Housing, Industrial Markets Will Help Lift Houston Out Of Recession
Houston’s anticipated population growth and demand for e-commerce-related services will keep the need for housing, industrial warehouse and logistics services strong, according to Texas A&M Real Estate Center Chief Economist Jim Gaines.
“The millennials and Gen Z, the 0-40s right now, is huge. It’s well over 50% of the population, and this is the age group that is looking for housing and is evolving and growing,” Gaines said during a Bisnow webinar April 28. “[It] provides our labor force, provides our demand for housing, and is also going to provide the demand for retail, for restaurants, for all of the other economic engines going on.”
Caldwell Cos. CEO Fred Caldwell also said he believes housing will play a role in helping Houston’s economy recover from a downturn, in part because of very low interest rates, which lower the barrier for homeownership.
“We think housing has a good chance of leading us out of this thing,” Caldwell said.
But things are likely to look worse before they look better, even though structurally, there is nothing wrong with the U.S. economy.
While the Great Depression in the early 1930s took about a year and a half to cause mass unemployment and a contraction of the economy, the same thing has essentially occurred in the space of four or five weeks.
“The difference on this time around is the speed at which all of this happened,” Gaines said.
“We're even going to rival the 25% unemployment that occurred back in 1931, at the height of the Great Depression.”
Texas is estimated to face 10% to 15% less revenue each month the shutdown continues, Gaines said.
Fewer taxes are now being paid at the Texas state level, with less revenue coming from things like oil extraction, motor vehicles, sales and the “bed tax,” which is charged by hotels and motels. As the federal government continues to issue monetary assistance to different sectors and groups, there will be less financial support available for state and local governments.
Gaines said it could take at least a couple of quarters to stabilize. The second quarter of 2020 is expected to show particularly dire results when it comes to unemployment and GDP growth, but things could begin to improve by the third or fourth quarter of the year.
Overall, Gaines said that he expects it to take somewhere between one and two years for Houston’s economy to return to its prior strength.
Caldwell noted that his company is moving forward with scheduled developments that have not yet been publicly announced, because he has confidence in the long-term health of the Houston market.
“For us, it's a matter of working through this cycle, and recognizing that it's a season,” Caldwell said.
Houston’s economy has a history of going through frequent shocks, usually linked to the energy sector or natural disasters. Despite this, the city has a knack for resiliency, and usually demonstrates recovery within a relatively short time frame.
That resiliency will also likely apply to the rest of the Texas economy, as it emerges from the pandemic.
“It would take a major structural change to stop that momentum that has been created,” Gaines said.
Meanwhile, short-term programs are keeping everything from crashing down. Stimulus packages, including the CARES Act and the Paycheck Protection Program, are helping businesses weather the effects of the pandemic, until the economy begins to find its footing.
“The PPP loans buy us time, and right now, time is our friend,” Caldwell said. “We've got to get people back to work, we've got to get people emotionally and mentally back in the game, and we just need time.”