We all understand that custom homes Houston are highly priced and hold their value better than most personal assets. But do you know why?
We all have witnessed housing steadily increasing in prices the past decade since the 2008 financial crisis with little evidence that there will be any slowdown in this pattern.
Although this is also a national pattern in house prices, custom homes in Houston Texas metro area remains resilient and as steadfast as the oil industry is to energy.
In fact, the demand for Houston’s custom home construction can often be cyclical as buyers respond to the local and national economic factors, the number and value of custom homes continues to rise in good and bad times.
Interesting enough, this steady value increasing is not always the case in outlying areas of Houston’s sprawling geographic region, but is religiously consistent in the Houston metro area.
There are a number of factors that contribute to the pattern of national price increases like supply and demand during the current national housing shortage and an unprecedented period of extended period of low mortgage interest rates.
But studying the Houston housing market, in addition to the national factors we just presented, Houston has sustained continual population growth in the past 60 years.
There are 3 main factors that contribute to increasing cost and value of custom homes Houston. They are land values, construction cost and supply / demand economic metrics. Let’s take a closer look at these factors that drive these values.
Custom Homes Houston Land Values
Land is a non-obsolete asset and an essential economic commodity in any home construction development.
Like any other essential commodity, the scarcer land becomes the greater its value to the community.
Scarcity is created by the current buildable land inventory levels shrinking due to consumption. In metro Houston, new land only comes available as existing homes become obsolete and are torn down for the land value.
Another unique land characteristic in greater Houston Texas is that the City of Houston does 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 property owner. These deed restrictions are enforced by a homeowner’s association (HOA).
The HOA enforces the deed restrictions for each community development and represents the best interest of the community’s property owners.
Hence the market land and house lot values are a direct result of the quality of lot inventory and the subdivision location that the lot is located.
Luxury house 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 throughout the Houston market place.
As land values increase in the Galleria area it has a rippling effect spreading to the adjoining neighborhood areas.
The area has experienced increasing home values historically in part due to the rising prices for exclusive house building sites.
The metro area of Houston is densely built up and has very few ready to build house sites placing greater price forces on the scarce lots available.
In most cases a house buyer that wishes to build a new luxury house is required to either buy an obsolete house with the intentions of razing the structure for future construction or buying a lot from a home builder whom has done the same.
Custom Homes Houston Construction Cost
Another essential economic factor that impacts custom homes Houston increasing values is cost of new home construction.
The past post pandemic years have found the cost of labor and construction materials to be rapidly increasing and widely volatile during these inflationary periods.
As time passes the cost of both house construction materials and house construction labor wages also continue to increase. Introduce widely increasing construction cost induces further pressure of new housing stock.
This in turn creates supply and demand price pressures on alternative sources to new custom homes, making older house values increase.
The impact of higher home construction cost on new luxury homes directly reflects on the supply of existing neighboring house values.
As the price of luxury custom homes Houston 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 house buyers.
While construction cost is a driving factor for higher luxury home cost, architectural home design is also a contributing factor. The construction cost increases as the uniqueness of the architectural design features increases.
Luxury home design can impact construction cost as much as $200 /sf. The use of scarce natural products in home design, complicated structures integrating with cutting edge technical design also has a significant impact on construction cost of building a house.
Technology continues to create more cost-effective building products and equipment to use in the battle of rising home building 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 principal factor that has a major economic impact on the pricing of custom homes is the supply and demand factors.
The supply of available new luxury homes inventory and the demand for such unique house 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 $1,000,000.
This area is made up of both single family and condominium housing types. New luxury house construction typically represents less than 2% of the available total luxury house 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 supply 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 custom homes values 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 owner’s lifestyle and stature.
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.
Conclusion
The price and value of custom homes in Houston continue to surge due to land values increasing, new home construction cost growing and the supply / demand metrics continuing to be robust.
The once energy industry dependent cyclical Houston economy has become much more independent economically speaking driven by migration and job growth in Houston.
With metro Houston prices growing more rapidly than suburban house prices, finding affordable housing in Houston continues to be a long-term issue, but if you are a custom home owner in Houston, there is a good possibility that your house value will continue to increase.
