Luxury homes values in the Houston Texas metro area remains resilient and as steadfast as the oil industry is to energy. Although the demand for Houston’s luxury homes can often be cyclical as buyers respond to the local and national economic factors, the number and value of luxury homes continues to rise in good and bad times. This is not always the case in outlaying areas of Houston’s sprawling geographic region, but is religiously consistent in the Houston metro area. This is principally due to 3 main factors: land values, construction cost and supply / demand economic metrics. Let’s take a closer look at these factors that drive these values.
Land is a non obsolete asset and an essential economic commodity in any home construction development. Like any other essential commodity the more scarce it becomes the greater its value to the community. Scarcity is created by current buildable land inventory levels shrinking due to consumption.
Another unique land characteristic in Houston Texas is that they do not have lawfully defined zoning ordinances. So land values are dictated by natural economic forces that are in play when it comes the highest and best use in determining lands ultimate underlying value. Instead of zoning ordinances each subdivision has deed restriction that govern architectural design standards and required compliances of each resident.
Hence the market lot values are a direct result of the quality of lot inventory and the subdivision location that the lot is located. Luxury home building lots are typically larger lot sizes in highly restrictive communities. The Galleria area is considered to be the economic center of the Houston metro area. The value appreciation of land prices radiates from the Galleria area in all directions. As land values increase in the Galleria area it has a rippling effect spreading to the adjoining neighborhood areas.
Houston has enjoyed increasing home values historically in part due to the rising prices for exclusive home building sites. The metro area of Houston is densely built up and has very few ready to build home sites. In most cases a home buyer that wishes to build a new luxury home is required to either buy an obsolete home with the intentions of razing the structure for future construction or buying a lot from a home builder whom has done the same.
Another essential economic factor that impacts luxury homes values is cost of new home construction. As time passes the cost of both home construction materials and home construction labor wages continue to increase. This in turn creates supply and demand price pressures on alternative sources to new luxury homes, making older home values increase.
The impact of higher home construction cost on new luxury homes directly reflects on the supply of existing neighboring home values. As the price of luxury homes is approaching as much as $500 – $700/ sf in Houston, higher demand pressures are created on existing older homes making them more price attractive to premium home buyers. While construction cost is a driving factor for higher luxury home cost, architectural home design is also a contributing factor.
Luxury home design can impact construction cost as much as $200 /sf. The use of scarce natural products in home design also has a significant impact. Technology continues to create more cost effective building products and equipment to use in the battle of rising home cost. As natural home building resources become scarce, technology creates comparable alternatives for use in new home design and home construction. These practices also lead to greater home sustainability and superior energy efficient home design products.
Supply and Demand Factors
The remaining principle factor that has an major economic impact on the pricing of luxury homes in Houston, Texas is the supply and demand factors. The supply of available new luxury homes inventory and the demand for such unique home design impacts price expectations.
The Houston metro area geographically consisting of the downtown area traveling west along I-10 to about Highway 6. This exclusive area contains approximately 35,000 luxury homes priced above $800,000. The area made up of both single family and condominium housing types. New luxury home construction typically represents less than 1% of the available total luxury home inventory that exist in this price segment at any given time.
The demand for these higher end homes is driven by consumer growth confidence in the city and the local economic climate. Houston has continued to grow at substantial rates over the last 3 decades to place the city as the fourth largest population in the US. Anyone familiar with Houston understands that much of this growth is due to the economic health of the energy business, principally the oil industry that represents the single largest industry sector. According to the Houston Area Partnership the energy industry employs over 100,000 people. So it has a major influence on the local luxury housing market suplly and demand needs.
So as Houston grows so does the rate of luxury homes values. It is worth mentioning that as the US’s Mexico’s immigration political climate continues to change, that we can expect home construction labor cost to continue to rapidly increase. There is an employment trend of a larger number of younger adults showing less interest in skilled trades occupations in the construction industry as a whole. This coupled with the ever increasing political restrictions on allowing Mexico immigration to Texas labor markets will have a significant effect on the future prices of all housing prices in general. Luxury homes in Houston will be no exception.
The state of the luxury homes values in Houston Texas is not likely to decline in the long term. There will always be a need for unique one of a kind luxury homes that reflect the owners lifestyle and stature. Houston luxury homes values has proven to be resilient to economic cycles that have impacted the home values over the decades. With the supply of available lots being very limited and construction skilled trades labor dwindling, the odds are that luxury home values will continue to increase at a very high rate in the decades to come.