Source: Paul Takahashi for the Houston Business Journal (7.28.14)
Developers are building apartment units at breakneck speed to fill Houston’s housing shortage and demand for resort-style living.
Garden-style, mid-rise and high-rise apartment buildings are cropping up across the city, especially in the inner Loop and downtown.
“The entire apartment market is hot, and it’s been hot for several years now because of the job growth driven by the oil industry,” said Bruce McClenny, president ofApartment Data Services Inc., a local multifamily research firm. “With a lot of people coming to town, there’s tremendous demand for housing.”
While the energy industry has created an enormous economic engine that’s fueling Houston’s construction boom, there are other reasons behind the city’s growing demand for apartment stock.
The Houston Business Journal spoke with several experts and developers to drill down five reasons why Houston’s multifamily market is hot. To read more about Houston’s hot submarkets for apartments, check out our weekly edition, available to subscribers in print and online.Click here to subscribe.
1. Attitudes toward homeownership have changed after the Great Recession.
Owning a home used to be the heart of the “American Dream.” However, after the housing market collapse and the economic recession, some Houstonians are rethinking homeownership.
“The ‘American Dream’ is now more about financial stability,” said Ryan Epstein, CBRE’s senior vice president specializing multifamily development investment sales. “People are choosing to rent apartments.”
While some Houstonians have been shut out of homeownership because of tight credit restrictions and rising home prices, there are many affluent residents who still are choosing to rent. These so-called “renters-by-choice” are doing so because they want to live closer to urban centers, where they can escape Houston’s notorious traffic by walking to work, eat, shop and play.
“They want to be close to all the action,” said Cyrus Bahrami, managing director at Alliance Residential Co., which is developing apartments throughout Houston. “That’s the driver for the demand.”
2. Millennials are delaying homeownership and staying in apartments longer.
Growing up, young adults were taught the following steps to financial success: Get a job, get married, raise a family and buy a house. However, with America’s student loan debt crossing the $1 trillion mark last year, Millennials are delaying major life milestones, including possibly their most expensive: purchasing a home.
“Student loans have hamstrung a whole generation by taking away their financial flexibility,” McClenny said. “(Millenials) have so much student loan debt, they don’t want to commit to anything else. It’s pushing more people into renting.”
3. Baby boomers are retiring and downsizing from homes to apartments.
Talk to any Houston Realtor and they’ll mention the growing trend of empty-nesters downsizing from their large suburban homes to smaller urban apartments. After their children have left for college, these older Houstonians are moving away from the suburbs in droves, trading the hassle of homeownership – lawn maintenance and high property taxes – for the convenience of apartment living.
“They’re loosening the bounds that goes with having a big house,” McClenny said. “It’s a trend that will help fuel the new high-rises that are coming.”
To cater to this attractive demographic, Houston developers are engaging in an arms race, building lavish apartments with luxurious amenities like cabana pools.
“(Baby boomers) are selling their big house in Sugar Land, but they want to have the same custom home finishes in their new apartment downtown,” Epstein said. “It’s not uncommon to see real hardwood floors, gas appliances and an overall higher fit and finish in apartments now. It’s more resort-style living.”
4. Houston’s energy boom is attracting new residents who are accustomed to apartment-style living.
People across the country and the world are relocating to Houston, attracted by the city’s economic boom. These new residents, some of whom come from metropolitan centers, are used to apartment living.
“We have a greater international population who is more accustomed to and accepting of high-rises,” said Keith Simon, executive vice president of CDC Houston, the developer of Springwoods Village, which includes The Belvedere luxury apartments built by Martin FeinInterests Ltd.
In addition, some employees working in the energy industry prefer apartments for their inherent flexibility. Short-term apartment leases – as short as three months – are desirable for oil and gas workers on temporary assignments and rotations.
5. As Houston’s economy rebounds, the growing population and rising land prices are forcing developers to build upward.
As Houston’s population swells, the demand for housing is driving up land prices, especially in hot submarkets. Developers are finding it harder to find large and affordable sites for garden-style apartments. The smaller, pricier lots in the urban core are forcing developers to look to the sky for their best return on investment.
“As the land prices have increased, which they have dramatically, you have to put more units on dirt, so you have to go up,” Epstein said.