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Soaring rents, surging demand make for 'unprecedented' times in Austin's apartment market

Shonda Novak
Austin American-Statesman
Urban East, a mixed-use project at East Riverside Drive and Vargas Road,  will bring 518 apartments to East Riverside Drive. Rents rose rapidly in the Austin metro area last year, as demand for apartment units outpaced supply.

When Mike Crumbliss moved to Austin this past April, he picked an apartment complex near downtown, where he says he got what he considered a good deal on his two-bedroom unit.

"I love where I live," said Crumbliss, who works in the renewable energy sector.

Today, however, things have changed. If he wants to keep his current place, he's facing a $500-a-month rent hike, he said, which amounts to a 35% to 40% increase.

"That's a round-trip to Europe or a payment on a really nice car," Crumbliss said. "I never thought anywhere in Texas would be getting expensive like this."

It's not an uncommon story for Austin renters these days

Surging population growth and rising home prices have created so much demand for apartment units in the Austin metro area that developers haven't been able to keep up — even with apartments seemingly going up everywhere you look.

"I would say 2021 was a most extraordinary year for the apartment market — the most extraordinary I've ever seen," said Charles Heimsath, president of Austin-based Capitol Market Research. He has been tracking the Austin-area apartment market since 1990.

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Developers this year completed about 13,000 apartment units — the most ever recorded in one year in the metro area, Heimsath said. During that time, a net of 19,000 units were leased (that's move-ins and move-outs) — twice as many as the market has ever absorbed before, Heimsath said. 

Despite those numbers, a supply-demand imbalance remains. Austin saw the second-highest apartment demand of any major market in the nation as a percentage of its inventory, with nearly 21,000 net new renters in the Austin region, according to CoStar Group Inc., a global commercial real estate data company.

Across Central Texas, the apartment occupancy rate averaged 94% at the end of 2021, the highest level since December 2015, Heimsath's research shows. The occupancy rate was 91% in December of 2020.

Data from RealPage, which tracks the market locally and nationally, puts the Austin area's occupancy rate at 97.1% —  "the highest ever seen in Austin" — compared with 93.7% a year ago, said Carl Whitaker, a RealPage economist.

In a market like that, rents are going to rise — and that's just what has happened in the past year in Austin.  The city has no rent control ordinances on the books that could limit rental price increases.

Combining apartments of all sizes, monthly rents rose by an average of 15% last year in the Austin metro area — a $200 per month hike for the average renter, according to Heimsath's survey, which covers 250,000 apartment units in the Austin-Round Rock region. At the end of December, the average rent across all apartment sizes in the region was $1,522 per month, compared with $1,322 a month the previous December.

That means rents for the area's average apartment unit rose more than 1% per month last year, "which is just unbelievable — absolutely unprecedented," Heimsath said. "We've had periods of rent escalation, but to have 12 months of sustained rent growth month over month, ending the year at 15%, is unprecedented."

Monthly rents for one-bedroom units averaged $1,360 in December, up 19.7% from $1,136 a year ago December, while two-bedroom units were renting for an average of $1,691, up 17.2% from $1,443 a year ago.

Nationwide, 2021 was a record for year-over-year growth in apartment rents, and Austin was among the top 10 markets, according to RealPage.

"Austin's rent growth was pretty unprecedented last year -- one of the highest rates we saw in the country," Whitaker said. 

Last year's unprecedented freeze also impacted the market, said Robin Davis of Austin Investor Interests, which surveys the Austin-area apartment market. 

"More so than the usual demands, the February 2021 freeze that took many units off the market caused an extra spike in rents that amounted to over 20% overall,"  Davis' research shows.

"It continues to be a struggle for renters," Heimsath said.

The only way to bring rent relief in a market seeing such strong demand as Austin's is to add more apartments, experts say.

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Urban East, a mixed-use project at East Riverside Drive and Vargas Road,  will bring 518 apartments to East Riverside Drive. An estimated 30,000 new apartment units are under construction across the metro area.

Supply, demand imbalance

With demand so strong, developers are swiftly building more apartment units across Central Texas.

About 30,000 units are being built in the Austin area — not a record, Heimsath said, "but certainly close."

RealPage says it is tracking 28,000 units under construction — "one of the biggest levels in the country," said Whitaker, the RealPage economist.

Davis, with Austin Investor Interests, said that "construction continues to build at a historic rate with no apparent signs of slowing."

"I haven't seen this much in our 28 years in business," Davis said.

As those new units enter the market, "rent growth will subside largely due to new construction," according to CoStar.

Though demand for apartments is expected to remain strong, due to growth in both population and renter incomes, "we do expect the market will slow down a little bit," Whitaker said.

"It will be really difficult to surpass what happened in 2021," Whitaker said.

Fueling the market

The demand for apartments is being spurred by some obvious factors — Austin's population growth and its ongoing ability to attract employers and jobs.

But changing demographics also enter into the equation, including "retiring baby boomers who are selling their homes for retirement funds and moving into apartments," according a new report by the Austin Apartment Association.

The jobs being added include Tesla’s headquarters and new electric vehicle manufacturing plant in eastern Travis County and Samsung’s planned semiconductor facility bound for Taylor, not to mention expansion from tech companies such as Apple Inc., Oracle, Indeed, Facebook and Google.

"Due to a combination of Austin’s demographics, market fundamentals and the robust single-family (housing) market, we anticipate that the demand for quality apartment homes will continue for the foreseeable future,” said Chad Hallmark, a vice president at OHT Partners (formerly Oden Hughes), which is one of the Austin area's most active apartment developers.

Like other industry experts, Heimsath said the fire for Austin's rental market is being fanned by people moving here from other locations around the country who already are used to paying higher housing prices.

"Most apartment demand is based on the strength of the job market and the migration of people from other areas who are filling the new job openings," Heimsath said. "They're taking good, high-paying jobs in Austin (including many in the tech sector), so they can afford" Austin's prices, Heimsath said.

"In addition, the rapid escalation in home prices is making it increasingly difficult to buy," Heimsath said. "And many people are making a lifestyle choice to rent, even if they can afford to buy."

Austin's strong economy, which has rebounded faster than most U.S. metro areas from the pandemic-fueled downturn, also is a key factor, Whitaker said.

Even before the pandemic, the Austin area "was seeing a lot of wage growth, with employers having to offer higher salaries to maintain employment levels," Whitaker said. "There's enough economic growth happening there that residents are still able to afford the apartment units."

Urban East, a mixed-use project at East Riverside Drive and Vargas Road,  will bring 518 apartments to East Riverside Drive. Rents rose rapidly in the Austin metro area last year, as demand for apartment units outpaced supply.

Rents rising, but at a slower rate

Jeff Andrews, who covers the rental market and housing trends for Zumper, said rents in the Austin area are likely to keep rising this year "because the economic fundamentals that have been driving housing costs in the area aren't going away."

"The influx of wealth from tech companies relocating from California will bring more high-income renters to the area for years to come," Andrews said. 

While the rents might still go higher, they aren't going to to climb at the 15% annual rate they did in 2021, said Davis, with Austin Investor Interests.

"But we will likely continue to see a 5% to 7% increase in rents until a significant amount of the new development comes online," Davis said.

CoStar also predicts 4.7% rent growth in Austin this year, "well below the 2021 numbers and significantly lower than the anticipated increases of 6.5% in San Diego and 6.3% in San Francisco."

'Choking its golden goose'

While that slowing of rent increases will be helpful for many, the costs remain a thorny question for many in Austin.

Although a number of renters can afford the rate hikes, they are "having a hard time accepting the rents we're seeing across the city," said Natalie Young, a real estate agent and manager with A+ Apartment Locating in Austin.

"The majority can pay it, but they don't want to pay it," Young said. "They're having a hard time accepting that is what the market is."

Crumbliss, the recent Austin transplant who saw his apartment rent rise by $500 per month, is certainly in that category. He said he plans to pay the increase because he likes where he lives.

But like many others, he says he has concerns about the rising cost of rental housing in Austin. He said he's previously lived in New York and in Colorado ski towns, where locals working in the service industries were pushed farther out as housing costs rose, and similar things could be happening in Austin.

"The things that make it fun to live here, and what initially made it so attractive for tech companies — my concern is that people will just have to leave. It's going to push out a lot of people who make the town cool. Musicians who want to bring their guitars and try to make it, you can't do that if you're paying $2,000 a month in rent," Crumbliss said. "I really do think Austin is in danger of choking its golden goose by doing this."

Transwestern is building The Shoal, an apartment complex at West 12th Street and Shoal Creek that will have 143 micro-units for rent. The first tenants are expected to move in this September. Rent rates have not yet been determined.