Nov. 16, 2018
Common scenario at our sister brokerage, Hill Country Dream Team Realty: Brokerage phone rings. Agent picks up phone. Caller on the other end of the phone is from out of the area or out of state. Caller is interested in making a small acreage purchase in the Texas hill country. Sample conversation follows:
Caller: “I am looking for 3-5 not in a subdivision. You know, enough space to allow for a barn and workshop with no neighbors to tell me what I can or cannot do on my property. Oh, and by the way, my budget is no more than $15,000 per acre.”
Agent: “Okay great! So for that barn, do you want me to locate one or two unicorns?”
Now, truth be told, our residential and farm and ranch agents take a decidedly less smart-aleck approach to these conversations.
Of course we get the economic principle of supply and demand, but we know that there is a deeper issue that catalyzes the effect of supply and demand to further accelerate the increase in small acreage land prices.
Before we dig into the deeper issue, consider this evidence from the MLS system in which Kendall County, Texas resides:
The lowest price paid in recent history, per acre, for a 3-5 acre unrestricted parcel was $22,004. This was for a 4.05 acre parcel in Comfort ISD that closed in December of 2006. That is not a typo, December, 2006.
Consider this: according to the Texas Environmental Almanac, in 2002, 61% of the demand for water was fulfilled by surface water and of the total water used. Again, those are the most recent statistics available numbers are from 2002.
Also consider the following image comparing the Austin, Texas skyline from 2005 to 2017:
Needless to say, surface water supplies are being stressed. No new reservoirs have been constructed on the rivers of the Texas hill country since 2002.
Additionally, the intervening years have seen an explosion in population and at least one significant drought event. These factors have conspired to cast surface water as a tenuous resource for sustaining the population growth in the Texas hill country.
Not only that, the drought events have given those of us who live here visual evidence of the scarcity of surface water in the form of dried up creeks and significantly reduced flow rates in our rivers.
But surface water availability isn’t the big issue.
More growth equals more folks. More folks bring an increased demand for water. Given the static state of surface water supplies, folks in our region are forced to go underground for water. Especially those of us who live beyond the Colorado River/Highland Lakes watershed and the reaches of the Canyon Lake water supply systems.
Back to our phone conversation: Once our caller pulls his jaw off the floor, the inevitable question gets asked: “Why is land in the Texas hill country so expensive.”
Of course economics 101 comes into play, but a there is another, more complex and deeper dynamic: Groundwater.
Groundwater is indeed under our feet, but this two part series will attempt to illustrate, groundwater in the Texas hill country is a contentious, complex, and finite resource.history of land in the Texas hill country.
Why is this?
Now might be a good time to refresh yourself about the underlying nature of the Texas hill country before delving deeper into the subject of groundwater.
Let’s start with the landmark 1904 Texas Supreme Court case that established the “rule of capture.” Simply stated, the rule of capture holds that if the water is under your land, you can pump out as much as you want with no regard for the effect said pumping may have on your neighbor’s wells.
Until recently, the rule of capture was untouchable. However, in 2001, the Texas State Legislature significantly empowered the heretofore ad hoc network of Ground Water Conservation Districts enabled by the 1949 Texas Legislature by enabling the GCDs to promulgate rules and policies to limit or alter the “rule of capture”.
It’s worth noting that 2001 also marked the beginning of an acceleration in land prices throughout Texas and specifically within the Texas hill country as illustrated by this graphic courtesy of the Real Estate Center at Texas A & M University:
By way of example, consider Kendall County, Texas. Beginning in 2001, the county development rules were changed regarding minimum acreage size requirements for parcels on which wells could be drilled. This minimum size was established at 6 acres.
However, parcels of less than 6 acres that whose plats were on record with the county prior to the establishment of this rule were exempted from the 6 acre minimum.
Of course as more and more folks moved to Kendall County in search of a bit of breathing room on acreage, the price of these grandfathered parcels of 6 acres or less went up accordingly.
In fact, just down the street from where I live, a 1.58 acre lot that was exempt from the 6 acre minimum recently sold for roughly $120,000. That’s about $75,950 per acre, slightly less than the price paid for our house (which sits on 2.99 acres). This sample sale is a rural lot in a subdivision established in the late 1970’s on which homeowners must drill a well (roughly $12,000) and install a septic system (roughly $10,000).
Point being that the ability to access water...to engage the “rule of capture” in Kendall County is an expensive privilege.
Subsequent to 2001, the Cow Creek GCD was established in the Kendall County area to further effect rules and policies to mitigate potential damage wrought by the “rule of capture.”
Likewise, throughout the Texas hill country and the state; the empowered and expanding GCD model adding fuel to the fire of supply and demand for Texas hill country land.
And so it turns out that unicorns actually do exist in the Texas hill country. These unicorns, however; do not live in barns. It turns out that the true Texas unicorn is an affordable, small acreage tract on which the owner is allowed to practice the “rule of capture.”
Not only are these unicorns moving toward extinction, but the scarcity of the Texas unicorn serves to amplify the increasing prices of Texas hill country farm and ranch properties.
We like to remind our clients to remember the unicorns and we encourage them to take heed to the old saw that land will likely never be as affordable as it is right now.