High housing costs, inflation bite into Texas sales tax growth

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It’s more expensive to live in Texas than in previous years, and the cost of living is making it harder for the state to generate much-needed tax revenue, state officials said Tuesday.

The state’s high housing costs — like rising homeowners insurance premiums and sky-high rents — as well as higher food costs have bitten into the state’s sales tax revenue, representatives for the Texas Comptroller’s office told state lawmakers Tuesday. Sales taxes make up more than half of the state’s budget.

Texans are spending a larger share of their budget on keeping a roof over their heads and food on the table, costs that largely don’t generate sales tax revenue, and aren’t spending as much of their income on goods that do, said Brad Reynolds, chief revenue estimator for the comptroller’s office.

Sales tax revenue makes up about 58% of Texas’ overall budget. State sales tax revenue ballooned amid the state’s pandemic-era economic boom. But the state’s population and economic growth have slowed and sales tax collections, too, have contracted. Reynolds told lawmakers on the House Ways and Means Committee he expects sales tax collections to grow over the next few years — but at a slower pace than in recent years. State tax collections declined slightly in fiscal year 2024, he noted.

“We had really abnormally high growth in state tax revenues,” Reynolds said. “That’s gone.”

Homeowners and renters alike spend more of their income toward housing and utilities than they did before the COVID-19 pandemic. The state’s robust population growth and high housing demand sent home prices and rents skyward during that time. Those costs have since cooled, but remain high.

More than half of the state’s renter households — 2.1 million — are considered “cost-burdened,” according to a recent report from Harvard University’s Joint Center for Housing Studies. That means those households spend more than 30% of their income on rent and utilities, crowding out other costs in their budget. Nearly a quarter of the state’s homeowners, too, are cost-burdened — the result of rising homeowners insurance and high property taxes.

State legislators, meanwhile, are considering ways to reduce housing costs. Lawmakers want to spend at least $6 billion on new property tax cuts this year. Legislators also are eyeing ways to boost the state’s housing supply. Texas needs about 320,000 more homes than it has, according to one estimate, a key driver of high home prices and rents.

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