Not Much “O” in Texas Multifamily . . . Overbuilding
By Amy Sorter
Are too many apartment units under construction/being delivered in Texas? This is a question that continues to be asked, as cranes continue dotting the skylines within the state’s major metros. However, according to Chris Bruen with the National Multifamily Housing Council, and Jay Lybik with Marcus & Millichap, the answer was: Not really. Not really in Texas, or nationally.
The team shared its insights and metrics during the recent Connect Texas Multifamily Conference. In the presentation entitled “The Economics of Multifamily: Understanding the Bigger Picture,” the first words out of Bruen’s mouth were: “Young adults are taking a little more time to transition into home ownership.”
This isn’t really news, and the usual reasons were floated: the median marriage age continues increasing, and young adults haven’t been able to save enough to put a down payment on a home. However, Lybik suggested another reason, for this trend; one having to do with ethnicity.
Seventy-seven-percent of baby boomers, he said, are white. “In terms of millennials,” Lybik went on to say, only 52% of that demographic is white.” This, in turn, has a large impact on home ownership. “Minority households typically have lower homeownership rates than white households,” he said. Added Bruen: “We are also at an all-time high of young adults, who are living at home with their parents.”
The end result? Continued apartment demand, pent up and otherwise.
But isn’t the market softening? Again, not really. “When you look at the fundamentals, rent growth has moderated a bit,” Bruen said. “But then you go the vacancy picture, and we’re still hovering around all-time lows, with demand, based on absorption, higher than it’s ever been.”
But what about all of the stories about over-building and excess supply? A lot is being built. However, “Supply has been concentrated in 10 markets over the last couple of years,” Lybik said.
For example, Dallas is being considered a market with a lot of pending supply. Even with job growth, this could be an issue. “The demand for apartments has been fantastic,” Lybik said. “In Dallas, absorption was 21,000. The problem is, 27,000 units will be coming online.” Houston, he went on to say, is showing opposite metrics, experiencing a dramatic decline in vacancies and increase in absorption.
The experts indicated that employment is moderating in Texas as it is nationwide, mainly due to tight job markets, which could impact apartment demand. Furthermore, second-quarter apartment vacancies were still quite low in Texas. However, “we are forecasting that overall vacancy will start to rise, because of imbalance between supply and demand.”
Still, the continued increase in home prices, combined with job growth, mean “it’s a positive for maintaining the propensity to rent here,” Bruen said.
Pictured (L-R); Bruen & Lybik
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