Why Texas's Three Biggest Real Estate Markets Built 300% More Homes Than California's Biggest Markets

Ever since Californians began moving to Texas in droves during the pandemic, real estate analysts and experts have tied the fates of these two markets together because what happens in one market seems to affect the other. Even as California is struggling with housing availability, Texas' three largest real estate markets (according to Fortune Magazine) added 300% more new inventory than California's three largest markets.

The fact that Dallas, Houston and Austin have 11% less population than Los Angeles, San Francisco and San Diego but are outpacing the three California cities in home building is having drastic effects on the real estate markets in both states. California, which has higher average home values, is having difficulty satisfying its population’s housing needs, which is among many factors that are pushing California home prices past the point of affordability.

That may be a good thing for California homeowners with no intention of selling, but it's making the California home market almost impossible for first-time buyers or anyone looking for an affordable home in one of the state's major population centers. This is where Texas comes into the picture because it offers Californians (or anyone from an overheated real estate market) affordable homes in its major cities.

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Multiple Factors Play Into The Disparity In New Home Inventory

The 300% disparity in new homes between California and Texas exists because of a combination of circumstances. Texas has two massive built-in advantages over California when it comes to new home building: geography and topography.  Not only does Texas have much more land to build on in the suburbs surrounding its major cities, but the land is not bordered by mountains or the ocean.

San Francisco, Los Angeles and San Diego are hemmed in on their eastern flanks by mountains and large bodies of water make it impossible for them to expand westward. This limits development to a relatively small strip of land and much of it has already been built on by developers. The hills above Los Angeles, San Francisco and San Diego are already at the limits of how much housing they can accommodate.

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The scarcity of available land has put a premium on prices so high that it's almost impossible for real estate developers in Los Angeles to build the kind of large-scale, affordable housing developments those cities need. That's not the case in Texas. Perhaps more importantly, the regulatory climate in Texas is much more business- and developer-friendly than it is in California.

Texas Homebuilders Can Pass Savings On To Buyers

The fact that Texas real estate developers can buy more land and build more homes for less money than their counterparts in California also translates to lower home prices for Texas buyers. This near-constant flow of new inventory helps keep the lid on second-hand home sales in Texas. As a result, the average home price data below reveals differences in average home prices between California and Texas' three largest cities.

These are the laws of supply and demand at work, which are working in favor of buyers and builders in Texas. As long as that remains the case, the disparity in new home building between the Golden State and the Lone Star State will continue. 

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