Are rents falling? The Apartment Association believes that construction and weak demand are causing “negative growth in rents.”

Monday, September 11, 2023, by Chad Swiatecki

A combination of weak demand by renters and new multi-family housing units being completed has led to a slight decline in rents in the Austin market, according to members of the Austin Apartment Association.

In a series of panel discussions last week, the emergence of “negative rent growth” after years of upward movement was the topic of much discussion. As construction of new communities begins to catch up to the strong surge in demand that began five years ago, association members said the market is likely to see flat or declining rents in the coming years.

“Demand has been very weak now for about a year and a half, maybe a little bit more than that, and so the new construction activity combined with that desired demand has really brought down occupancy not just to the normal pre-launch level,” said Jordan Brooks, senior analyst. Market at ALN Apartment Data: “Up in 2021, but actually below where they were trending in the pandemic.”

Apartment construction projections show significant growth in new units through at least early 2025, with surrounding cities like Pflugerville and Round Rock also growing to help address the desire for affordable housing in Central Texas, Brooks said.

“In some markets you see new construction going up, but it’s really focused on one or two submarkets,” he said. “It tends to be the downtown area and kind of the most expensive submarkets, so it’s hard to bring new supply online that isn’t really in those.” The space is super premium.” “What we’re seeing in Austin is a lot of development activity in the suburbs and peripheral areas. Pflugerville in particular has emerged, but the Round Rock and San Marcos area has also grown as well.

As for apartments that are affordable under federal guidelines, association members said there is still difficulty keeping up with demand, even though Austin’s high median household income levels can make a $250,000 home qualify as affordable.

Crystal Moya, regional vice president for NRP Group, which has about 3,000 units in the Austin area, said she and others plan to continue pushing for changes in state and local policies that make building affordable units more financially viable.

“There are changes being made at both the state and local level that create barriers to developing cheaper housing, and these are unintended consequences that will later impact affordability,” she said. “It becomes very difficult to secure a deal because you either have to add more staff or add certain building mechanics like elevators, or go green, and that makes everything more expensive. It makes deals not work out.”

Moya said Austin programs like SMART Housing and the Affordability Policy Group have begun to cut costs and remove planning and zoning barriers that over the years have added time and millions of dollars in costs to projects intended to be affordable.

She said she and other association members are encouraged by continued review of the city’s site plan approval process, which can reduce the time needed to move a project from concept to completed construction.

“We know we need to continue to talk to the real experts on this topic, the people who are working day in and day out to develop these affordable deals. Whether it’s a 4% low-income housing tax credit deal or a 9% low-income housing tax credit deal, A public utility company put together through a public-private partnership…We have programs designed to help and incentivize developers to create more affordable housing. To afford housing costs because as insurance costs increase, as property taxes increase, and as operating costs increase, such as just supplies and labor, it all increases, and all of these costs ultimately return to the tenant.

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