When It Comes To The Housing Crisis, DFW Developers Say Now More Than Ever, Cities Must Pull Their Weight

Despite unprecedented demand for housing in North Texas, the region is undersupplied in both for-purchase and rental homes. As rising interest rates and inflation continue to challenge developers, many are looking to municipalities to help make the numbers work.

After peaking at 58,000 in 2021, residential groundbreakings fell by 16% last year as the economy descended into turmoil, according to St. Louis Federal Reserve Economic Data compiled by Hillwood Communities. 

But state and local entities possess certain tools that can help overcome financing hurdles, which developers say make public-private partnerships more valuable than ever.

“It is very difficult, if not impossible, today to deliver a relatively affordable community without some sort of public participation,” Peter Pincoffs, partner at PMB Capital, said during a Feb. 21 Bisnow event at the Hilton Anatole.

Between 2020 and 2021, DFW added more than 97,000 residents, putting it in the No. 1 spot for population growth nationwide, according to census data. Yet, many of those new residents can’t afford to buy a home.

Support for emerging housing types, as well as monetary assistance in the form of financing districts, are needed to deliver projects that are attainable for the majority of residents.

“Master-planned communities and most of real estate development is capital-intensive,” said Phillip Huffines, co-founder and co-owner of Huffines Communities. “It’s upfront cash, and a lot of it. In order for cities to guarantee they’re going to get their quality, it’s important that they participate in the development.”

Public improvement districts, municipal utility districts and tax increment reinvestment zones are mechanisms that can help cover the cost of infrastructure needed to bring new developments online. They can also help developers recoup expenditures in a high-cost environment, Pincoffs said. 

“With inflation being so significant, these reimbursement districts allow you to recapture some of that cost increase and to be able to hold your lot prices lower,” he said. “It’s a critical piece of development in this market.”

The city of Mesquite agreed to create a public improvement district for Centurion American’s Iron Horse Village development in 2021. The 60-acre, multimillion-dollar mixed-use project, located next door to the Mesquite Rodeo, will include hundreds of single and multifamily homes as well as retail, restaurant and office space.

As part of the PID agreement, Centurion will improve nearby streets and those at the rodeo arena. This type of exchange is valuable for cities that may not have the cash on-hand to make needed infrastructure improvements, said Sean Terry, Centurion’s vice president of entitlements.

“With financial issues and it being tougher to get your capital stack together, cities need to look at what tools they have in their toolbox to have development,” he said.

Some master-planned communities are also folding in build-to-rent, which serves a growing number of would-be homebuyers forced to remain renters. Those who desire a single-family environment but can’t afford a home get the best of both worlds while they wait for the market to settle, Hines Managing Director Dustin Davidson said.

“Not everyone, either by choice or by necessity, is able to afford a mortgage, especially as we’ve seen in the last 12 months,” he said. “Anyone who comes to the door to one of our communities will have something that they can afford, and that’s very important to us."

Offering various housing types at Hines’ master-planned communities also helps hedge against market shifts, Davidson said. Two years ago, homebuilders weren’t as interested in BTR because the for-purchase market was so strong. Today, he said, the pendulum has swung in a major way.

“Whenever the economy turns and the homebuyer market isn’t there, people are still having families, people are still moving to Texas,” Davidson said. “Even though the ratio at certain times might be higher for homebuying or higher for rental, we want to be involved in both to protect us in any market condition.”

Cities are slowly coming around to BTR. Some have amended zoning ordinances to include BTR, and the development community has come a long way in debunking some of the myths attached to the product.

Felipe Castillo, partner at PlaceMKR, an Austin-based company with 1,800 BTR units currently in the pipeline, said many cities now view BTR as a desirable alternative to apartments, which are higher density and tend to elicit significant resident pushback.

“When we bring build-to-rent to communities, it feels different from traditional multifamily, and all of them were very responsive to that,” he said. “Municipalities that can see beyond ‘no more renters in my neighborhood,’ are the municipalities that are going to be successful with growth — the others, it’s going to be an education.”

Education is paramount when it comes to pitching BTR to city staff and elected officials, said Tina Firgens, deputy director of development services and planning director for the city of Denton. Developers need to make a case for why there is a need for this product, especially since so many constituents are staunchly opposed to rentals of any kind.

“Some communities view rental communities as the end-all evil,” she said. “We have to educate people and talk to them about why multifamily development and for-rent communities meet a housing need within our communities, especially given the housing crisis.”

Texas’ affordability crisis has worsened over the past several years. Back in 2015, 84% of homes in DFW were considered affordable for individuals making the area’s median income. Today, that percentage has dropped to just 26%. 

“This is an issue for all of us,” said Steve Robinson, partner at Allen Boone Humphries Robinson. “When our teachers, firemen and working class can’t afford to live here, we have a problem.” 

Many of the issues limiting attainable housing production in Texas will be looked at during the ongoing legislative session. To enact real change, developers need to speak to the state’s bottom line, and send a clear message that a lack of housing is damaging to the Texas Miracle, said Bruce McNeilage, CEO and co-founder of Kinloch Partners.

“You cannot recruit a Fortune 500 company to a city unless you have attainable housing,” he said.