Ever since 2010, Austin-area renters could count on one thing: Renting an apartment was going to get more expensive every year.
For the past seven years, Central Texas’ job and population growth, coupled with a lagging supply of apartments, led to “a steady drumbeat of increasing rents,” said real estate consultant Charles Heimsath, who tracks the Central Texas apartment market.
But Heimsath’s latest report shows that – at least for now – the market has become more forgiving to renters.
Apartment rents were virtually flat at the end of 2017 compared to the end of 2016, according to the latest survey by Heimsath’s firm, Austin-based Capitol Market Research. It’s the first time since 2010 the survey has essentially shown no annual increase in apartment rents, which had climbed as much as 8 percent in 2013.
“Finally,” Heimsath said, “renters are getting a break.”
Experts say the shift was brought on by several factors: a surge of new apartment construction, more renters jumping to home ownership and a slight slowdown in the region’s job growth.
Monthly rents for one-bedroom units averaged $1,072 in December compared with $1,070 the prior December, Heimsath’s survey found. The average rent for two-bedroom units averaged $1,356 compared with $1,354 in December 2016.
In the market overall, monthly rent, averaged over all unit sizes, stood at $1,230 by year-end compared with $1,224 in December 2016, Heimsath’s survey showed. His report covers 900 apartment communities with about 210,600 units spanning the Austin region from Georgetown to San Marcos.
Heimsath said the Austin-area’s apartment occupancy rate averaged 92.2 percent in December, down from 93.8 percent the year before.
Last year, developers added 10,727 new apartments to the market, nearly equaling the record of 10,780 in 2016, Heimsath said.
However, only 55 percent of the new supply was leased last year, in contrast to 81 percent in 2016, he said.
“The slowdown in leasing activity was due, in part, to slower job growth last fall, combined with a large number of units added in the fourth quarter when leasing is typically slower,” Heimsath said.
In addition, “there was a fair amount of migrations from apartment units into single-family homes, more so than in previous years,” Heimsath said. “As it became apparent that interest rates were slowing beginning to increase and might accelerate, a lot of people who were thinking about buying thought, ‘gosh, I’d better get off the fence and buy a home now before rates really start spiking up again.’”
Also, Heimsath pointed out that Central Texas had its second-highest level of homebuilding on record last year — making more homes available, and in more locations — thus increasing options for renters looking to make a home purchase.
‘A turning point’
A separate survey by Robin Davis, manager of Austin Investor Interests, found that the region’s apartment occupancy and rent rates actually dipped slightly, posting their first annual declines since 2010. Her survey covers 775 apartment properties with about 184,500 units.
Davis’ fourth-quarter report said rents averaged $1,196 per month, compared with $1,197 the year before.
While that doesn’t sound like much, Davis said it is significant because average rents had been increasing by 5 percent to 8 percent a year for the past six years.
“The latest 12 months was a turning point that ended with an annual rent decline over this same time last year,” Davis said. “While some of the rent increases were due to higher-end new developments, new supply is shifting to a more affordable product type. … The market will find balance with time, but more affordable rates are on the horizon for many that have previously felt the pinch of rising rents.”
On the occupancy side, the rate fell to 91.3 percent — a level unseen since 2010 — and down from 95 percent five years ago, Davis said. The decline was due in part to an “over-saturation” of new apartment construction, Davis said, along with other factors, including job relocations and losing tenants to home purchases or home rentals.
In a “short span” of five years, Davis said the region’s supply of apartment units ballooned by more than 28 percent, including 10 percent in the past 24 months.
“The dynamics of Austin have been vibrant over the past five years, attracting many to the region and leading to soaring job and population growth,” Davis’ report said. “While this should bode well for the apartment market, an over-saturation (of development) has resulted in a year of diminishing annual growth rates in all but the development pipeline. In essence, all market figures, with the exception of the development pipeline, are on the downward slide.”
Davis said her survey shows that developers have 60 properties with just over 14,200 units currently under construction, with an additional 28,000 units spread among 115 properties in the development pipeline.
Occupancy, rent outlook
Like Davis’ survey, RealPage Inc., which tracks apartment trends locally and nationally, also found that the average rent and occupancy rates declined in the Austin area in 2017.
Rents for new leases in Austin dropped 0.7 percent last year, said Greg Willett, chief economist for RealPage, a real estate technology and analytics firm based in Richardson.
Among the 50 metro areas with the largest apartment counts, “Austin is the only big market to register price cuts,” Willett said.
Across the United States, average rents grew at a 2.6 percent rate last year, RealPage said, with the typical monthly rent now $1,330.
Willett said that, although there’s a lot of leasing competition among Austin’s newly opened properties, rents continue to rise in the luxury segment, increasing 1.8 percent during 2017. In contrast, rents declined about 2 percent in the mid-tier to bottom-tier properties.
“Given those pricing patterns … Austin’s general loss of momentum appears to be less about the big construction volume and more about the slowing pace of job production, especially in lower-paying economic segments,” Willett said.
RealPage forecasts the occupancy rate in the Austin area to hold steady in 2018.
Heimsath also predicts occupancy will remain steady, at about 92 percent, because he expects tenants to scoop up most of the 9,500 new units due to be added this year.
Rents should remain stable throughout the year, Heimsath said, and then begin to increase again in 2019, based on stronger job growth projections.
Heimsath doesn’t have to look far to find a renter who’s taking the leap to homebuyer.
Erin Roberts, senior associate at Heimsath’s Capitol Market Research, said she and her fiancé, Gabe Tobin, are moving into a 1,500-square-foot house in South Austin, off William Cannon Drive and Congress Avenue.
Roberts, 34, and Tobin, 35, a civil engineer, had been talking about buying a house for the past few years, finally committing to it in October.
They had been renting a one-bedroom apartment with 850 square feet in the South Shore District just southeast of downtown for about $1,600 a month.
“We were trying to save the traditional 10 percent to put down on the house, but we realized home prices were rising at about the same rate we were saving, so we were pretty much getting nowhere unless we wanted to move to the suburbs,” Roberts said. “That and the fact that interest rates were expecting to rise motivated us to just give it a go.”
Though their mortgage payment will be about $400 more than their rent, Roberts said it will be “well worth it” despite a longer commute.
Originally, they were looking between Ben White Boulevard and William Cannon Drive, trying to stay under the $300,000 price point.
“We went to see pretty much everything on the market in the area for two months, with most of what we saw falling into the ‘flipped’ and ‘too expensive’ or ‘needing major repairs’ categories. … Finally, we switched the search up to include houses south of William Cannon.”
There they found what they were looking for: a three-bedroom house built in the early 1980s, with a large kitchen and living space, a two-car garage and a yard for their dog, Gypsy.
“We are so excited to finally be moving in,” Roberts said.
Comparing Texas apartment markets
Average monthly rent: $1,168
Unit size: 872 square feet
Rent growth (12 months): 0.6 %
Average monthly rent: $1,016
Unit size: 882 square feet
Rent growth (12 months): 5%
Average monthly rent: $909
Unit size: 849 square feet
Rent rate growth (12 months): 1.4%
Average monthly rent: $1,071
Unit size: 872 square feet
Rent rate growth (12 months): 3.9%
*Figures are for January 2018