Apartment rents are expected to decline across major Texas cities through 2023 as new unit deliveries significantly outpace demand.
Of the 113 major Texas submarkets analyzed by RealPage, 1 in 5 experienced rent reductions. With the exception of Austin, negative growth has not yet materialized at the metropolitan level, but that is likely to change as the positive numbers seen in the first half of 2022 move out of the annualized calculation.
“About 80% of Texas submarkets are still experiencing positive year-over-year rent growth,” RealPage senior director and real estate economist Carl Whitaker said in a webinar Tuesday. “By the time September rolls around, that may not be true.”
Courtesy of RealPage
RealPage's Carl Whitaker and Dustin Weaver discuss their predictions for the Texas market in a July 11th webinar.
Despite a strong start to 2022, economic turmoil caused rents to fall by about 10 basis points in the third and fourth quarters. This wasn't a huge drop, but it was enough to kill momentum heading into 2023, said RealPage manager of client success and market analysis. Dustin Weaver said.
“We had a weaker-than-average start to the year, and now we're replacing a stronger-than-average start to 2022,” Whittaker said, with rent growth of 1.3% from January to June. He added that it was only about 40%. Typical year-to-date performance.
The sharpest market change was in Austin, where rent growth fell to negative territory in June. According to RealPage data, the market's occupancy rate is 93.3%, one of the lowest in the country.
“There aren't many markets nationally that are in quite the same turmoil as Austin,” Whitaker said. “Among major cities, really only Phoenix, Vegas, and maybe Sacramento can match the degree of decline that's going on here in the Texas capital.”
While Austin's annual absorption remains positive, its inventory is expected to grow by a whopping 16% over the next two to three years, the third-largest increase in the nation, Whitaker said.
“The market is building more than it can realistically absorb in the short term,” Whitaker said.
Dallas has added more than 16,000 homes in the past 12 months, and approximately 57,000 more are in development. While the sheer volume of new supply may slow rental growth, strong demand from population and employment growth is expected to drive future market performance.
“The fact that new supply is coming into the market is actually one of the reasons why population and economic growth can be reasonably sustained,” he said. “People are moving here because there is still affordable housing available.”
Houston's multifamily housing sector has been one of the nation's most challenged over the past five years, with the rise and fall of the energy industry and major storms like Hurricane Harvey wreaking havoc on the local housing market.
Occupancy rates in Houston tend to be lower than the national average, with RealPage predicting average occupancy rates of 91% to 92% over the next three years. Approximately 39,000 units are currently planned and occupancy is likely to decline further.
“When you add in the possibility of a recession, Houston's housing market could be impacted even more than many other regions,” Whitaker said. “The good news is that Houston is one of the markets with solid demand drivers, including job growth and population growth.”
