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If you rented an apartment in the Austin area during last year’s coronavirus pandemic and are now renewing your lease, you could likely face some sticker shock with possible rent increases of up to a few hundred dollars, hunters say.
That’s because the market in central Texas – which took a hit in the early days of the pandemic – has rebounded.
Apartment rents and occupancy are rising again, and annual letting activity is at its highest level in 15 years.
This is what real estate consultant Charles Heimsath says, who has been following the housing market in the five-country region from Georgetown to San Marcos for several decades.
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Driven by factors such as continued employment and population growth in the area and soaring property prices, tenants gobbled up homes at an “astounding pace” in the first six months of this year, said Heimsath, president of Austin-based Capitol Market Research .
Heimsath said the Austin area’s housing market “absorbed more units in the first half of this year than any other 12-month period” over the past 15 years.
Natalie Young, the manager of A + Apartment Locators in Austin, witnessed the seismic shift.
Young recalls the “first shock” the pandemic brought to the region’s housing market, including “significantly lower rents” and many move-in offers and other concessions.
Nowadays it’s a different story because the market has turned dramatically.
“The market has hit 180 since the pandemic began,” Young said. “Now it’s the other way around.”
With rising rents and a short supply of ready-to-move apartments, some prospective tenants are frustrated, she said.
“I’ve been doing this in Austin for 16 years and it’s the tightest market I’ve ever seen,” said Young. “Things have changed drastically since last year while we’re still in the middle of the pandemic. It’s insane.”
While thousands of units are under construction (industry market reports vary from 27,500 units to more than 39,000 units) – and many more are in the pipeline or ready for groundbreaking (36,500 by some estimates) – “they just don’t get ready fast enough”, said Jung.
“We just don’t have enough apartments to move in quickly, and that’s what people are looking for,” said Young.
The 27,500 units under construction come from real estate management software provider RealPage Inc.
Of these, 18,000 units are to be completed in the next 12 months. This would add 6.9% to the Austin market’s inventory, which, according to RealPage, would be among the fastest growing in the country.
“Austin is one of the hottest real estate markets in the country and has seen remarkable household formation in all housing types,” said Adam Couch, RealPage market analyst. He said the Austin market “did well to bring employment back to pre-pandemic levels. Looking ahead, Austin will remain a hotspot for renters and developers.
Can’t afford to buy in the Austin area
It’s not just more people and jobs that drive demand for apartments.
Another important factor are the “extraordinarily high house prices,” said Heimsath. Some residents who prefer to buy a home simply cannot afford it and have to rent it.
“At some point, even with low interest rates, home prices get too high for people to budget,” Heimsath said.
In the Austin-Round Rock metropolitan area, the average home price continues to break records, according to the Austin Board of Realtors. In July, half of the homes sold in the Austin area were more than $ 480,000 and the other half were less. That is an increase of 37.1% compared to July 2020, the board announced. Within the Austin city limits, the average home sale price reached $ 574,975 in July, up 37.6% from July 2020.
The thousands of new residential units under construction “will probably provide some relief” for the tenants, but it will probably develop “similar to the single-family market” – prices will not fall, but the market will behave a little more “normal”. moving forward, “said Sam Tenenbaum, director of analytics for Central Texas at CoStar Group, a real estate data company.
In fact, residents who rent now and are hoping for housing prices to fall are likely to be disappointed, Heimsath said.
“I don’t think it will. The rate of (house price increase) will slow, but absolute price declines are very unlikely,” he said. “Someone who sells who thinks this is the top of the market unless it is a necessary lifestyle choice is doing a stupid job.”
Rentals, occupancies climb in Austin
In Heimsath’s June survey, monthly rents across the region averaged $ 1,411 for all apartment sizes. That’s a 6.1% increase from June 2020 and 7.4% from December through June, Heimsath said.
One-bedroom apartment rents averaged $ 1,250 per month in June, up 7.6% from $ 1,162 in June 2020, Heimsath said. The rents for two-room apartments in June were$ 1,556 on average, up 6.9% from $ 1,455 in mid-2020.
On the occupancy side, units in the Austin area averaged 93.2% occupancy in June, compared with 91.5% at the end of June 2020. The national average for apartment occupancy is 96.5%, a more than 20-year high.
Heimsath said one of the most interesting trends in his latest survey was the frenzied pace of leasing.
In the first half of this year, tenants rented around 11,540 units (that is a net figure including moving in and moving out) – or just over 1,900 units per month.
At its peak in 2018, just over 11,300 units (on a net basis) were rented year-round – or 942 units per month, Heimsath said. “We take in twice as many units per month as we did at the peak of 2018,” said Heimsath.
“The most amazing thing is that it’s happening across the region,” he said from Central Austin to the suburbs.
“Bullish on Austin”
As residents continue to move to Austin, housing companies continue to struggle to meet demand.
A new project in the works is the Alexan Riverside apartment complex by Trammell Crow Residential, which is located on Drives East Riverside and Royal Crest.
The complex will bring 308 residential units to the booming East Riverside Corridor, which continues to see residential and office developments, including the headquarters of software giant Oracle.
Alexan Riverside should be ready for residents in the first quarter of 2022, said Matt Enzler, senior managing director at Trammell Crow Residential. The project is slated to be fully completed by the end of next year, he said.
Monthly rents, which are subject to change, are projected to range from $ 1,500 for studios to up to $ 3,000 for large two bedrooms.
And Trammell Crow Residential has even more apartments planned in the area. The company bought land adjacent to Family Dollar and other shopping malls, Enzler said. There Trammell Crow will start a second phase of the Alexan project over the next 30 days. The new construction phase with 300 units will also be housed in a seven-story building, and rents are expected similar to the first phase, Enzler said.
“We remain optimistic on the East Riverside Corridor with steady job growth (Oracle), proximity to downtown and East Austin, access to the walking / bike path along the lake, additional retail / dining options for residents and the announced Capital Metro light rail” said Enzler.
“Party for the landlords”
As the housing market remains tense, this is leading to higher costs for tenants in central Texas, according to industry experts.
The market today is “firmly dominated by landlords,” said Tenenbaum from the CoStar Group.
“Since the start of the year, vacancies have fallen 4% (from 10.4% to 6.5% today) due to the greatest demand for apartments Austin has ever seen in an eight-month window,” said Tenenbaum.
“That means that the landlords have increased the rent significantly – that doesn’t surprise any tenant at the moment,” said Tenenbaum.
Over the past year, rents have increased about 20%, or about $ 250 per month, and are 17% above pre-pandemic levels, according to CoStar.
Young of A + Apartment Locators said she saw tenants face “significant increases” as they renew their leases, compared to rents offered at the start of the pandemic last year.
Shannon Hodges, a teacher in the Round Rock School District, saw a surge in a two-bedroom apartment she and a roommate rent in the North Austin Domain.
Hodges said they faced a $ 564 monthly increase but they were able to negotiate to $ 464 a month.
Her rent was previously about $ 1,850 a month with about $ 925 each paying, Hodges said. With the increase and a new $ 15 monthly mail delivery fee, their monthly rent will rise to nearly $ 2,400, with each paying around $ 1,200 per month.
“Even with a roommate, it costs me half my monthly teacher’s salary to pay my rent,” Hodges said, although she estimated having a roommate saves her $ 250 a month in utility bills.
Hodges, who also works part-time as a real estate agent and has been in the rental market for eight years, said, “This is the worst thing I’ve seen in terms of monthly rent increases on renewals.”
Between her teaching and real estate jobs, her annual income is about $ 77,000, according to Hodges. And yet she said home ownership was still out of reach for her.
“If I didn’t spend a dollar of my teacher’s salary (about $ 53,000) and take out a loan, it would still take me two to three years to buy a starter home,” Hodges said. “So I have no choice but to rent.”
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