I have been a real estate agent in Brownsville for 10 years and have seen many market conditions but what I see now is more than a bit concerning. There are amazing things happening in Brownsville from a job creation perspective. The most visible is the SpaceX program. SpaceX first started looking into Brownsville as a prospective launch site back in 2010. To get to where they are today, SpaceX went through a decade of Federal, State, and local approvals as well as a great deal of infrastructure improvement. The first test hop was done in 2019. Since then we have seen a steady increase in testing activity and development at the site. Along with this testing and increased activity we have experienced a significant increase in job creation associated with the program. There are now over one thousand people that work at SpaceX Boca Chica.
You might ask Craig, why is this concerning. Well, I am all for job growth
and I do support business development and SpaceX 100% but the problem we have
has to do with housing for our local citizens. In order to explain this, I need
to give you guys some background. Brownsville has a disparity in housing that
has always existed to varying degrees. The problem has to do with basic income
and economics along with exacerbating factors such as economic downturns. There
are organizations that have attempted to address this such as Community
Development Corporation of Brownsville (CDCB) now known as Come Dream Come Build. They have developed entire
neighborhoods and have created sweat equity programs as well as various funding
mechanisms which enable lower income families to afford home ownership.
These are honorable efforts that should be lauded but they amount to a finger
in the dike when it comes to the projected problem. To put it simply no matter
how much CDCB does they will not be able to keep up with the projected growth
in population and job creation.
The problem of housing in Brownsville is so complex and there are so many factors that I would lose all the readers if I tried to explain in it detail so I will do my best to summarize it. The first problem is we have low income levels. Second problem is a lack of understanding of credit scores and how they impact loan qualification. The third problem is a lack of funds for down payments and closing costs. Fourth, "Brownsville is the third most unaffordable market in the state when compared to median incomes." According to Nick Mitchell-Bennett Executive Director at CDCB. The good thing is CDCB, Brownsville Housing Authority and other entities are actively addressing these issues. However, the factors continue to compile. The bigger issue now has to do with macroeconomics and land development. With respect to macroeconomics the 2008 downturn significantly impacted housing development and it took Brownsville years to recover. In fact, all the large scale for profit builders who were building entry level houses such as DR Horton, US Homes, Armadillo, Casa Linda, Laredo Homes and others left Brownsville or folded. After their respective departure or demise the development of affordable entry level houses basically stopped for years. It has only started to slowly recover in the last few years with local builders. There are literally no national builders in our market which should tell us all something.
What does the lack of national builders tell us? It tells us that they do not see a profit margin here and thus will not invest. The reason there is little to no profit margin has to do with the cost of development and the cost of land. To put it simply it is so expensive and cumbersome to develop land here it causes the lots to be too expensive. When the lots cost too much money there is no profit margin in building a home. So, when the development of new homes does not match the pace of growth the cost of existing homes must increase. This brings us to where we are today. The cost per square foot on houses under $300,000 has skyrocketed in Brownsville in the last year but the income has not increased. In fact, due to Covid-19 shut downs many of the most vulnerable people have lost their jobs because they are not deemed "essential workers".
With the influx of workers from other markets coming to SpaceX and other job
openings we have an inverse situation. Housing prices are skyrocketing (no pun
intended) while local people have less ability to purchase. This problem is
further amplified by the incredible interest rates which are making housing
more affordable to people with decent credit. We are seeing the lowest interest
rates in history on mortgages. Home buyers can currently get as low as 2.86% on
a 30-year fixed mortgage. That is essentially free money when you consider
inflation and other factors. Now one might say this last factor helps local
people and to a certain degree it does. But it does not help people who have
been suspended or let go from work which is a lot of people. Also, the effects
of the current economic conditions will stay with many people for years as they
must prioritize expenses. Many people will suffer from adverse credit hits
which will further increase the disparity in home buying ability.
These elements are just a few of the factors that bring us to this moment in time. We are at a time in Brownsville I did not think I would see. We are seeing a certain segment of houses sell in a matter of hours with multiple offers. This has been going on in other parts of the state for several years, but this is brand new to Brownsville. This dramatic increase in competition is causing home prices especially in the entry level market all the way up to $300,000 to rise daily. Additionally, the lack of inventory due to fear of Covid-19 has impacted home prices. So, in short it is a seller's market to say the least. If your home is in good move in ready condition and is priced according to the market, there has literally never been a better time to sell in Brownsville. So that is good for home sellers but not so good for home buyers.
At this moment, the market is cooling down a bit due to the confusing return
to school and the impending election but the need for entry level homes has not
decreased. I believe we are going to see a steady increase in home prices.
Going forward the future is a mixed bag. New home construction for homes above
the median price range remains strong. If SpaceX continues on the same
trajectory that it has planned, they will be creating thousands more jobs. This
will draw more people to the area which will spur an increase in home
prices.
Adding to the job growth will be the potential development of the Liquid
Natural Gas (LNG) Plants. Currently there are 3 LNG projects in the pipeline
for the Port of Brownsville. Speaking to a local rep today I was informed that
the projects have been stalled by Covid-19 which consequently may be a good
thing for our region to allow us to catch up a little with the housing problem.
These projects were initially expected to start breaking ground this year but
now it looks like it may be more like 2021 -2022. The problem is they must
validate the investment by either securing or at least finding adequate demand
for the commodity. Global demand for LNG is still extremely high and projected
to continue to grow. According to the representative despite legal challenges
from different parties the LNG companies continue to hit benchmarks. And the
recent lawsuit by Port Isabel was dismissed further encouraging developers. The
LNG developments are projected to create up to 7,000 jobs during peak
construction over a 5-year period and about 1,000 on going jobs on site that
start at around $70,000 per year. This is to say nothing for all the ancillary
jobs that will be created to support these businesses and their
employees.
So, what does all this mean? Well, on a positive note too many jobs are a
good problem to have and that seems to be what the future holds. However, with
our population projected to double in the next 20 years we need to get to work
now to keep home prices from becoming too disproportionate to the income levels
of the general population. The good news is that increasing home prices will
naturally spur developers to take a chance on developing more subdivisions. We
are already seeing that with local builders such as Simmons Homes who has as
distinct advantage over other builders due to their current land holdings and
grandfathered impact fees. Additionally, developers like Cardenas Development
have had success with creative programs such as seller finance short term notes
on their lots. But Cardenas also has an advantage due to their extensive land
holdings and ability to offer seller financing. The seller financing program
allows builders to start working on a lot quickly with minimal upfront capital.
Cardenas switched to this program for their Lago Vista subdivision a couple of
years ago and the area which was stagnant for many years has exploded in the Olmito
area.
Aside from for-profit builders and developers CDCB has begun working on a
mixed income housing development near the Brownsville Sports Park. This program
was mysteriously stalled by Greater Brownsville Incentives Council (GBIC) and
local politicians for over a year which cost CDCB a great deal of money and
more importantly it cost them time. If those houses had been ready this summer
as projected the volume of sales would have been incredible. Fortunately for
CDCB the need for this type of development has not changed and in fact has only
increased. Sadly, CDCB has had more success in other RGV Communities than in
Brownsville due to the constant political quagmire in our community.
Hopefully, the new City of Brownsville administration is moving past the
entrenched compadre (good old boy) system and is fostering a more open and
friendly business development environment. There are certainly indications that
this is the case. The current administration cleared the way for the CDCB
development which is a good start. They have also held several state of the
city conferences for builders and developers. Prior to Covid-19 re-branding and
streamlining Brownsville's business climate seemed to be the primary focus of
our leadership. Since Covid-19 a lot of the focus has been changed to managing
the crisis. Ironically, I have seen an improvement in the application process
due to Covid-19 which I hope will stay. I recently had to undertake a rezone
process which went very smoothly, and I had an extremely pleasant experience
with the City Staff. The entire process was handled online. In the past
everything had to be done in person which often required multiple trips
downtown and extremely inflexible criteria and attitudes. In fact, in
development circles Brownsville is known state and possibly nationwide as a
difficult place to do business. Often suggestions to come here are met with
outright laughter by powerful developers.
Although our current administration has made strides to improve the business
climate, a great deal more action is needed. If we are to catch up with the
projected demand or even manage it, we need to greatly reduce the barriers to
development. We must implement a strategic plan immediately that will encourage
development by reducing hurtles and barriers to entry. This will include
inviting outside investment, creating a transparent and friendly development
process, guiding development, creating incentives and developing financial
programs that reduce the risk of developing by utilizing grants and possibly
tax abatement.
Regardless, it is an exciting time to live in Brownsville. We are currently in
a housing boom which gets basically no news coverage by the way hence the
reason for this blog post. SpaceX is making news daily and is now even looking
at building a high-end space themed resort. And to that end SpaceX just received
another huge infusion of funding of nearly $2 billion dollars. They are also
increasing investment in our region and even considering building a school here
and shifting more of their efforts from Florida to Brownsville. Outside of
SpaceX the LNG companies are projected to invest hundreds of millions into the
local economy and finally regardless of your political alignment you have to
acknowledge that USMCA could have a huge positive impact on our region as it is
implemented and tensions with China increase. Mexico is now a preferred trading
partner and that can only benefit our region. It seems the sleepy little border town of Brownsville continues to be at the junction of history as it
has been since its’ inception and I for one am proud to Be Part of It.
Blog Post by: Craig Grove, Administrator of Brownsville Living and the RGV Living Social Media Networks and Owner of GroveRealtyTeam.com and GRTRealty.net.
