Continued population growth in Texas is being met, at least in part, by ongoing rental apartment construction.
The numbers are impressive. Texas continues to lead the country in terms of apartment unit delivery, with Dallas-Fort Worth (DFW) firmly in first place. Approximately 40,000 units came onto the DFW market over the past year, with nearly 10,000 rented during 2024 Q2 alone. Another 32,000 units are expected to be delivered by year end.
“Strong demand drivers and ever-flowing job additions send a constant flow of renters to Dallas and, as a result, developers have been building more apartments in this market than any other nationwide over the last decade,” RealPage Market Analytics said in a recent market update.
The DFW apartment market ranks fifth nationally, with over 696,000 units available in 2024 Q1, according to data from RealPage, only behind New York, Los Angeles, Houston and Chicago. No other urban center in the country has experienced faster unit availability growth. Over 180,000 units have been added to DFW’s inventory over the past 10 years.
That’s the good news.
In contrast, the rental occupancy rate in the DFW area is currently 89.3 per cent and is expected to decline to 88.5 per cent by the end of this year, according to MD Real Estate. This has caused rents to decrease by up to 8.0 per cent, depending on unit size. This is in contrast to many parts of the country where rents are increasing and taking ever-larger chunks from family income.
Austin, the only other U.S. market that approaches DFW’s level of rental apartment growth, is in a similar situation, according to RealPage.
With an inventory base already of 300,000 units, apartment construction is ramping up in Austin, resulting in an oversupply projected to continue throughout this year. In fact, occupancy declined to 89 per cent near the end of 2023. The lower occupancy led to an average quarterly rent decline of 3.0 per cent in 2023 Q3.
Despite the mismatch between supply and demand in Austin, developers do not appear to be discouraged. New projects continue to be announced.
Recent rezoning approval will permit Leifer Properties to build 1,300 new apartments on a former industrial area being recreated as a new 11-acre multi-use development in South Austin. Five per cent is planned as “affordable housing” for those earning between 40 and 80 per cent of the region’s median family income.
Pending rezoning approval, another 600 apartments could be built on a 10-acre site in The Domain area of North Austin, often referred to as the city’s second downtown.
New York developer, Turnbridge Equities LLC, has been associated with multi-use and luxury developments around greater Austin for some time. It is seeking further development of its site near the Q2 Stadium in North Austin, the home of Austin FC, the city’s first professional sports team. Up to 825 apartments could be built across several new buildings as tall as 45 storeys, in conjunction with Turnbridge’s mixed-used plan for the 13-acre project. It is not known if any apartments will be made available as affordable units.
Also in North Austin is the Presidium 183 which broke ground last summer. In combination with the adjacent Waterford Presidium already open for leasing, a total of 660 new apartments will come onto the market. More than 10 per cent will be priced for those at 60 per cent of the median area family income.
These levels of construction activity may continue the trend towards high vacancy levels and rent declines for owners, but at the same time, they make Texas an attractive destination for inbound rental residents.
In fact, three Texas cities rank in the top 10 nationwide in terms of “The Best Place for Renters to Live in 2024,” according to online apartment search website RentCafe.
When it comes to “bang for the buck,” Texas is impressive, particularly outside of its major centers. In McAllen, south of Corpus Christi, tenants can rent, on average, about 1,425 square feet for $1,423 per month.
Although a $1,500 monthly rental budget will only rent 983 square feet in Houston, roughly the size of a two-bedroom apartment, RentCafe says that’s still almost 20 per cent larger than the national average for the same monthly rent.
“Houston has the roomiest apartments among Texas’ major cities,” it says, “outshining even large hubs like Chicago, Los Angeles and Washington, D.C., plus, their size has gone up compared to a decade ago.”
However, the latest units currently under construction are, on average, getting smaller at around 900 square feet.
The apparent optimism surrounding the future demand for rental apartments in Texas may appear to conflict with the somewhat current stagnate market for landlords. However, real estate success has always been about the longer term.
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