,180,581 with a 3.5 percent down payment.

100,000–199,999 4,998,684 5,217,453 5,251,508 5,450,314 5,696,199 5,947,641 As the down payment decreases, the 200,000–299,999 6,634,138 6,868,829 6,905,363 7,104,712 7,296,717 7,497,976 number of households that could not 300,000–399,999 7,749,032 7,943,928 7,965,285 8,089,964 8,244,167 8,399,453 afford a home at each price interval 400,000–499,999 8,400,236 8,492,602 8,506,980 8,590,917 8,694,731 8,803,548 500,000–749,999

8,948,228

8,958,032

8,959,558

8,968,468

8,979,487

8,991,037

Note: Applies base assumptions, except for changes in mortgage interest rate.

Sources: American Community Survey, U.S. Census Bureau, and calculations by the Real Estate Center at Texas A&M University

Table 4. Cumulative Number of Households That Could Not Afford a Home Above Indicated Price Interval in 2016 Based on Effective Tax Rate Highest Priced Affordable Home ($)

Effective Tax Rate 1%

2%

3%

4%

5%

<100,000 100,000–199,999 200,000–299,999 300,000–399,999 400,000–499,999 500,000-–749,999

2,133,283 4,432,454 6,126,644 7,256,494 8,036,410 8,909,222

2,401,129 4,869,987 6,516,003 7,634,379 8,320,931 8,943,293

2,674,650 5,251,508 6,905,363 7,965,285 8,506,980 8,959,558

2,950,093 5,614,453 7,232,884 8,192,901 8,660,217 8,975,823

3,196,512 5,964,422 7,516,298 8,407,378 8,813,455 8,992,088

Note: Applies base assumptions, except for changes in effective tax rate.

Sources: American Community Survey, U.S. Census Bureau, and calculations by the Real Estate Center at Texas A&M University

If the interest rate was 3 percent, 52.4 percent of all households could not afford a home priced $200,000 or more. The number of households that could not afford a home at the $200,000 level declines to five million at a 3 percent interest rate. Under the base assumptions, nearly one million more households are priced out of homeownership at the $200,000 level if the interest rate increased to 7 percent instead of 3 percent.

Similar to the mortgage interest rate, if the effective tax rate increases, the number of households priced out of homeownership increases. At an effective tax rate of 5 percent, 62.5 percent of households (5.96 million) could not afford a home priced at $200,000 or more.

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Table 5. Required Qualifying Income Based on Down Payment

Home Price ($)

20%

10%

5%

3.50%

50,000 100,000 150,000 200,000 250,000 300,000 400,000 500,000 750,000

$15,238 30,476 45,714 60,952 76,190 91,428 121,904 152,380 228,570

$16,071 32,143 48,214 64,285 80,357 96,428 128,570 160,713 241,070

$16,488 32,976 49,464 65,952 82,440 98,928 131,904 164,880 247,320

$16,613 33,226 49,839 66,452 83,065 99,678 132,904 166,130 249,194

Note: Applies base assumptions, except for changes in down payment.

Source: Real Estate Center at Texas A&M University

Table 6. Cumulative Number of Households That Could Not Afford a Home Above Indicated Price Interval in 2016 Based on Down Payment

Highest Priced Affordable Home ($)

Down Payment 20%

10%

<100,000 100,000–199,999 200,000–299,999 300,000–399,999 400,000–499,999 500,000–749,999

2,513,921 5,039,794 6,678,240 7,791,835 8,417,593 8,950,070

2,674,650 5,251,508 6,905,363 7,965,285 8,506,980 8,959,558

5%

3.50%

2,755,014 5,357,365 7,018,924 8,031,672 8,551,674 8,964,302

2,779,123 5,389,123 7,052,992 8,051,588 8,565,082 8,965,725

Note: Applies base assumptions, except for changes in down payment.

Sources: American Community Survey, U.S. Census Bureau, and calculations by the Real Estate Center at Texas A&M University TIERRA GRANDE

As the down payment decreases, the number of households that could not afford a home at each price interval increases. With a 20 percent down payment, 52.9 percent of households could not afford a home priced at $200,000 or more.

Households Priced Out of Homeownership

T

he pyramid also measures the impact of incremental increases in home price on housing affordability. For each increase in home price, a certain number of households are priced out of homeownership. The pyramid calculates the average number of households that could not afford a $1,000 increase in home price (Figure 2).

JANUARY 2018

Increases in home price disproportionately affect lowerincome households. A greater number of households could not afford a $1,000 increase in home price at lower price intervals.

The average number of households that could not afford a

Figure 2. Average Number of Texas Households That Cannot Afford a Home Price Increase of $1,000 Number of Households

increases (Table 6). With a 20 percent down payment, 52.9 percent of households (5.04 million households) could not afford a home priced at $200,000 or more. This portion increases to 55.1 percent (5.25 million households) with a 10 percent down payment, 56.2 percent (5.36 million households) with a 5 percent down payment, and 56.5 percent (5.39 million households) with a 3.5 percent down payment.

This 16.5 percentage point decline in the down payment (from 20 to 3.5 percent) produces a 3.6 percent increase in the number of households that could not afford a home priced at $200,000 or more. Under the base assumptions, this seemingly modest increase translates into an additional 349,329 households that could not afford a home priced at $200,000 or more.

35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 75

110 145 180 215 450 Home Price Intervals (Dollars in Thousands)

750

Note: Applies base assumptions.

Sources: American Community Survey, U.S. Census Bureau, and calculations by the Real Estate Center at Texas A&M University

11

$1,000 increase in home price decreases as the home price increases.

An average of 30,735 households could not afford a $1,000 increase in home price in the $75,000 to $100,000 price interval. (For the required qualifying income corresponding to each home price, refer to the base assumptions in Table 1.) An average of 28,018 households could not afford a $1,000 increase in home price in the $100,000 to $150,000 price interval. This average decreases to 23,519 households in the $150,000 to $200,000 price interval, 19,769 households in the $200,000 to $250,000 price interval, 9,327 households in the $250,000 to $500,000 price interval, and 1,810 households in the $500,000 to $750,000 price interval.

Home-Purchase Multiplier The home-purchase multiplier, or the ratio of home price to required qualifying income, provides another perspective on affordability. For the same-priced home, a lower required qualifying income increases the home-purchase multiplier.

Affordability increases as the multiplier increases because the required qualifying income decreases relative to home price. A higher multiplier effectively implies that buyers can purchase more housing per dollar of income.

Tables 7 and 8 depict the home-purchase multipliers at different mortgage interest rates and effective tax rates, respectively. As either rate increases, the multiplier decreases.

This means that buyers can purchase less housing relative to income. As the multiplier declines, homebuyers must earn higher incomes to purchase the same-priced home.

As the down payment decreases, the multiplier decreases (Table 9). Homebuyers must compensate for the smaller initial outlay of cash through a higher required qualifying income to purchase the same-priced home. hanges to the mortgage interest rate, effective tax rate, and down payment affect the maximum home price a particular household can afford. As the mortgage interest rate increases, the maximum home price a household can afford decreases. An increase in the interest rate from 3 to 5 percent decreases the home-purchase multiplier from 3.32 to 2.97. This means that for a household earning the median statewide income in 2016 ($56,565), the maximum home price affordable for that household decreases from $187,597 ($56,565 Ă&#x2014; 3.32) to $167,811 ($56,565 Ă&#x2014; 2.97).

Based on an increase in the interest rate from 3 to 5 percent, for a household earning 50 percent of the median income ($28,283), the maximum home price affordable for that household declines from $93,799 to $83,905. For a household earning 150 percent of the median income ($84,848), the maximum

C

12

TIERRA GRANDE

home price affordable for that household declines from $281,396 to $251,716.

Changes to the effective tax rate follow a similar pattern.

If the effective tax rate increases from 2 to 4 percent, the maximum home price affordable for a household earning the median income decreases from $193,150 to $161,615. In this

instance, the home-purchase multiplier declines from 3.41 at a 2 percent effective tax rate to 2.86 at 4 percent. Even a seemingly small change in the home-purchase multiplier significantly affects housing affordability.

As the down payment decreases, the maximum home price a household can afford also decreases. If the down payment decreases from 10 to 5 percent, the maximum home price affordable Table 7. Maximum Affordable Home Price Based on Mortgage Interest Rate for a household earning the median Maximum Home Maximum Home Maximum Home income decreases from $175,981 to Price Affordable to Price Affordable Price Affordable to $171,534. According to NARâ&#x20AC;&#x2122;s Buyers/ HomeHouseholds Earnto Households Households Earning Sellers Report, the median percent Interest Purchase ing 50% of Median Earning Median 150% of Median of the purchase price financed by all Income Income Income Rate Multiplier homebuyers in Texas was 94 percent 3% 3.32 $93,799 $187,597 $281,396 in 2016. This equates to a 6 percent 4% 3.14 $88,731 $177,461 $266,192 down payment, which actually damp4.15% 3.11 $87,991 $175,981 $263,972 ens housing affordability. Households 5% 2.97 $83,905 $167,811 $251,716 that are able to outlay a larger down 6% 2.81 $79,349 $158,698 $238,046 payment can also qualify for a higher7% 2.65 $75,075 $150,151 $225,226 priced home.

Note: Applies base assumptions, except for changes in mortgage interest rate.

Under the base assumptions, a Source: Real Estate Center at Texas A&M University household earning the median statewide income in 2016 could afford a Table 8. Maximum Affordable Home Price Based on Effective Tax Rate maximum home price of $175,981.

Maximum Home Maximum Home Maximum Home However, in 2016, the statewide Price Affordable to Price Affordable Price Affordable to median sales price was $210,000.

HomeHouseholds Earnto Households Households Earning Under the base assumptions, 57.2 Effective Purchase ing 50% of Median Earning Median 150% of Median percent of households in Texas could Income Income Income Tax Rate Multiplier not afford to pay the median sales price 1% 3.78 $107,016 $214,032 $321,048 in 2016. If growth in the median sales 2% 3.41 $96,575 $193,150 $289,726 price continues to outpace household 3% 3.11 $87,991 $175,981 $263,972 income growth, the share of house4% 2.86 $80,808 $161,615 $242,423 holds that cannot afford the median5% 2.64 $74,709 $149,418 $224,127 priced home will increase. This would Note: Applies base assumptions, except for changes in effective tax rate. price more would-be buyers out of Source: Real Estate Center at Texas A&M University homeownership.

Table 9. Maximum Affordable Home Price Based on Down Payment

Down Payment

HomePurchase Multiplier

Maximum Home Price Affordable to Households Earning 50% of Median Income

20% 10% 5% 3.50%

3.28 3.11 3.03 3.01

$92,803 $87,991 $85,767 $85,122

Maximum Home Price Affordable to Households Earning Median Income

Maximum Home Price Affordable to Households Earning 150% of Median Income

$185,605 $175,981 $171,534 $170,244

$278,408 $263,972 $257,301 $255,365

Note: Applies base assumptions, except for changes in down payment.

Source: Real Estate Center at Texas A&M University JANUARY 2018

Dr. Gaines (jpgaines@tamu.edu) is chief economist and Losey a research assistant with the Real Estate Center at Texas A&M University.

THE TAKEAWAY Higher interest rates and tax rates and a lower down payment decrease affordability and price more households out of homeownership.

13

Legal Issues

Up the Creek

Navigating Public Waterways

By Rusty Adams

R

unning water seems always to have held a certain allure for mankind. Since the beginning of time, rivers and creeks have been used for transportation, trade, recreation, and, well, water. They have a way of being simultaneously new and ancient. Timeless and spiritual, they have been the subject of writers from Moses and David to Longfellow and Kipling.

“There’s somethin’ ’bout a river rollin’ by,” Gary P. Nunn musically quipped, “that makes you want to jump off in it, and let it take you for a ride.”

But what if you do? Can you ride that river through another’s property? Can someone else ride it through (or along) yours?

What does the law have to say about the rights of landowners and the public in rivers and streams? If they are navigable waters, quite a bit. Oddly, running water is optional.

Because the respective property rights in rivers and streams depend on whether the water is navigable, it’s appropriate first to examine the standards for navigability. Texas law traces its history to the king of Spain and a body of Spanish law called Las Siete Partidas, which states that the things that belong to all of the creatures that live in the world are air, waters of the rain and sea, and the banks. Any living creature may use them according to its needs. It goes on to say that ports, rivers, and public roads belong to all people.

Spanish Law Prevailed Spanish law became Mexican law, and when Texas became an independent state in 1836, it took all of the rights of the previous sovereign. When Texas joined the union, it retained all of its preexisting property rights, so in determining public and private property rights, federal law has little application. This is also why Texas state waters extend nine nautical miles off the coast instead of the usual three.

A stream may be navigable in one of two ways: navigable by statute or navigable-in-fact. It does not have to meet both

14

criteria; one is enough. A stream is navigable by statute if it retains an average width of 30 feet from the mouth up.

This seems straightforward enough, but how this is calculated and determined by the courts leaves something to be desired. In general terms, the average distance is measured between the “fast” land banks, which separate the stream bed from the adjacent upland and confine the waters to a definite channel. It is not measured at the actual or average water level, nor is it measured from the “gradient boundary,” which divides public and private ownership.

The water itself does not have to be 30 feet wide, and segments of the stream may be narrower, as long as the average width of the channel is at least 30 feet. The stream does not have to be passable by any type of watercraft or product, and it does not even have to contain water at all times. A dry creek bed may still be part of a navigable waterway. (Tex. Nat. Res. Code Section 21.001[3], Motl v. Boyd, 116 Tex. 82 [1926], Oklahoma v. Texas, 260 U.S. 606 [1923], and other cases.)

There is no “bright-line rule” for whether a stream is navigable-infact. Generally, it is navigable-infact if it is capable of being used in commerce. Courts have examined whether it can be used for “customary modes of trade and travel,” including whether it is passable by boat or raft and whether it can be used to float logs. It does not TIERRA GRANDE

JANUARY 2018

15

have to be usable all year, but as the court has said, “Behind all definitions of navigable waters lies the idea of public utility.”

Navigable Streams, Public Access

T

he Texas Constitution (Art. XVI, Sec. 59) and the Water Code (Sec. 1.003) set out broad public policy for state conservation and development of the state’s natural resources, including the navigation of Texas waters. All public Texas freshwater lakes, rivers, creeks, and bayous are open to the public (Tex. Parks & Wild. Code Section 1.012). This has been further developed elsewhere in Texas statutes and cases. The Texas Supreme Court has held that navigable streams (whether navigable by statute or navigable-in-fact) are public highways and that lands underlying them are held in trust by the state for the use and benefit of all the people.

Navigable waters are held by the state for the benefit of the public, which has the right to travel up and down the bed of a navigable stream even if the stream goes through private property. The public may use the waterway for boating, fishing, swimming, wading, and walking, probably including walking in the dry bed of a navigable stream. These are the specifically recognized rights of the public, and there may be more.

Obstruction of a navigable waterway is a criminal offense (Tex. Pen. Code Section 42.03), as is restricting public recreational access (Tex. Parks & Wild. Code Section 90.008). Even a person expressly granted authority to build a bridge or dam may not obstruct the navigability of the stream. If a person legally dams a stream to create a lake, the stream bed is owned by the state; the rest of the lake bed is

owned by the landowner. The public has the right to navigate the waters and take fish (both of which belong to the state) but not to use the bed and banks of the lake. For example, see Diversion Lake Club v. Heath, 86 S.W.2d 441 (Tex. 1935).

Emergency Access The public may not cross private property to reach a navigable waterway but probably may make limited use of the banks.

The courts have left open the question of whether the banks may be used for portage and scouting of hazards, but it is likely that these rights are encompassed in the right of navigation.

The public may make use of the banks and adjoining property in an emergency or if otherwise necessary to avoid imminent harm (Tex. Pen. Code Section 9.22) but is liable to the property owner for any damages. Those members of the public who use the banks in emergencies or in portage and scouting should use the banks only as necessary and with due respect for the property and the rights of landowners. In any of these cases, no amount of use is sufficient to create a prescriptive easement (Tex. Parks & Wild. Code Section 90.007).

There is an exception to state ownership of navigable waterways, but it does not dramatically change the rights of the public. Some old surveys were drawn so that private tracts of land included navigable waterways. Since the navigable waterways were owned by the state, this was improper. To rectify the situation, the legislature passed the “Small Bill,” which relinquished title to

Navigable waters are held by the state for the benefit of the public, which has the right to travel up and down the bed of a navigable stream even if the stream goes through private property.

16

the stream beds to the landowners but reserved the rights to the sand and gravel to the state and the rights of use to the public. Therefore, as a practical matter, the public has the same rights in these streams as others. The landowners were happy to retain title to the oil and gas underneath.

Rules of Trespass Apply Where do the rights of the public end and those of the landowner start? As mentioned previously, the general rule is that the dividing line is the “gradient boundary,” which is “midway between the lower level of the flowing water that reaches the cut bank and the higher level of [the flowing water] that just does not overtop the cut bank.” (Diversion Lake Club v.

Heath, 86 S.W.2d 441 [Tex. 1935] and Oklahoma v. Texas, 260 U.S. 606 [1923]). In most cases, that line is not easy to define.

Additionally, if a property description says otherwise, the boundaries may be different. andowners are also restricted in certain ways from using the banks and beds of navigable waterways that flow along or through their property. In addition to the restrictions on obstruction of navigability, landowners (and the public) are generally prohibited from operating a motor vehicle in the bed of a navigable waterway (Tex. Parks & Wild. Code Section 90.002). Numerous exemptions from this rule are found in Texas Parks & Wildlife Code Section 90.003. For example, a state, county, or municipal road right-of-way is exempt. The bed may be used in usual and customary agricultural activities or in an emergency. Exemptions also apply for government business, uses authorized by mineral leases, and for private crossings established on or before December 31, 2003. Additional exemptions also exist and are enumerated in the statute.

While landowners must allow members of the public to exercise their rights, the rules regarding trespass are typically the same as with any other property. Those on the property of another are trespassing if they

L

TEXAS’ PUBLIC WATERWAYS are diverse and picturesque. The Frio River runs through Garner State Park (pp. 14–15). The Guadalupe (above) in Ingram is framed by the roots of ancient trees, and Twin Falls in Austin (below) is an example of a public stream that sometimes is dry. enter with notice that entry is forbidden or if they remain on the property after receiving notice to leave. What qualifies as notice is set forth in the Penal Code (Section 30.05).

Notice may be given by oral or written communication by a landowner or his authorized agent. Property posted with signs or with purple paint as required by the statute satisfies the notice requirement. Additionally, a fence obviously designed to exclude intruders or to contain livestock constitutes notice, as does the visible presence of a crop under cultivation or being harvested.

Landowners are understandably protective of their private property and the navigable streams that pass through or along it, but if paddlers, floaters, or fishermen should pass by, the landowner might want to speak softly. Those people may have every right to be there.

Adams (radams@mays.tamu.edu) is a member of the State Bar of Texas and a research attorney for the Real Estate Center at Texas A&M University.

Nothing in this publication should be construed as legal advice. For specific advice, consult an attorney.

THE TAKEAWAY Laws governing the use of navigable rivers and streams in Texas generally give the public the right to use them for boating, fishing, swimming, wading, and walking, even if the streams cross private property.

17

D emography

18

TIERRA GRANDE

By Ali Anari

P

eople moving from one location to another directly affects real estate markets. In residential markets, movement to an area results in more housing units purchased or rented while moving out means more are available for sale or rent. Population changes in an area also affect demand for goods and services. This impacts commercial real estate markets (retail and offices, for example) and service-providing industries, such as moving and insurance companies.

The Real Estate Center at Texas A&M University researches and monitors household movements in Texas. Recent research finds that: • Texas’ average geographical mobility rate is higher than the U.S. average; • more people move to Texas from other states than leave for other states; • Texas has higher rates of movers from abroad than does the U.S.; and • mobility in both Texas and the U.S. fell in the Great Recession (GR) and has not yet returned to pre-GR levels.

Texas Geographic Mobility In 2016, more than 4.3 million people in Texas changed residences, accounting for 15.9 percent of the state’s population one year and older, compared with 14.6 percent nationwide (Table 1). Texas had the highest mobility of the most populous states, followed by Florida (15.8 percent), California (13.4 percent), and New York (10.6 percent). In both the U.S. and Texas, the numbers of movers fell in the GR after peaking in 2006 and have not yet recovered their pre-GR peaks (Figure 1).

As a percentage of population one year and older, the Texas JANUARY 2018

population mobility rate peaked at 19.9 percent in 2006. Since then, it has trended downward but remained above rates for the U.S., California, New York, and Florida (Figures 2 and 3).

Intrastate movers (movers within a state) are the largest group of movers, accounting for 82.4 percent of movers in Texas in 2016 (Figure 4). In both Texas and the U.S., intrastate mover rates peaked in 2010 and have trended downward since. However, Texas’ intrastate mobility rates have remained higher than national averages.

D

About the Data

ata on geographical mobility of U.S. residents is from the U.S. Census Bureau’s annual American Community Surveys. The datasets are compiled by asking residents whether they moved in the last year, and where they lived one year ago.

The survey also asks about reasons for moving. According to most recent nationwide surveys, there are more than 18 reasons for moving. They fall into four major groups: housing-related (48 percent), family-related (30.3 percent), employment-related (19.4 percent), and other reasons (2.3 percent).

Housing-related reasons include wanted better neighborhood, own instead of rent, cheaper homes, new home, foreclosure, and eviction. Family-related reasons are marriage, divorce, children, and better school districts. Job-related moves are employment availability, retirement, closeness to workplace, new jobs, job transfers, and easier commuting.

19

In 2016, 5.8 percent of the Texas population moved within the same city or town, compared with 4.4 percent for the U.S. (Table 1 and Figure 5). In both Texas and the U.S., the same city/town moving rates have trended downward since 2009, but Texas’ rates have remained higher than national averages (Figure 5). ore than half a million people moved to Texas from other states in 2016 (Table 1). Movers from other states accounted for 13.8 percent of total Texas movers in 2006 before the GR, falling to 11.1 percent in 2010, and trending upward to 12.2 percent in 2016 (Figure 6). Since 2005, rates of in-migrants from other states as percentages of total movers have been close to the corresponding rates for New York, higher than California rates, but lower than Florida rates (Figure 6). As a percentage of the Texas population, the in-migrant rate to Texas trended downward from 2.7 percent in 2006 to 1.9 percent in 2016 (Figure 7). Since 2005, Texas’ rates have been lower than Florida’s rates but higher than the corresponding rates for New York and California (Figure 7).

Texas draws more movers from other countries, Puerto Rico, and U.S. islands than the U.S. does. These movers accounted for 0.9 percent of Texas’ population in 2016 compared with 0.7 percent for the U.S. (Table 1 and Figure 8). International migration rates for both the state and the nation trended downward in the GR, then upward after the recovery.

Texas mobility also includes those leaving Texas and moving to other states or countries. In 2015, 445,925 moved from Texas to other states and Puerto Rico. As a percentage of the state’s population, out-migrants accounted for 2 percent in 2006, then trended downward in the GR to 1.6 percent in 2015 (Figure 9). Data for Texans who moved to other countries are

M

Figure 1. Number of Movers in Texas and U.S. (in thousands)

50,000

Texas (left axis) U.S. (right axis)

48,000

Figure 2. Population Mobility Rates for Texas and U.S. as Percentage of Population

20

Texas U.S.

19 18 17 16 15 14 2005

2007

2009

2011

2013

2015 2016

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

Figure 3. Population Mobility Rates Texas, California, Florida, and New York as Percentage of Population

20

Texas California

18

Florida New York

16 14 12 10 2005

2007

2009

2011

2013

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

2015 2016

Figure 4. Intrastate Movers as Percentages of Total Movers in Texas and U.S.

86

Texas U.S.

84

46,000

4,600

44,000

4,400

82 80

4,200 4,000 2005

2007

2009

2011

2013

78 2005

2015 2016

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

2007

2009

2011

2013

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

2015 2016

Table 1. Population Mobility in Texas, United States, California, New York, and Florida in 2016 (thousands) Population Mobility Population 1 year and older In same house 1 year ago Changed residence In state In same city/town From different state From abroad

Texas

Percent

U.S.

Percent

California

Percent

Florida

Percent

New York

Percent

27,472.6 23,106.0 4,366.6 3,599.9 1,585.9 532.0 234.7

100.0 84.1 15.9 13.1 5.8 1.9 0.9

319,362.0 272,660.1 46,701.9 36,952.7 14,037.5 7,552.5 2,196.7

100.0 85.4 14.6 11.6 4.4 2.4 0.7

38,783.4 33,594.8 5,188.6 4,337.3 1,711.4 514.8 336.6

100.0 86.6 13.4 11.2 4.4 1.3 0.9

20,401.6 17,176.5 3,225.1 2,387.2 712.7 605.0 232.8

100.0 84.2 15.8 11.7 3.5 3.0 1.1

19,526.4 17,465.2 2,061.3 1,634.5 841.7 260.7 166.1

100.0 89.4 10.6 8.4 4.3 1.3 0.9

Note: Percentages are rounded to nearest tenth.

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

20

TIERRA GRANDE

Table 2. States Ranked by Texas Net Migration in 2015 (including Puerto Rico) Rank

State

To Texas

From Texas

Net Migration

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51

California New York Louisiana Illinois Puerto Rico Missouri New Jersey Pennsylvania Michigan Maryland Georgia Mississippi Florida New Mexico Massachusetts Indiana Arizona Nevada Kansas Virginia Iowa Connecticut Hawaii Tennessee West Virginia Alabama Delaware North Carolina Ohio Alaska Vermont Minnesota District of Columbia Nebraska New Hampshire Rhode Island Wisconsin South Carolina Maine Kentucky Oregon South Dakota Montana Wyoming Idaho Utah Colorado North Dakota Oklahoma Arkansas Washington

65,546 26,287 31,044 21,927 9,707 17,273 11,141 12,984 13,919 10,839 20,924 13,476 33,670 16,056 8,279 9,413 16,067 7,822 9,952 18,429 5,874 3,973 3,342 13,199 2,083 7,167 2,051 15,869 12,077 2,573 395 4,956 1,423 4,486 1,407 1,060 4,393 5,617 1,144 4,884 3,906 762 2,210 2,743 995 6,583 22,587 976 25,555 14,539 9,155

41,713 12,082 19,863 11,719 582 9,634 4,778 7,490 8,466 5,611 16,078 8,842 29,706 12,101 4,398 5,878 13,025 5,271 7,577 16,685 4,325 2,519 2,031 11,934 967 6,469 1,423 15,245 11,553 2,196 144 4,814 1,314 4,460 1,407 1,164 4,665 5,987 1,817 5,595 4,761 1,742 3,235 4,587 2,959 8,698 25,268 3,968 28,642 17,708 12,829

23,833 14,205 11,181 10,208 9,125 7,639 6,363 5,494 5,453 5,228 4,846 4,634 3,964 3,955 3,881 3,535 3,042 2,551 2,375 1,744 1,549 1,454 1,311 1,265 1,116 698 628 624 524 377 251 142 109 26 0 –104 –272 –370 –673 –711 –855 –980 –1,025 –1,844 –1,964 –2,115 –2,681 –2,992 –3,087 –3,169 –3,674

562,739

445,925

116,814

Total

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University JANUARY 2018

Figure 5. Movers in Same City or Town as Percentage of Population

8

Texas U.S.

7 6 5 4 2005

2007

2009

2011

2013

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

2015 2016

Table 3. Texas Metropolitan Areas Ranked by Percentages of Movers, 2011–15 Rank

Metropolitan Area

Number of Movers

Percent of Population

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

College Station-Bryan Lubbock Abilene Killeen-Temple San Angelo Austin-Round Rock Corpus Christi Waco Longview Odessa Sherman-Denison Wichita Falls Amarillo Midland Tyler San Antonio-New Braunfels Victoria Dallas-Fort Worth-Arlington Houston-The Woodlands-Sugar Land Texarkana El Paso Beaumont-Port Arthur Laredo McAllen-Edinburg-Mission Brownsville-Harlingen

67,818 74,560 37,717 93,022 25,261 381,392 83,234 48,209 40,158 26,856 21,863 26,875 45,548 27,416 37,767 394,338 16,343 1,115,917 1,013,130 23,095 121,329 58,082 34,516 89,367 41,786

28.71 24.95 22.78 22.35 21.92 20.45 19.06 18.86 18.79 18.30 18.03 17.99 17.83 17.82 17.60 17.48 16.99 16.55 16.18 15.68 14.75 14.49 13.39 11.10 10.15

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

21

Table 4. Texas Metropolitan Areas Ranked by Percentages of Movers in the Same Metro Area, 2011–15 Rank

Metropolitan Area

Number of Movers

Percent of Population

1 2 3 4 5 6 7 8 9 9 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Lubbock College Station-Bryan Abilene Austin-Round Rock Corpus Christi Dallas-Fort Worth-Arlington San Antonio-New Braunfels Amarillo Waco Houston-The Woodlands-Sugar Land Longview Killeen-Temple Sherman-Denison San Angelo Victoria Texarkana Laredo Odessa Tyler El Paso Beaumont-Port Arthur Midland Wichita Falls McAllen-Edinburg-Mission Brownsville-Harlingen

47,056 35,229 22,846 249,713 55,273 846,382 280,994 31,450 30,972 758,218 24,589 47,198 13,670 12,627 10,438 15,302 26,735 15,166 21,629 78,365 37,896 14,248 13,820 64,852 31,035

15.75 14.91 13.80 13.39 12.66 12.55 12.46 12.31 12.11 12.11 11.51 11.34 11.27 10.96 10.85 10.39 10.37 10.34 10.08 9.53 9.45 9.26 9.25 8.06 7.54

not available because Census surveys are administered only in the U.S. Table 2 shows the number of movers to and from Texas in 2015 and net movers (movers to Texas minus movers from Texas). There were 65,546 movers from California to Texas and 41,713 movers from Texas to California, ranking the Golden State first in Texas net migration with positive 23,833 net movers. New York, Louisiana, and Illinois were next. Texas had negative net migration with sixteen states including Washington, Arkansas, Oklahoma, North Dakota, and Colorado.

Mobility in Texas Metropolitan Areas The most recent moving data available for Texas metropolitan areas are annual averages for 2011–15 (Table 3).

College Station-Bryan ranked first in number of movers as a percentage of the population followed by Lubbock, Abilene, Killeen-Temple, San Angelo, and Austin-Round

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

20

Figure 6. Movers to States from Other States as Percentage of Total Movers

16 12 8 4 2005

Texas California 2007

2009

Florida New York 2011

2013

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

4.0

2015 2016

Figure 7. Movers to States from Other States as Percentage of Population Texas California

3.5

Florida New York

3.0 2.5 2.0 1.5 1.0 2005

2007

2009

2011

2013

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

22

Table 5. Texas Metropolitan Areas Ranked by Percentages of Movers from Different Metro Areas in the U.S. and Puerto Rico, 2011–15

2015 2016

Rank

Metropolitan Area

Number of Movers

Percent of Population

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

College Station-Bryan Killeen-Temple San Angelo Midland Lubbock Abilene Wichita Falls Odessa Austin-Round Rock Waco Tyler Corpus Christi Longview Sherman-Denison San Antonio-New Braunfels Victoria Beaumont-Port Arthur El Paso Texarkana Dallas-Fort Worth-Arlington Houston-The Woodlands-Sugar Land Amarillo McAllen-Edinburg-Mission Brownsville-Harlingen Laredo

24,535 34,367 8,681 9,844 18,705 10,299 8,813 8,013 101,497 13,291 10,424 20,566 9,711 5,074 85,116 3,455 14,260 27,354 4,508 185,314 165,524 6,699 12,896 6,484 3,885

10.39 8.26 7.53 6.40 6.26 6.22 5.90 5.46 5.44 5.20 4.86 4.71 4.54 4.18 3.77 3.59 3.56 3.33 3.06 2.75 2.64 2.62 1.60 1.58 1.51

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University TIERRA GRANDE

Rock. Brownsville-Harlingen had the lowest mobility rate followed by McAllen-Edinburg-Mission, Laredo, BeaumontPort Arthur, and El Paso. Dallas-Fort Worth-Arlington had the largest absolute number of movers followed by Houston-The Woodlands-Sugar Land, San Antonio-New Braunfels, AustinRound Rock, and El Paso.

Lubbock ranked first in percentage of movers within the same metro area followed by College Station-Bryan, Abilene, AustinRound Rock, Corpus Christi, Dallas-Fort Worth-Arlington, and San Antonio-New Braunfels (Table 4). Brownsville-Harlingen had the lowest percentage followed by McAllen-EdinburgMission, Wichita Falls, Midland, and Beaumont-Port Arthur.

College Station-Bryan ranked first in percentage of movers from different metropolitan areas (including those outside Texas) followed by Killeen-Temple, San Angelo, Midland, and Lubbock (Table 5). Laredo ranked last followed by BrownsvilleHarlingen, McAllen-Edinburg-Mission, Amarillo, Houston-The Woodlands-Sugar Land, and Dallas-Fort Worth-Arlington.

El Paso ranked first in percentage of movers from abroad followed by College Station-Bryan, Killeen-Temple, Laredo, and Houston-The Woodlands-Sugar Land (Table 6). Texarkana had the lowest rate followed by Tyler, Corpus Christi, Victoria, Longview, and Waco.

Dr. Anari (m-anari@tamu.edu) is a research economist with the Real Estate Center at Texas A&M University.

Figure 8. Movers to Texas and U.S. from Other Countries, Puerto Rico, U.S. Islands as Percentage of Total Population

0.9

Texas U.S.

0.8 0.7

Table 6. Texas Metropolitan Areas Ranked

by Percentages of Movers from Abroad 2011–15

0.6

Rank

Metropolitan Area

Number of Movers

Percent of Population

1 2 3 4 5 6 7 8 9 10 11 12 13 13 15 16 17 18 19 20 21 21 23 24 25

El Paso College Station-Bryan Killeen-Temple Laredo Houston-The Woodlands-Sugar Land McAllen-Edinburg-Mission Brownsville-Harlingen Austin-Round Rock Odessa Dallas-Fort Worth-Arlington Wichita Falls San Antonio-New Braunfels Amarillo San Angelo Abilene Lubbock Midland Sherman-Denison Beaumont-Port Arthur Waco Longview Victoria Corpus Christi Tyler Texarkana

12,169 3,456 5,865 3,111 59,444 7,050 3,280 14,462 1,091 47,189 977 13,234 1,364 606 845 1,467 686 427 1,232 767 630 278 1,182 555 278

1.48 1.46 1.41 1.21 0.95 0.88 0.80 0.78 0.74 0.70 0.65 0.59 0.53 0.53 0.51 0.49 0.45 0.35 0.31 0.30 0.29 0.29 0.27 0.26 0.19

0.5 2005

2007

2009

2011

2013

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

2015 2016

Figure 9. Movers from States as Percentage of Total Population

3.2

Texas California

2.8

Florida New York

2.4 2.0 1.6 1.2 2005

2007

2009

2011

2013

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University

2015

THE TAKEAWAY Local residential and commercial markets are directly impacted when residents move. Center research shows that, on average, Texas has a higher rate of movers— and more from abroad—than the U.S., and more people move to Texas from other states than vice versa.

Sources: U.S. Census Bureau and Real Estate Center at Texas A&M University JANUARY 2018

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Land Mark ets

24

TIERRA GRANDE

oreign buyers occasionally appear in rural land markets responding to changes in the economic environment. In the 1970s, a weak dollar unleashed a flood of foreign investors buying real estate, including agricultural land. That surge caused alarm in the economyâ&#x20AC;&#x2122;s agricultural sector, with critics decrying the surrender of control over productive U.S. land. Congress responded, adopting the Agricultural Foreign Investment Disclosure Act (AFIDA) in 1978.

JANUARY 2018

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A

fter an initial report by owners, rules Foreign person as defined by AFIDA includes all individuals implementing AFIDA further speciwho are not citizens of the United States, the Northern Marified, “All foreign persons who acquire ana Islands, the Trust Territory of the Pacific Islands, or those or transfer an interest in agricultural land lawfully admitted for permanent residency in the U.S. Further, thereafter are required to report such transacAFIDA considers entities created under the laws of foreign tions within 90 days . . . ” (Foreign Holding of countries or with their principal place of business located there U.S. Agricultural Land Through December 31, to be foreign owners. In addition, the act requires U.S. entities 2014, Farm Service Agency [FSA] – U.S. Depart- in which there is a significant foreign interest or substantial ment of Agriculture). control by foreign persons to register.

Owners comply by filing a form FSA-153 Ownership of 10 percent of an entity by an individual or 50 with the Farm Service Agency, which provides percent by a group of individuals constitutes a significant interthat form on their website https://forms. est or substantial control under AFIDA. Reports published by sc.egov.usda.gov/eForms/welcomeAction.

FSA provide more details on definitions and requirements. The do?Home.

Failure to comply can result in a “civil penalty of up to 25 percent of the fair market value of the interest held. . . .” This 2,969,659 acres potentially serious consequence makes it imperative participants in land transactions involving foreign owners study the AFIDA requirements.

Most AFIDA mandates reports for agri2,925,977 acres cultural land greater than ten acres in Foreign-Held the aggregate. The definition includes Land land used for timber production, farmthrough December 2014 Source: USDA-FSA ing, and ranching within the past five years. Owners of interests in tracts of 1,552,837 acres ten acres or less that produce more than $1,000 in sales of farm, ranch, or timber products must also file a report. Security interests such as mortgages and mineral 1,402,600 acres interests do not require filing. AFIDA regulations also exempt leaseholds of less than ten years and certain other future 1,180,856 acres interests. Otherwise, the owner must report “any interest” to FSA.

1

5

4

MAINE

2

TEXAS

3

ALABAMA

WASHINGTON

FLORIDA

26

TIERRA GRANDE

reports are at https://www.fsa.usda.gov/programs-and-services/ economic-and-policy-analysis/afida/index. he FSA annual reports (2015 is now available) provide an account of the total acreage in foreign ownership as well as a breakdown of the types of land held. Reviewing those reports affords an insight into foreign activity in rural land markets nationally and down to the county level.

The infographic on the facing page lists the top five states for acreage held in foreign ownership with Maine ranking slightly ahead of Texas. Most of the Maine acreage consists of forests.

Texas, Alabama, and Washington also support substantial expanses of forested acreage.

In fact, forestland composes the largest category of foreignowned land nationwide (Figure 1). From 2006–08, major timber

T

Figure 1. U.S. Foreign Agricultural Land Holdings

by Type of Use, 2004–14 14

producers divested their land holdings, obviously transferring many acres into foreign ownership. After 2008, the three main categories of agricultural land in foreign ownership began to expand (forest, pasture, and cropland) with foreign holdings growing substantially through 2011. Cropland holdings continued to increase through 2014 while timber and pasture holdings remained steady.

The Texas experience somewhat mirrored national trends. The major departure from nationwide trends focuses on the forestland dynamics where foreign ownership exploded from 2006 through 2009, vaulting it from the smallest category to the largest, a place it maintained through the 2014 reporting cycle (Figure 2). Most of this expansion transpired in the pine timber region of East Texas and involved purchases by Canadian-owned entities.

Pasture and cropland holdings grew substantially beginning in 2008 and continued that enlargement through 2011. From 2012 through 2014, holdings in all categories stabilized. Currently, anecdotal reports from the field suggest foreign purchasers from China may be fueling another increase in foreign ownership. Future FSA reports for 2016 may confirm this trend.

The national distribution of foreign-owned acreage and the distribution in Texas by county are shown in Figures 3 and 4. Much of New England has little foreign ownership.

The largest acreage holdings occur in East, South, and West Texas (Figure 4). Tyler, Newton, Polk, and Hidalgo Counties have the

Figure 2. Foreign Investment, Texas Agricultural Land

1200

10 THOUSANDS OF ACRES

MILLIONS OF ACRES

12

8 6 4 2 0 2004 FOREST

2006 PASTURE

2008 CROPLAND

2010 OTHER-AG

2012

2014

NON-AG

Note: Data for 2010 forward is through December. All other years reflect data through February.

Source: Foreign Holdings of U.S. Agricultural Land, USDA Farm Service Agency, 2014

JANUARY 2018

1000 800 600 400 200 0 2004

2006 PASTURE

2008 FOREST

2010

CROPLAND

2012 OTHER-AG

2014 NON-AG

Source: Foreign Holdings of U.S. Agricultural Land, USDA Farm Service Agency, 2014

27

Figure 3. State Concentration of Foreign Holdings Agricultural Land as of December 31, 2014 AK

MIDWEST WA OR

MT WY

NV HI

CA

UT

AZ

VT ME

ND

CO NM

NE KS

OK

ACRES <50,000 < 50,000 - 100,000 100,000 - 200,000 200,000 - 400,000 >400,000 >

NH MA NY WI RI MI CT PA IA NJ DE IL IN OH WV MD MO VA KY NC TN SC AR MS AL GA

MN

SD

ID

WEST

NORTHEAST

TX

LA

FL

SOUTH

Source: Foreign Holdings of U.S. Agricultural Land, USDA Farm Service Agency, 2014

Figure 4. County Concentration of Foreign Holdings, Agricultural and Non-Agricultural Land as of December 31, 2014

largest acreage concentrations of foreign ownership along with the country of origin for the largest owners.

SA reports identify the country of origin for the five nations with the largest land holdings by acreage and identifies those remaining as “Other.” The Other category comprises the foreign ownership in Briscoe, Culberson, Hidalgo, Jeff Davis, and Zavala Counties. Canadian owners dominate in five counties, all in the timberland region of East Texas (Tyler, Newton, Panola, Nacogdoches, and Cherokee). German owners prevail in Nolan, Sterling, and Willacy, perhaps focusing on cropland. The Netherlands appears in the forested areas of Polk Figure 5. Number of Texas Parcels and Trinity, but also in Foreign Ownership in Presidio in West 3100 Texas. Ownership 2900 based in the United 2700 Kingdom focused on 2500 Reeves County.

2300 The report docu2100 ments a substantial 1900 expansion of parcels 1700 owned by foreigners, 1500 growing by nearly 40 2004 2006 2008 2010 2012 2014 percent from 2004 Source: Foreign Holdings of U.S. Agricultural Land, levels and 33 percent USDA Farm Service Agency, 2014 since 2007 (Figure 5). Texas should anticipate the potential for this statistic to expand as future markets see interest from foreign entities.

F

Dr. Gilliland (c-gilliland@tamu.edu) is a research economist with the Real Estate Center at Texas A&M University.

ACRES 1–20,000 20,001–75,000 75,001–200,000 200,001–450,000

THE TAKEAWAY Texas ranks second in states with the most foreign-held land, with 2.9 million acres under foreign ownership. Forest, pasture, and cropland are in highest demand. Failure to comply with AFIDA can result in substantial penalties to buyers.

Source: Foreign Holdings of U.S. Agricultural Land, USDA Farm Service Agency, 2014

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TIERRA GRANDE

Talk is cheap

. . . especially when the subject is housing and when it’s from the Real Estate Center.

Our monthly

TEXAS HOUSING INSIGHT

Free and packed with numbers supporting unbiased discussion of the Lone Star State’s residential supply, demand, and prices.

Check out the Center’s most popular report at www.recenter.tamu.edu/articles/technical-report/Texas-Housing-Insight From left:2018 Wesley Miller, James P. Gaines, Luis B. Torres, and Bailey Cuadra.

JANUARY

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