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Apartment occupancy rates, rental costs at all-time high
As Austin’s population continues to increase, occupancy rates and rents for apartments and the construction of new multifamily properties are at all-time high levels. And while that may be a financial boost for owners and landlords, City of Austin housing officials say it presents a serious challenge to their mission of creating affordable housing.
Analysts say plentiful jobs, a sunny climate and Austin’s “cool factor” are driving new residents to the area and that, in turn, has pushed the apartment market to record levels in recent months and is keeping it there.
Occupancy rates in Austin have hovered in the 96 percent range for most of the year, and rents are growing at annual rate of 6.5 percent, according to industry data. The average rent for all apartments in Austin is $1,007 for an 852 square foot unit. Across the city, average rental prices factored by city sectors range from $764 in far northwest Austin to more than $2,400 in the downtown area for a unit of average size. Prices go up as with extra bedrooms and additional square footage.
Of course, renters are usually not happy with having their rents raised significantly at the end of every lease. But statistics show that, so far, occupancy levels have not dipped, indicating that despite some grumbling, tenants are generally paying the rent hikes rather that moving out.
Robin Davis of Austin Investor Interests, which produces the quarterly Austin Multifamily Trend Report, says the average rent in Austin grew 2.7 percent in the third quarter of 2013, while occupancy has remained above 95 percent for the last 18 months.
“We have a lot of units coming online,” she said. “We now have 18,000 new units under construction, which is almost 14 percent of our inventory. Many of these are in certain pockets of the city, such as the central business district or North Austin.”
Davis says that Austin has an additional 17,000 units in the development pipeline, meaning the market should see about 10,000 new units a year for the next few years. She says she doesn’t see any slack in demand for apartments in the near future.
“There is a lot of traffic congestion in Austin, so people are motivated to live nearer where their jobs are,” Davis said. “With much of the job growth coming in the high-tech sector, it is creating a large market for new apartments in the north and northwest parts of the city. But new apartments are being built in almost every part of Austin right now.”
However, officials with the city’s Neighborhood Housing and Community Development Office say most of the these new units will be rented at market rates, and will not improve the overall affordability of residences for a growing population of Austin’s lower-income workers.
“Prices continue to rise despite the additions to the housing supply,” said Housing spokeswoman Jill Goodman. “This is a communitywide challenge as Austin continues to attract new residents. The implication is that Austin simply needs more affordable units.”
She said the city is pursuing three core strategies to sustainably address affordable housing in the city.
First, the city is performing a comprehensive housing market study, to be completed by next summer, to assess conditions and trends. Secondly, she said the Housing office is working closely with the city’s CodeNext initiative to update the development code with innovative zoning and regulations that will facilitate low-cost housing. And third, Housing officials are working to establish revenue streams such as bond projects and other funding sources.
“The $65 million in housing bonds recently approved by voters is being put to work right away to increase the number of affordable units in Austin,” Goodman said. “It is too early to know the impact on the apartment market. Every project to create affordable housing is unique and often involves different developers, partners and funding sources.”
According to Investor Interests’ Davis, programs to provide incentives for apartment builders to provide a certain number of affordable units in exchange for city concessions on some building standards have not generated many low-cost units.
“Some of the builders are offering about 10 percent of their units at affordable rates,” she said, “but there’s not really a lot of affordable housing in the construction process right now. As we put in the report, only about 7 percent of the total units are considered affordable housing right now. So while there isn’t a lot of affordable units right now, those that are out there are in high demand.”
She also noted that Austin’s plans for mass transit, such as urban rail and RapidBus systems, have not yet begun to affect development of multifamily housing.
“I don’t know if the mass transit is far enough along just yet to begin affecting the locations of apartments and multifamily construction,” she said. “I think we are going to have to wait and see how that develops.”
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Key Players & Topics In This Article
Affordability: A multi-faceted discussion that centers around the relative cost-of-living in a given municipality. In Austin, this debate has returned discussions on such divers concepts as land use, density, living wages, and public transportation.
CodeNEXT: CodeNEXT is the name given to the land development code rewrite process undertaken in the early 2010s by the City of Austin.