The Houston rental market’s growth spurt finally tapered off this year. The last projects financed before the recession are now opening their doors and seeking tenants, which for awhile at least, should keep rents in check.
“Because there was more product out there and not as much demand, that kind of has a tendency to bring down the rates” of occupancy, says Bruce McClenny, president of Apartment Data Services, which has tracked major Texas rental markets for the last 24 years.
In January of 2009, the average Houstonian’s rent hovered around $727 per month, he says. By the end of that year that average fell to $709, and it sits at $715 today, about where prices were in 2008.
That’s not surprising given the number of empty apartments out there. New construction kept occupancy rates in check when demand was still high, and now that the full effects of the recession have forced many Houston families to move or double up, the regionwide occupancy rate has dipped to 85.5 percent. Roughly 17,000 apartments became available over the last year and a half are in new buildings, McClenny says, and their occupancy rate sits closer to 56 percent.
Much like the tract houses that pop up at the city’s edges, Houston’s rental pool tends to grow in fits and starts. In 2007, 15,000 new apartments came online, followed by 21,000 in 2008 and another 15,000 in 2009. This year, though, McClenny forecasts only 5,000 new units with hardly any financed after that.
“We’re building up a situation where we’re going to have a shortage of rental units if we don’t start building soon,” McClenny says.
He estimates builders have proposed 13,000 to 14,000 new apartments that they’d build tomorrow if only someone would lend them the money. But the morass of foreclosures, bad loans and falling property values now has the multi-family market in the same chokehold that grabbed the market for single-family houses a few years ago.
Commercial real estate is facing its own credit crisis right now, McClenny says. Like homeowners underwater, many landlords find themselves paying off loans worth substantially more than their properties. Banks are loath to renegotiate the debt and even more skittish about lending for new projects.
Long term, a halt in construction could lead to scarcity and rising rents. In the near term, though, conditions are ripe for renters to shop around and negotiate.
“Our market’s fairly soft right now, so certainly there are deals out there to be had,” says Beth Van Winkle, past president of the Houston Apartment Association and regional VP of property operations for Milestone Management.
At the upper end of the scale, people seeking mortgage-free luxury are taking advantage of a broader selection than ever before. Occupancy at buildings at the top of the price range remains near 91 percent, McClenny says, even as luxury towers grew in number in the last several years.
At that level, apartment hunters will find a practical arms race in amenities at competing buildings. Legacy at Memorial, which Van Winkle’s company manages, offers a concierge, valet service, wine coolers, poolside towel service and even a humidor and smoking room.
“We’ve seen a really good influx of the higher-end housing,” she says.